How Brazil Destroys Itself

Over a decade ago, I wrote about the emerging Brasilia consensus.

While that policy-driven consensus, remarkable in a country that is often at loggerheads politically, oversaw a decade of impressive economic growth and social inclusion, it is no more.

Brazil has fallen back into earlier patterns of intrigue, vitriol and backbiting where personal ambition and vanity takes precedence over everything else.

The Workers Party leadership that had shaped the Brasilia consensus and held it together now is a mere shadow of its former proud and potent self. This is the result of a mix of self-destruction and attacks by its domestic adversaries.

The consensus crashed on the rocks of rising expectations, sluggish growth and the undeniable perception that the political class of Brasilia was enriching itself through pay to play procurement corruption organized through Petrobras and other state controlled enterprises.

The political opposition to the Workers Party, namely the Brazilian Social Democratic Party (PSDB) of the second place presidential candidate in 2014, Aécio Neves, had always suggested that they could be the more responsible guardians of the growth with inclusion pact.

Yet, Neves and his party have failed to win a presidential election since 1998.

Dilma caught in crossfire

What had not been foreseen is that the impeachment of Dilma Rousseff was to arise as an option when mutiny sprang from within her own governing coalition.

After her reelection in late 2014, Dilma abruptly surrendered her developmentalist program to the orthodox, fiscal adjustment prescriptions of the newly appointed Finance Minister, Joaquim Levy.

For over a decade, the PMDB had been a stalwart ally of the Workers Party’s governments until then Vice-President Michel Temer of the PMDB and the congressional leadership worked behind the scenes to obstruct Levy’s program.

Meanwhile, the president’s own party defied her authority by calling for the finance minister’s resignation just months after he assumed office.

Dilma was caught in the crossfire. This strategic breach from the Brasilia consensus incited mutiny and opened the door to Dilma’s impeachment in 2016.

Dilma walks the plank

Minister Levy’s eventual resignation in late 2015 all but sealed Dilma’s fate in the Brazilian Congress. While her Workers Party was strong enough to obstruct the fiscal adjustment in tacit concert with many of its long-term congressional allies, it was incapable of protecting Dilma from the popular calls for her impeachment.

Her party’s allies political calculus changed. Sensing that a change of power was in the air, they became more interested in the spoils of political rupture.

Libertarian, anti-corruption and anti-Workers Party groups coalesced around such newly established organizations as Vem Pra Rua and Movimento Brasil Livre (with assistance from the Koch brothers) to organize massive demonstrations calling for the impeachment of Dilma and the prosecution of former President Lula.

Brazil’s recession deepened, the governing coalition fractured, and the corruption scandal pushed a dark cloud over Brasilia, but it was Dilma who attracted all the political fallout.

Organizations like Vem Pra Rua and Movimento Brasil Livre suggested that removing Dilma and putting the leadership of the Workers Party in jail for corruption would renew Brazilian democracy and eliminate crony capitalism.

They only offered a shallow, rhetorical anti-corruption chant and failed to grasp the institutional sources of procurement based kickback schemes.

Temer’s falling popularity

This movement without has no true transformative purpose allowed former allies and opponents of the Workers Party to conspire to make Dilma walk the plank and remove her party from the executive branch after thirteen years in power.

The popular mobilizations against Dilma and the Workers Party offered a necessary, but insufficient sideshow while then Vice-President Temer’s PMDB and its allies staged one of the most dubious impeachment hearings in history.

Regardless of the merits of the impeachment case, the lower house’s special impeachment commission included 130 voting members and their substitutes. Astonishingly, 26% of them were already indicted for crimes, mostly for corruption and electoral violations.

Unperturbed by their own deficiency, Dilma was vnetually dumped from her presidential post.

Ironically, her successor, former Vice-President Michel Temer of the PMDB, assumed the presidency amidst allegations of his own participation in the Lava Jato corruption scandal and solicitation of illegal campaign donations. His plummeting popularity now already rivals that of Dilma in her final year.

Temer’s approval ratings have hit rock botton with 46% of Brazilians disapproving of the president’s performance and only 14% favoring his performance.

Brasília on high alert

Today, in yet another turn of the Brazilian spectacle, there are credible suspicions that Dilma’s impeachment partially reflected an effort by the PMDB and its allies to conclude, or at least thwart the Lava Jato investigations before plea-bargained testimony implicated the top leadership of this alliance.

