Business in the country is unlikely to go back to normal soon. India should closely monitor what happens next since it has a stake in Brazil’s stability and prosperity.
On August 31, Brazil’s Senate voted 61-20 to impeach Dilma Rousseff, who had been suspended since May 12 from her post as president. A second proposal in the Senate failed to get enough votes to ban her from public office for eight years. She is the second Brazilian president to be removed from office, after Fernando Collor de Mello in 1992.
Rousseff’s fate is collateral damage from Operation Car Wash, a judicial investigation over the past two years implicating several political and business leaders who colluded to inflate construction contracts worth billions of dollars in Brazil’s national oil company, Petrobras. Several are already imprisoned or on trial.
On April 17, the lower house of Brazil’s Congress voted to impeach Rousseff for the ‘crime of responsibility’ – concealing the size of the deficit in the budget leading up to the 2014 elections, through loans from state-owned banks and other fiscal manoeuvres. Although technically a violation of the constitution and Brazil’s fiscal responsibility law, it is not an uncommon practice. Rousseff was not tried for corruption.
In a spirited defence over 14 hours on August 29, Rousseff criticised the ‘parliamentary coup’ and illegitimacy of the process. Many of the senators judging her were being prosecuted for corruption or are under a cloud. Her former vice president, Michel Temer, who reportedly fed her to the wolves and took her place in May, was found guilty of violating campaign finance regulations and is barred from public office for eight years, after he completes the current presidential term in December 2018. His party members Eduardo Cunha, former head of the Lower House that commenced the impeachment proceedings against Rousseff, and Renan Calheiros, the head of the Senate, are also being investigated. The impeachment clearly had political motives, as subsequent events revealed.
On October 26, 2014, Rousseff won the second round of her second presidential election by the narrowest margin in modern Brazil’s history – 51.64% against 48.36% for her rival, Aecio Neves of the Social Democratic Party (PSDB). She led a Brazil resurgent from two terms under Luis Inacio Lula da Silva (Lula), her predecessor and mentor.
Twelve years of government by their Partido dos Trabalhadores (PT, or Workers’ Party) boasted an impressive legacy. Over 40 million of Brazil’s 200 million joined the middle class. Cash transfers and other redistributive schemes helped reduce the Gini coefficient from 58.68 in 2003 to 52.7 in 2012, according to the World Bank. Unemployment, at about 5%, was lower than under any of her predecessors. The minimum monthly wage (Brazilian Real 724; then US $304) had increased despite the financial crisis. The number of undernourished Brazilians fell by more than 80% over the previous decade, according to the UN. Then things went wrong.
According to Brazil’s Central Bank, from a peak of 7.5% in 2010, GDP growth shrank to 3.8% in 2015 and will contract 3.5% in 2016 with 6.6% inflation – the worst economic performance in the past 25 years. The fiscal deficit stands at 10.8% and public debt close to 70% of GDP. Although much of this has to do with the global downturn and the fall in commodity prices, Rousseff’s administration has been targeted by business leaders and much of the population, whose expectations have been rising along with their frustration over mismanagement and corruption.
Rousseff, a former guerrilla fighter, had to confront ferocious opposition from the traditional right. The dilemma over continued higher productivity, combined with economic efficiency on the one hand, and greater equity on the other, has marked this Brazilian century.
The PT is in trouble. Even the legendary Lula, touted as the party’s presidential comeback candidate in 2018, has been tainted by corruption scandals and was detained for interrogation by the police recently. Dozens of mayoral candidates have quit the party before the upcoming municipal elections in October. Rousseff’s own popularity has plummeted to around 13%. The coalition painstakingly held together by Lula in Congress has come apart. The possibility of the party winning the next presidential election is remote.
Temer’s Democratic Movement Party (PMDB), seen as centrist without any particular ideology, is tainted. It has allied for now with the principal opposition PSDB, which seeks to return to power. Its leaders too are almost as unpopular. Three of Temer’s ministers resigned, weeks after being sworn in, over allegations of corruption. He stayed away from the closing ceremony of the just concluded Olympic Games in Rio, apprehending political protest.
At the heart of the scandal is Brazil’s tradition of pork barrel politics and crony capitalism. The system worked largely due to the impunity enjoyed by elected representatives who were seldom convicted earlier. The judiciary asserted itself during Lula’s tenure and convicted senior politicians under the so-called Mensalao scandal of 2005, a scheme to bribe opposition politicians to support his government in crucial votes.
The Petrobras scandal began to unravel in 2014 with whistleblowers exposing powerful politicians and businessmen in plea bargains. Rousseff’s impeachment, according to her supporters, was a smokescreen to cover up more revelations and distract attention from the rampant corruption from which virtually no party emerged unscathed.
Business will not go back to ‘normal’ after the Brazilian public has tasted so much political blood. The danger of public agitation influencing political and legislative reform is very real. Brazil has already introduced crucial campaign finance reform, but more is required and Temer’s capacity to carry this through is moot.
For now the government is concentrating on bringing the economy back on the rails. Fiscal austerity has to be balanced with the need to continue the previous regime’s social programs. As Lula’s central bank manager, current finance minister Henrique Mierelles helped turn the economy around in 2003. Petrobras is being restructured.
Foreign policy is taking a turn to the right. Foreign minister Jose Serra (PSDB), has jettisoned Brazil’s camaraderie with left-wing regimes. Brazil led its Mercosur colleagues – Argentina, Uruguay and Paraguay – in refusing to allow Venezuela to assume the presidency of the bloc this year. Venezuela withdrew its ambassador to Brazil immediately after the impeachment, as did Ecuador and Bolivia. Cuba and Nicaragua denounced the ‘coup’. They are all members of the left-wing Bolivarian Alliance of the Americas, or ALBA, wooed by the PT regime but not a priority now.
Temer took off for the G20 Summit in China soon after being sworn in, with a massive business delegation and several agreements in his briefcase. He will probably attend the BRICS Summit in Delhi in October. Brazil is also Mercosur’s interlocutor on the 2007 preferential trade agreement with India. Wish lists were exchanged in July to expand it from 450 to around 3000 tariff lines on both sides.
India has a stake in Brazil’s stability and prosperity. The strategic alliance, sealed during the Lula era, has endured and grown in areas like aerospace, energy, agriculture, apart from vibrant commercial relations. Both make common cause in most international forums and jointly seek permanent membership of the UN Security Council. What happens in Brazil matters and bears close monitoring.
Deepak Bhojwani is a retired diplomat and former Consul General of India in Sao Paulo, Brazil.