ON MAY 23rd in the Colombian city of Cali the presidents of four Latin American countries—Chile, Colombia, Mexico and Peru—will sign an agreement removing tariffs on 90% of their merchandise trade. They will also agree on a timetable of no more than seven years for eliminating tariffs on the remaining 10%. They have already removed visa requirements for each other’s citizens and will proclaim their aspiration to move swiftly towards setting up a common market.

The Pacific Alliance, as the group calls itself, is “the most exciting thing going on in Latin America today”, according to Felipe Larraín, Chile’s finance minister. Some outsiders think so, too. Costa Rica and Panama want to join; Canada’s prime minister, Stephen Harper, and his Spanish counterpart, Mariano Rajoy, have said they will attend the Cali meeting as observers.

Behind the excitement is the sense that the Pacific Alliance is a hard-nosed business deal, rather than the usual gassy rhetoric of Latin American summitry. Under the leftist governments that rule in much of South America, there has been plenty of talk of regional integration, but precious little practice of it. Intra-regional trade makes up just 27% of total trade in South and Central America, compared with 63% in the European Union and 52% in Asia.

The Pacific Alliance aspires to change that. “It is based on affinity, rather than proximity,” says José Antonio García Belaunde, a former Peruvian foreign minister who was instrumental in launching the group in 2011. “It’s integration with those who are capable of doing it.”

The four founding members are free-market and mainly fast-growing economies which have embraced globalisation, with a web of regional trade-agreements and expanding commercial ties to Asia. Their combined GDP is around $2 trillion—35% of the Latin American total and not much less than that of Brazil, the region’s giant (see table).

The private sectors in the member countries have played a big role in setting the Alliance’s priorities. The stock exchanges of Chile, Colombia and Peru have created a single regional bourse. Negotiators are working to smooth border procedures and standardise rules, such as on labelling. They are making progress in talks to harmonise the rules of origin—how much local content goods must have to be tariff-free—in their existing trade agreements with each other. “They are trying to resolve the problem of the spaghetti bowl of regional trade-agreements,” says Antoni Estevadeordal of the Inter-American Development Bank. This “exercise in regulatory convergence” could be a model for other parts of the world, he adds.

Open regionalism

The Pacific Alliance marks a return to the principles of “open regionalism”—the idea, prevalent in Latin America in the 1990s, that opening up to world trade would be more advantageous if combined with creating a deeper regional market, to reap economies of scale. This idea lay behind the founding in 1991 of Mercosur, a group originally comprising Argentina, Brazil, Paraguay and Uruguay.

But the left-wing governments in charge of those countries for much of the past decade have turned Mercosur into a different kind of enterprise. “Today it is almost wholly a political front” with “protectionist internal tendencies which frequently collide with Mercosur’s original principles,” according to Luiz Felipe Lampreia, a former foreign minister of Brazil.

This was underlined last year when the other members suspended Paraguay (because of the impeachment of its left-wing president) and admitted Venezuela, then governed by Hugo Chávez. Under Brazil’s aegis, much of Chávez’s anti-American ALBA block is being absorbed by Mercosur. On May 9th Brazil’s president, Dilma Rousseff welcomed Nicolás Maduro, Chávez’s chosen successor who was narrowly elected as president last month, and affirmed their “strategic partnership”. Brazil is also seeking closer ties with Cuba, which this month offered to send 6,000 doctors to the country.

Brazil’s two main regional partners, Argentina and Venezuela, have slow-growing, state-controlled economies, and their policies flirt with autarchy. That makes them captive markets for Brazilian construction companies and exporters of otherwise uncompetitive capital goods. Brazil had a trade surplus of $4 billion with Venezuela last year.

In the wider world, Mercosur has signed regional trade agreements only with Israel, Egypt and the Palestinian Authority. Argentina has stalled a proposed trade deal with the European Union, on which talks began in 1999. Brazil’s bet has been on the Doha round of world trade talks. It was cheered when Roberto Azevêdo, a Brazilian diplomat, was chosen this month to head the World Trade Organisation (WTO). But many trade specialists consider the Doha round all but dead and the WTO increasingly irrelevant. In practice, trade policy is “not a priority” for Ms Rousseff’s government, which is “very focused on the domestic market”, says Welber Barral, a former trade official.

