Brazil: no longer the country of the future?
When I first served in Brazil in the mid-1960s as a young American diplomat stationed at a small consulate in Belem on the mouth of the Amazon River, the country was in its second year of a 20-year military regime.
Despite the galloping inflation that resulted in zeroes being regularly lopped off the currency and an authoritarian regime that brooked little public dissent, many considered Brazil to be the “country of the future.” Charles de Gaulle reportedly added the phrase, “and will always be so.” The optimism was founded on the country’s huge stockpile of mineral resources, rich agricultural land and human capital in its well-developed southern and central regions. De Gaulle’s ironic addition referred to the difficulty in making good use of these advantages.
When I returned to Brazil as U.S. ambassador in mid-1994, it seemed as if optimism was winning out. The newly elected government of President Fernando Henrique Cardoso had begun to lick inflation, privatize state industries, lower tariffs and increase transparency. His reforms of political and economic systems turned Brazil into a positive model of a democratic country ripe for foreign investment and a more important role in world affairs.
Brazil – A perfect political storm
Brazil is now in the throes of a perfect storm of problems.
It is experiencing an economic, political, social and moral crisis that challenges its stability. Its economy is in severe decline. The governing coalition has splintered. A large number of government officials, politicians and prominent businessmen are being investigated, are under indictment or are in prison for corruption. Protests in the streets take place regularly. And, of course, President Dilma Rousseff, whose popularity had fallen into single digits, has been impeached by the Brazilian Chamber of Deputies. She is temporarily suspended from office awaiting a trial by the Senate. Her vice president, Michel Temer, is interim president, but he is being investigated for campaign irregularities and possible involvement in the “Petrolao,” or Petrobras corruption scandal.
Why and how has this crisis emerged? After all, Rousseff was preceded by her mentor, the wildly popular Lula da Silva, who had the good sense to retain many of Cardoso’s useful policies while gradually implementing social reforms like “Bolsa Familia,” a conditional cash transfer program of aid to Brazil’s poorest families.
Do you know which under-the-radar stocks the top hedge funds and institutional investors are investing in right now? Click here to find out.
Part of the answer lies in bad luck. A greater part, however, can be ascribed to a dysfunctional political system, a power- and greed-driven political class and a consequent cynicism within the working population.
The bad luck stems first from a prolonged drought that created electricity blackouts and damage to agriculture. This led to strong public dissatisfaction, especially in Sao Paulo state which is the engine of Brazil’s economy.
Coincident to this, Brazil’s quite remarkable weathering of the world financial crisis was stopped in its tracks by economic stagnation in China, Brazil’s major export market, and in Europe. Falling commodity prices throughout this period also hit Brazil hard. Public protests by working-class citizens, the source of the strength of Rousseff’s Workers Party (PT), fueled by the economic downturn, erupted in street clashes after a much-postponed rise in bus fares and a strike among bus drivers. Brazil’s crushing defeat by Germany (1-7) in the Brazil-hosted World Cup stoked further public dissatisfaction.
Beyond bad luck
As to the more systemic problems, one first should look at the method by which Brazil transitioned from military to civilian rule in the middle of the 1980s.
Brazil’s present constitution was negotiated among the two then-major political parties, new prospective parties, politicians from the left, right and center, academics and the military. What emerged over three years was a nearly 200-page document with dozens of titles, chapters, articles and subsections that were designed to set forth rules on every aspect of Brazilian life and to give no faction any advantage. It is a kind of intentional gridlock. For example, amending the pension system or distributing tax money to federal and state institutions often requires a constitutional amendment and a three-fifths vote in both Houses of Congress – even if the provisions are mundane.
Of equal relevance to Brazil’s present plight is the country’s political party system. A complex Party Law passed by the Congress and signed in September 1995 did little to simplify the system or reduce the number of political parties. There are now 39 registered political parties in Brazil with over 30 represented in the Congress. Renaming, recasting or simply switching parties can be done virtually overnight. Party loyalty, especially among the smaller parties, is nonexistent. Many of the latter are just places to hang one’s political hat until a better place comes along.
Because any president, as well as the opposition, needs a coalition of parties to succeed, the boost to corruption from such a system is immense in terms of promises, government contracts, political and constituent favors, governmental and congressional positions and nepotism.
Rousseff’s Labor Party, once considered to be the most honest of Brazil’s political parties, has been thoroughly discredited. As one long-time Workers’ Party member said, “The Workers’ Party was a party of hope, but its leaders got intoxicated by power, and now that hope has been dashed.”
Finally, there is the personal factor. Michel Temer serves only in an ”acting” capacity. Yet he has just made over 20 new cabinet appointments and submitted a revised and scaled-down budget to the Congress. He seems to assume that Rousseff will be dismissed by the Senate and that he will be president until the end of her term in January 2019. She has vowed to fight her dismissal by the Senate vigorously.
If Rousseff wins out in the Senate in the next six months, she will have to reconstruct her government. The possibility of three governments in six months will add to the chaos and to Brazil’s spin downwards at a time when final preparations for this year’s Olympics are at a frenzied pace.
Brazil’s citizens can only throw up their hands and switch channels to a different soap opera.