And yet, for now the mutiny has succeeded. Not only is Dilma gone, but Lula is indicted. The Workers Party is only a shell of what it was.

Having unleashed a political storm, those who engineered Dilma’s impeachment may themselves be doomed. Brasilia is on high alert, as politicians from across the party spectrum fear the “end of the world.”

That moment will arise when the largest of the Lava Jato related construction firms, Odebrecht, concludes its leniency agreement with government prosecutors and its plea-bargained testimony of its leading executives become public.

Recently, the President of the Supreme Court formally accepted the testimony following the untimely death of Teori Zavascki, the Supreme Court Justice charged with administering the Lava Jato case until his death last week.

The calm before the storm

According to the Brazilian Attorney General, Rodrigo Janot, this testimony could expand the corruption investigations to an additional 100 to 200 politicians at the federal level and dozens of governors and mayors from most of the larger political parties, including now President Temer’s PMDB as well as the PSDB of Aécio Neves.

Lula will could be among the dominoes that fall. It is increasingly likely that Lula will serve time in jail.

Just four years ago, Lula’s approval ratings were the highest among former presidents since the return to democracy in 1989 and he was one of the most popular world leaders. Even United States President Obama joked that Lula “was the man.”

Before June of 2013, Dilma also enjoyed approval ratings in the seventieth percentile and Brazil seemed headed to its long awaited date with grandeza.

Then things began to fall apart.

Recovery and Restoration?

President Temer sits on a political precipice. He was able to pass a constitutional amendment to limit federal government expenses for 20 years, but compliance is far from a settled matter.

Temer has also instituted a Partnership for Private Investment and a microeconomic recovery plan to jumpstart Brazil’s lagging economy.

He has also pushed through a number of key regulatory reforms, including those that will further liberalize the generation and transmission of electricity as well as the removal of the requirement that Petrobras hold a minimum 30% stake in all pre-salt, offshore oil and gas exploratory blocks.

Increasing gang violence

Consequently, supporters of the Temer government point to these legislative victories as critical to economic recovery and the restoration of government credibility in the face of the controversial impeachment.

Yet, it is unclear whether these outcomes can pull Brazil out of recession and restore credible governance in the coming months.

The recent prison riots and violence between rival criminal gangs further challenge governance at the state and federal levels. President Temer decided to send in the National Guard to tamper down the prison uprisings.

It now appears that the criminal gangs have taken their rivalry to the streets, as evidenced by a recent spate of bus burnings in Natal after a riot in a nearby state prison left 27 inmates dead and dozens injured.

In the first month of 2017 alone, 136 prisoners have been murdered in this wave of inter-gang violence inside of state prisons around Brazil.

Need for substantial reforms

The Temer government has rolled out a criminal justice reform package, but it is unlikely to be pushed through Congress as long as the nation tries to achieve economic recovery and restore political stability after impeachment and amidst the Lava Jato corruption scandal.

The mounting gang violence, sluggish recovery and corruption allegations surrounding the president himself call into question whether Temer can govern until a new president is inaugurated on January 1, 2019. He is an unpopular president and his congressional majority is anything but consolidated.

Moreover, a serious fiscal adjustment, as Temer desires, requires substantial reforms to Brazil’s expensive retirement security system, including a controversial measure to increase the minimum age to draw benefits.

Temer’s Finance Minister, Henrique Meirelles, concedes that much needed fiscal and structural reforms may need to wait until after the presidential and congressional elections in 2018.

Can Temer overcome these challenges to set Brazil on a prudent fiscal and economic footing?

It is unlikely, especially in the face of mounting corruption investigations that now point to Temer and his congressional allies.

Long path ahead for Brazil

Rather than push ahead economic recovery and political restoration, he may be removed from office for corruption before the end of the year.

Temer and his mutineers were focused on Dilma’s impeachment during the past year, but now they are scrambling for their own political survival. Retribution may not be the tonic for economic recovery and political restoration, but mutiny begets distrust and revenge.

In what increasingly seems like a Shakespearean tale of intrigue, destruction and self-destructiveness, more heads may yet roll before Brazil’s political leaders can restore democratic credibility, steer economic growth and development, and include all Brazilians in the country’s future.