This stance alarms Brazil’s opposition and some of its businessmen, who fear that the country has cut itself off from global value chains for manufactured products. “Either Brazil makes up for lost time and reformulates its trade-negotiation strategy, or it will become ever more isolated in the real world of global trade and investment,” Rubens Barbosa, a former diplomat and consultant for the São Paulo industrialists’ federation, wrote recently.

That is the world in which the Pacific Alliance aspires to a growing role. But the kind of regional supply chains that link China to its neighbours barely exist in Latin America, beyond a few niche businesses, such as some textile products. Mexico has built those links with the United States, but not with its southern neighbours. Creating them involves surmounting vast distances: Tijuana is roughly as far from Punta Arenas as the Shetland Islands are from Cape Town. And transport connections are poor. Mr Estevadeordal sees the Alliance as an incentive to develop the “physical hardware of integration”, such as ports and other transport systems.

In its short life, the Pacific Alliance has proved to be a brilliant piece of diplomatic marketing. Now it has to add substance. If it does so, Mercosur may find itself hard put to match the Pacific countries’ race to develop. The South American countries in the two camps insist that they are not rivals, but friends. Nevertheless, a contest has begun. With the waning of the great commodity boom, which benefited the whole of South America, future economic growth will have to come from productivity, investment and efficiency. It is these the Pacific Alliance hopes to achieve.

Why eating more insects might be good for the planet and good for you

WHAT we eat is dictated as much by culture as by choice or necessity. If you ask a Westerner to name the most disgusting thing they have eaten, there is a good chance that a crunchy cricket or a chewy grub could be mentioned. Yet around 2 billion people (around 30% of the world's population) eat insects as part of their traditional diet says the UN's Food and Agriculture Organisation. In a new report, the FAO extols the merits of eating more of them. Meat has been the main source of protein in rich countries for years and consumption is increasing in middle-income countries such as China and Brazil, where eating meat is a signifier of wealth. But eating animals exacts a high toll on the planet. The bigger the beast, the more food, land and water is needed to produce the final edible product, resulting in higher greenhouse-gas emissions. A cow takes 8kg of feed to produce 1kg of beef, but only 40% of the cow can be eaten. Crickets require just 1.7kg of food to produce 1kg of meat, and 80% is considered edible. Insects are also high in protein, minerals and micronutrients. This is good news for epicurious Americans awaiting the imminent invasion of cicadas.

]]> http://braziltribune.com/2013/05/15/daily-chart-grubs-up/feed/ 0 http://braziltribune.com/2013/05/02/trade-in-latin-america-oceans-apart/ http://braziltribune.com/2013/05/02/trade-in-latin-america-oceans-apart/#comments Fri, 03 May 2013 02:25:52 +0000 braziltribune http://braziltribune.com/2013/05/02/trade-in-latin-america-oceans-apart/ LATIN AMERICA, once as riddled with tariff barriers as it is with rivers, mountains and jungles, is about to claim global trade’s starring role. The race to head the World Trade Organisation (WTO) is now down to a Mexican and a Brazilian. Their candidacies highlight a schism that splits the region down the middle.

In terms of competence there is probably little to separate Herminio Blanco, the Mexican, from his Brazilian rival, Roberto Azevêdo. Mr Blanco casts himself as an outsider, who proved his credentials when he negotiated Mexico’s entry into the North American Free-Trade Agreement (NAFTA) in 1994. Mr Azevêdo has been Brazil’s ambassador to the WTO since 2008, which he says has given him a ringside seat on its problems.

Blind justice

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Both believe that it is crucial to break an impasse on the 11-year-old Doha round of trade talks to rescue the WTO from irrelevance; neither wants to abandon Doha altogether. Yet they provide little detail on how they will achieve this outcome.

Where there are differences between them is in the way the countries sponsoring them, Brazil and Mexico, see trade liberalisation. Brazil, with a large domestic market that is enshrined in the country’s constitution as part of the national patrimony, has been a less-than-fervent advocate of free trade. Mexico has become one of the most open manufacturing economies in the world since joining NAFTA, even if it is overdependent on the United States. In some ways this divergence represents a rift that runs down the centre of Latin America, as well as through the WTO.

The protectionist wing of Latin America is on its Atlantic coast and is grouped in Mercosur, a common market founded in 1991 that comprises Argentina, Brazil, Uruguay and Venezuela (landlocked Paraguay was suspended in 2012). During the China-led commodities boom, these countries thrived. Since commodity prices have peaked, protectionism has increased. Free-trade talks with the European Union remain stalled, and Mercosur has signed only relatively undemanding deals with partners such as India, Egypt and the Palestinian Authority.

On the other shore Mexico, Chile, Peru and Colombia established the Pacific Alliance in 2012. All are starry-eyed about free trade, and the first three are part of talks to create the American-led Trans-Pacific Partnership (TPP), which could become one of the world’s biggest trading blocks (Colombia also hopes to join).

Between them they have scores of free-trade agreements with North America, the EU and Asia. Augusto de la Torre, chief Latin American economist at the World Bank, hopes that they will eventually stitch together a supply chain running from Chile up to Mexico. Such regional integration, modelled on “Factory Asia” in the Far East, has long been an unfulfilled dream in Latin America. Adding to the current optimism is the sweet smell of GDP growth. Having lagged behind their Atlantic cousins during the commodities boom, the Pacific countries are now expanding far faster.

Brazil’s interests more closely align with those of big commodities producers in the developing world, whose primary aim is greater access to the agricultural markets of the United States and the EU. Mexico, which sends almost 80% of its exports to the United States, shares America’s desire for more open goods markets and, as a member of the TPP club, is likely to consider the rules expected to come out of those negotiations to be a model for any multilateral trading system. Mr Blanco’s candidacy for the WTO job will probably be backed by the United States and Europe, which are also hoping to forge another powerful bloc: the Transatlantic Trade and Investment Partnership.

A decision on the WTO leadership is expected in May. Whoever wins, both Mr Blanco and Mr Azevêdo insist they will act independently of their governments. But their nationalities mean that the choice will inevitably send a wider signal.

In answer to the question, who is better qualified for the job, Mr Blanco played up his NAFTA experience, as well as his role in the private sector as a trade consultant. Mr Azevêdo said his inside knowledge of the WTO gave him an edge. “I know what’s going on. I will be operational immediately.” Mr Azevêdo said knowing the structure and history of the organization made it easier to understand the impasse over the Doha round, and how to break it. But Mr Blanco argued the case for outsider status, noting that Peter Sutherland, an Irishman, was an outsider who deftly steered the conclusion of the Uruguay Round in 1993.

Both men spoke of the dangers of abandoning the Doha round, even though, according to a Financial Times story last month, senior American and European trade officials are expressing deep frustration with the process. According to Mr Blanco, there is much the WTO can incorporate from free-trading blocs currently under discussion, such as the America-led Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) between America and the European Union. But without making good on the promises of the Doha round, developing countries will not come to the table. “Either we solve the Doha agenda or the future of the WTO will be highly compromised,” he says.

Mr Azevêdo says he is not particular attached to any round, but that the development agenda agreed in Doha in 2001 appears to be sacrosanct. “Unless you find a solution for what to do to the Doha Development Agenda, you are never going to move forward…you can’t leapfrog the round.”

Perhaps reflecting their countries of origin, both men appeared to have subtly different views on the significance of the proposed TTP and TTIP for the WTO. Mr Blanco, whose country is part of the TPP negotiations and is a huge trading partner with America, denied that the United States and Europe were trying to bypass the Doha round via the plurilateral partnerships: “The US is a responsible world player, and a founder of the GATT (General Agreement on Tariffs and Trade). It is not in the national interest of the United States to have a failing WTO.”

But he said it was very important for the WTO to learn from such partnerships, which are likely to be on the vanguard of trade liberalisation. Otherwise most developing countries would be left with lower-quality trade rules, and would thus be less attractive for investment, he said.

Mr Azevêdo, whose country is not likely to be a part of either bloc, said there was a danger that they would come to be seen as the “main engine” of global trade liberalisation, a role that he felt should be reserved for the multilateral trading system. He reckoned that such blocs may serve as a warning to developing countries that the multilateral system was at risk, which may goad some of them to be more flexible on the Doha round. But he also said that developed countries should realise that the most dynamic markets are in the developing world, which should encourage them to be flexible, too.

Though the governments of Mexico and Brazil are pulling out all the stops to get their candidates elected, both men have pledged to be independent if they win the job as director general. In response to a question about whether he would be influenced by Brazil’s protectionism leanings, Mr Azevêdo said just as legitimate a question would be whether Mr Blanco would be influenced by Washington, DC.

“At the end of the day there is a false discussion about me being Brazil and Herminio being Mexico. He won’t be pushing the NAFTA agenda and I won’t be pushing the Brazil agenda,“ he said.

TO SUM up recent research predicting a mixed-race future for humanity, biologist Stephen Stearns of Yale University turns to an already intermingled nation. In a few centuries, he says, we will all "look like Brazilians". Brazil shares with the United States a population built from European immigrants, their African slaves and the remnants of the Amerindian population they displaced. But with many more free blacks during the era of slavery, no "Jim Crow" laws or segregation after it ended in 1888 and no taboo on interracial romance, colour in Brazil became not a binary variable but a spectrum.

Even so, it still codes for health, wealth and status. Light-skinned women strut São Paulo's upmarket shopping malls in designer clothes; dark-skinned maids in uniform walk behind with the bags and babies. Black and mixed-race Brazilians earn three-fifths as much as white ones. They are twice as likely to be illiterate or in prison, and less than half as likely to go to university. They die six years younger—and the cause of death is more than twice as likely to be murder.

Such stark racial inequality is actually an improvement on the recent past (except for the gap between homicide rates, which has grown with the spread of crack cocaine). A strong jobs market, better-targeted government spending and the universalisation of primary schooling have brought gains to poor Brazilians, whatever their colour. Even so, Brazil's government is turning to affirmative-action programmes to hurry change along—just as the United States considers abandoning them.

During the past decade several public universities have introduced racial preferences piecemeal. Last April the supreme court decided that they did not contravene constitutional equal-rights provisions—which was all that the government had been waiting for. In August it passed a law mandating quotas for entry to all of the country's 59 federal universities and 38 federal technical schools. The first cotistas, as beneficiaries are known, started their courses this year.

By 2016 half of all places in federal institutions will be reserved for state-schooled applicants. Of these, half must go to students from families with incomes below 1017 reais ($503) a month per person—a cut-off that is much higher than the Brazilian average. Each must allocate quota places to black, mixed-race and Amerindian students in proportion to their weight in the local population (80% in Bahia, a state in Brazil's north-east; 16% in Santa Catarina in the country's south). Some states are considering similar rules for their own universities.

Brazil does not require private universities to take race into account. Nor does it require private companies to do so when hiring. A few states have racial quotas when hiring civil servants, and there is talk of something similar at the federal level. But the real action, for now, is in public universities.

Going to university in Brazil is not a mass experience, as in the United States. And only a quarter of places are in public institutions. Other government education programmes, such as creche-building in poor neighbourhoods, better literacy training for teachers and subsidies for poor students who attend private universities, will improve the lives of many more black Brazilians than the quota programme. But public universities are more prestigious—and barred from charging fees by the constitution. That their places have long gone disproportionately to the 12% of Brazilians who are privately educated, most of them rich and white, is hard to swallow.

The supreme court decided that quotas were an acceptable weapon in the fight against the legacy of slavery. That view is now mainstream in Brazil. Just one congressman voted against the new law, and a recent opinion poll found nearly two-thirds of Brazilians supported racial preferences for university admissions (though even more were keen on reserving places for the state-schooled and poor with no regard for colour). But even supporters worry that by encouraging Brazilians to choose sharp-edged racial identities, quotas will create tensions where none existed before.

Brazilians' notions of race are indeed changing, but only partly because of quotas, and more subtly than the doom-mongers fear. The unthinking prejudice expressed in common phrases such as "good appearance" (meaning pale-skinned) and "good hair" (not frizzy) means many light-skinned Brazilians have long preferred to think of themselves as "white", whatever their parentage. But between 2000 and 2010 the self-described "white" population fell by six percentage points, while the "black" and "mixed-race" groups grew.

Researchers think a growing pride in African ancestry is behind much of the shift. But quotas also seem to affect how people label themselves. Andrew Francis of Emory University and Maria Tannuri-Pianto of the University of Brasília (UnB) found that some light-skinned mixed-race applicants to UnB, which started using racial preferences in 2004, thought of themselves as white but described themselves as mixed-race to increase their chances of getting in. Some later reverted to a white identity. But for quite a few the change was permanent.

Opponents of quotas worry that ill-prepared students will gain entry to tough courses and then struggle to cope. Such fears make sense: any sort of affirmative action will bring more publicly educated youngsters into university—and in Brazil, the difference between what they and their privately educated counterparts have learnt is vast. In global education studies, 15-year-olds in Brazil's private schools come slightly above the rich-world average for all pupils. Most of those in its public schools are functionally illiterate and innumerate.

Surprisingly, though, neither the State University of Rio de Janeiro nor UnB—the two earliest to adopt quotas—have found that cotistas did much worse than their classmates. For some highly competitive courses, such as medicine at UnB, the two groups had quite similar entrance grades. And for some of the least selective courses, the overall standard was not high. But even when the starting gaps were wide, most cotistas had nearly caught up by graduation.

One possible explanation is that cotistas with a given entrance grade were in fact more able than non-cotistas, since the latter were more likely to have had intensive coaching in test techniques. Another is that cotistas worked harder: both universities found they skipped fewer classes and were less likely to drop out. "Cotistas take their studies much more seriously than those who thought a university place was theirs by right," says Luiza Bairros, the state secretary for policies to promote racial equality. "They know how important this opportunity is, not just for them but for their whole family."

Brazil's racial preferences differ from America's in that they are narrowly aimed at preventing a tiny elite from scooping a grossly disproportionate share of taxpayer-funded university places. Privately-educated (ie, well-off) blacks do not get a leg-up in university admissions. But since racial quotas are just starting in Brazil, it is too early to say what their effects will be, and whether they will make race relations better or worse.

SOME inventions are so simple, you have to wonder why no one has come up with them before. One such is the electronic cigarette. Smoking tobacco is the most dangerous voluntary activity in the world. More than 5m people die every year of the consequences. That is one death in ten. People smoke because they value the pleasure they get from nicotine in tobacco over the long-term certainty that their health will be damaged. So it seems rational to welcome a device that separates the dangerous part of smoking (the tar, carbon monoxide and smoke released by the process of combustion) from the nicotine. And that is what an e-cigarette does. It uses electricity from a small battery to vaporise a nicotine-containing solution, so that the user can breathe it in.

E-cigarettes do not just save the lives of smokers: they bring other benefits too. Unlike cigarettes, they do not damage the health of bystanders. They do not even smell that bad, so there is no public nuisance, let alone hazard, and thus no reason to ban their use in public places. Pubs and restaurants should welcome them with open arms.

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No wonder the e-cigarette market is growing. Though still small compared with that for real smokes, it doubled in America last year and is likely to do so again in 2013 (see article).

Who could object? Quite a lot of people, it seems. Instead of embracing e-cigarettes, many health lobbyists are determined to stub them out. Some claim that e-cigarettes may act as “gateways” to the real thing. Others suggest that the flavourings sometimes added to the nicotine-bearing solution make e-cigarettes especially attractive to children—a sort of nicotine equivalent of “alcopop” drinks. But these objections seem to be driven by puritanism, not by reason. Some health lobbyists are so determined to prevent people doing anything that remotely resembles smoking—a process referred to as “denormalisation”—that they refuse to endorse a product that reproduces the pleasure of smoking without the harm.

In some places politicians and other busybodies are listening. Several countries (including Austria and New Zealand) restrict the sale of e-cigarettes, for example by classifying them as medical devices; others (Brazil and Singapore) ban them altogether. Some airlines, too, ban passengers from using e-cigarettes on their planes.

We don’t mind if you do

This is wrong. Those charged with improving public health should be promoting e-cigarettes, not discouraging their use. Of course, e-cigarettes should be regulated. Nicotine is an addictive drug, and should therefore be kept out of the hands of children. E-cigarettes should be sold only through licensed outlets, and to adults. It would also be a good idea to do some proper research on them. Nicotine is, after all, a poison (its real purpose is to stop insects eating tobacco plants), so there may be some residual risk to users. But nicotine poisoning is pretty low on the list of bad things that ordinary cigarettes are accused of. Some researchers reckon nicotine to be no more dangerous than caffeine, which coffee plants similarly employ as an insecticide.

The right approach is not to denormalise smoking, but to normalise e-smoking. Those who enjoy nicotine will be able to continue to use it, while everyone else will be spared both the public-health consequences of smoking and the nuisance of other people’s smoke. What’s not to like?

Caffeine-powered Neves (right)

IN 2002, when Aécio Neves was elected governor of Minas Gerais, Brazil’s second-most-populous state was close to bankruptcy. It had an annual deficit of 940m reais ($270m at the time); three years earlier it had briefly defaulted on its debt, a move which inadvertently triggered a devaluation of Brazil’s currency.

Mr Neves set a team of public-management experts under Antonio Anastasia, an academic, to work. They boosted tax revenues, streamlined procurement and cut costs in what they called a “management shock”. The state government’s 21 secretariats were merged into 15 (they have since crept back up to 19). Mr Neves took a 45% cut in salary, capped public-sector pay and left 3,000 jobs unfilled, rather than using them in the traditional way to reward political allies.

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With the deficit gone, Mr Neves won a second term before stepping down in 2010 to run for Brazil’s Senate. Such was his electoral pulling-power in his state that his stand-in, Mr Anastasia, was elected governor that year with almost twice as many votes as the runner-up, who had been in politics for a quarter of a century.

Businessmen rate Minas as the country’s best-managed state, according to a recent poll by Macroplan, a consultancy. The state spends over 8% of its budget on public investment, down from 13.2% before the world financial crisis in 2008 but up from 5.1% in 2003. Poverty has fallen faster than in Brazil as a whole. Minas has the best-performing schools and comes fourth in health care. Its performance-related pay system for state employees, which rewards teams rather than individuals, is held up as a model by the World Bank.

Over the past decade mineiros, as residents of Minas are known, have become used to the notion that they deserve good services in return for their taxes. All the state’s schools must display their results in national tests by the front door and hold open days to tell parents how they intend to improve.

Thanks partly to his success in governing Minas, Mr Neves is close to becoming the candidate of the Party of Brazilian Social Democracy (PSDB), the main opposition, in next year’s presidential election. The PSDB’s Minas branch sums up the management shock as “spending less on government and more on citizens”. That message could appeal at a national level. Greater prosperity means that non-economic issues, such as poor public schools and health care, have moved to the top of the list of Brazilians’ concerns.

The slimming of Minas under Mr Neves stands in contrast to the bloating of the federal government since the centre-left Workers’ Party (PT) dislodged the PSDB from power in 2002. Since then, the number of federal ministries has risen from 26 to 40. The federal payroll grew relentlessly until Dilma Rousseff, the president since 2011, called a halt last year.

But the PSDB has failed to put across the message from Minas effectively. That has allowed the PT to misrepresent it. Last year Luiz Inácio Lula da Silva, Ms Rousseff’s predecessor, said that a “management shock” meant lay-offs, pay cuts and neglecting the poor. It put him in mind of torture and military dictatorship, he added.

Mr Neves is likely to struggle against Ms Rousseff, who is preparing to run for a second term. In opposition the PSDB has often sounded petulant and elitist. It complained this month when the government lifted federal taxes from staple foods, on the grounds that it had the idea first. Mr Neves argued against slashing electricity bills, saying it would stifle investment. That is true, but it allowed Ms Rousseff to reply that her party cared more for ordinary voters than for business interests.

When she increased federal handouts for the poorest Brazilians last month, Mr Neves said she was merely “administering poverty”, not working to end it. That looked like a misstep. The lives of tens of millions of poorer Brazilians have improved under the PT, and they are grateful. On the national stage, Mr Neves has shown little sign of being the leader whom Mr Anastasia describes as “revolutionary, extraordinary, heroic”. Mr Neves’s allies say he is waiting for the right moment to start campaigning flat-out (he did not respond to The Economist’s requests for an interview).

In 2002, with their state in a mess, mineiros welcomed Mr Neves’s strong medicine. Brazil’s economy has also looked frail recently. GDP grew by just 0.9% last year, after 2.7% in 2011. Inflation hovers around 6% a year. Although Ms Rousseff promised to boost growth by squeezing current spending and increasing public investment, she has managed neither. At present, though, wages are rising and unemployment is low. Household spending remains robust. The president is very popular: a poll this month found that 78% approved of her. A dose of the Minas medicine might do Brazil good. But unless the symptoms worsen fast, Mr Neves will struggle to convince the patient to give it a try.

But non-producing states and municipalities did not want to wait for new oil to flow before getting their hands on a new cash-flow. Egged on by allies back home on whom they rely to get the vote out come election time, on March 7th congressmen in Brasília passed an oil-royalties bill that will impose a new revenue-sharing formula for all oil production−and strip billions a year from oil-producing states straight away. Ms Rousseff's options have now run out: no further attempts at line-item vetos are possible, and vetoing the bill entirely would leave the government unable to re-start oil auctions, as it wishes to do later this year. "If Congress decides to disregard the contracts already signed, I will have to go along with it," she said shortly before the vote. "I don't have to like the laws; I have to apply them."

Rio's governor, Sérgio Cabral, reacted immediately, suspending all payments except those the state is legally obliged to make (state employees will still receive their salaries). The state's sudden revenue shortfall−3.1 billion reais ($1.59 billion) this year alone−puts preparation for the 2016 Rio Olympics in jeopardy, he says. With support from the other two producing states' governors, he plans a challenge in the Supreme Court, arguing that the new law is unconstitutional since it overturns Rio's "acquired rights". Congressmen from the state have called on him to revoke environmental licences relating to oil production too. Brazil's constitution describes oil royalties as "compensation" for environmental damage and cutting those royalties means taking away a guarantee on which the environmental licences were based, they argue.

Mr Cabral had resigned himself to a new distribution of oil wealth once Brazil's vast pré-sal ("beneath the salt") oil-fields had come into production. But until recent weeks he did not expect his state to lose what it already had. He would presumably be content with the federal government compensating Rio from its own slice of the royalties, and hopes to put pressure on the president to start thinking along these lines. Mrs Rousseff will be anxious not to see her plans to re-start oil auctions later this year derailed by legal uncertainty: investors and oil firms have started to worry that Rio, and other producing states, might try to find other ways to tax profits to make up for the lost revenue. Nor would the president be happy to see the Olympics construction schedule, already dangerously tight, slip further. 

Brazil, an upper-middle-income country, has been late in weaving a social safety-net. Over-65s whose household income per person is less than a quarter of the minimum wage (that is, under 169.50 reais) are entitled to a non-contributory pension equal to the minimum wage (currently 678 reais). But many poor families have no old person living with them. If they have children and live on less than 140 reais a month per person, they can apply for the Bolsa Família, a discretionary, and much less generous, monthly stipend paid in return for sending children to school and keeping up with basical medical requirements, such as getting them vaccinated. In November, recipients with under-15s in their households were guaranteed at least enough from the programme to bring their household per-person income above 70 reais a month. That guarantee has now been extended to all social-welfare recipients.

Well-off Brazilians are fond of complaining about assistencialismo (welfarism), which they fear undermines work incentives and weakens Brazil’s economy. Such criticisms miss the mark by a mile. It is certainly easier to get people into social programmes than back out of them—but that is true everywhere. And part of the programme’s budget goes on job training and microfinance, or in rural areas, training in more productive farming methods, which should help wean recipients off hand-outs. And the cash amounts are not large enough to encourage people to sit around doing nothing. There is strong evidence that recipients of the Bolsa Família keep their children longer in school—and that those children end up better educated and eventually in better jobs. By supporting consumption, it has brought businesses and jobs into some of the poorest corners of Brazil, setting in motion a virtuous cycle of economic growth. 

Others criticise Brasil Sem Miséria for being not too generous, but too stingy. In Brazil’s bigger cities, 70 reais per person does not go far. For someone who lives on São Paulo’s outskirts it is barely enough to cover the costs of travelling into the city centre each day in search of work. And many of those the government boasts of rescuing from destitution were brought from just below the poverty line to just above it. But a family of subsistence farmers living on their own land in the Amazon region will find a cash top-up of 70 reais per person a big help. Brasil Sem Miséria might not spell the end of extreme poverty in the country, but it certainly represents another step towards it.