Like
the captain of a ship that has hit a jagged reef, President Dilma
Rousseff is attempting a salvage operation to prevent the breakup and
sinking of her political vessel, the populist Workers Party that has
been the champion of the left since electoral democracy was restored in
Brazil in 1985. The name of the ship in this metaphor is the SS PT, the
Brazilian acronym of the Workers Party. The name of the reef is
corruption, which has battered Rousseff’s administration. The chief
salvage engineer is Finance Minister Joaquim Levy, an advocate of free
markets and fiscal stability named in January 2015, whose desperate
efforts to save the Brazilian economy have been met by a rebellion of
the PT crew against austerity measures. This led to a breakup of the
multiparty coalition that has provided PT governments a safe majority in
congress since President Luiz Inácio Lula da Silva first led the PT to
power in 2003. These political storms have buffeted Rousseff since her
election to a second term in 2014 extended 13 years of PT populist
dominance, financed by colossal corruption diverting billions of dollars
in public money to finance political payoffs. Now, without any sign of
better times for Brazil’s 200 million people, the PT’s hegemony is
withering and the PT project to re-elect da Silva to a new presidency in
2018 is fading.
Brazil is rife for public protests. Massive street demonstrations began in 2013 against increases in urban bus fares. The focus then shifted to extravagant spending for stadiums for the World Cup, the summit of world football, hosted by Brazil last summer, instead of financing badly needed pubic housing and hospitals. But what has generated protests this year is public indignation over evidence of unprecedented political corruption stripping billions of dollars from Petrobras, the state-owned oil company, emblematic of Brazilian nationalism. In an audited statement of Petrobras financing for 2014, a new administration at the firm said the company lost $3 billion from the corruption conducted by Petrobras directors and managers in collusion with contractors who paid kickbacks to obtain lucrative works building refineries, pipelines, and drilling equipment. These revelations brought up short the ambitious Petrobras development program that was supposed to invest $265 billion by the year 2020. This has had a crippling effect on Brazil’s industries and shipyards and forced Petrobras to cutback its goals of production of oil and gas, vital for Brazil’s economic growth and foreign trade balance.
President Rousseff, a self-styled energy expert, is directly responsible for the errors of economic navigation that led to the Petrobras disaster. During her days as President da Silva’s chief of staff she promoted price controls for petroleum products that reduced Petrobras revenues by an estimated $30 billion. The objective of Rousseff was political popularity for the PT achieved by holding down price inflation. The same populist political rationale led Rousseff to reduce electricity rates, leading to a reduction of private investment in power plants and eventually energy shortages when a bad drought reduced hydroelectric production. These policies were intensified during Rousseff’s first term, and the cumulative effect of her politically motivated state intervention in the economy slowed Brazil’s economic growth to zero in 2014. Nevertheless, employment remained high with subsidies for consumer credit maintaining demand, increasingly supplied by imports from China and other low-cost producers. Exchange controls favor imports and Brazilian industrial growth collapsed. This has now generated growing unemployment as Brazilian factories close or shrink output. A devaluation of Brazil’s currency, the real, has restored some export vitality, but the inflation caused by higher cost of imports is pushing prices higher.
So, what is Rousseff going to do to salvage Brazil from the situation she created during her first term? She has already made a U-turn in discarding the economic populism that was her campaign promise for re-election. She dismissed her incumbent finance minister, Guido Mantega, known as a big public spending “developmentalist,” and brought in Levy, who is applying the budget-balancing policies that Rousseff denounced during her re-election as “elitist regression.” The PT populist ideology is on the scrap heap, but Rousseff has refused to make cuts in public spending. Undoubtedly she is reluctant to reduce the 39 ministries and 30,000 public jobs that make up her party’s spoils system and keep the PT’s multiparty government coalition in power.
Yet this coalition has now split with the major PT partner, the Brazilian Democratic Movement Party (PMDB), adopting an independent agenda in the National Congress, where the centrist PMDB elected presidents in both houses and has controlling pluralities. The PT has only 64 of 513 members in the lower house, the Chamber of Deputies, and has bowed to the rule of Senator Renan Calheiros, a PMDB stalwart, in the powerful upper house. The loss of a rubber-stamp congress has produced serious blows to Rousseff’s control over national politics. For instance, on May 5th the Chamber of Deputies, by a vote of 333 to 144, passed a constitutional amendment that stripped Rousseff of the power to name five new justices to the 11-member Supreme Court during the remaining three years of her presidency. This was preceded by Rousseff’s choice of a federal judge with close ties to the PT when he was a labor lawyer to fill the vacancy created by the resignation of Chief Justice Joaquim Barbosa, who led the high court in the conviction of senior PT party leaders, in a case involving corruption payments by the PT during the government of President da Silva to members of Congress who would vote as the government wished. The president was spared from prosecution by the federal Public Ministry because he said he knew nothing about the corruption scheme, but the PT has ever since been actively trying to build a new majority in the court. The new Petrobras scandal, again investigated by the independent Public Ministry, will eventually reach the Supreme Court, and a new conviction of prominent PT figures would be very damaging to the party’s electoral standing.
The crisis surrounding Rousseff and her party has led to a lot of speculation. Some radical antigovernment minorities have launched a pubic campaign for the impeachment of the president because of her responsibilities in the Petrobras debacle. However, impeachment is a very remote possibility because the major opposition parties, such as the Social Democratic Party (PSDB), led by former President Fernando Henrique Cardoso, fear a failed impeachment could benefit the PT in a future election. The strongest currents in the opposition would prefer that Rousseff pay the political price of trying to salvage Brazil, laying bare the errors of the populist measures that produced the crisis and the incompetence of the PT administration.
Some commentators have also raised the possibility that Rousseff would resign and hand over power to her vice president, Michel Temer, of the PMDB. This is wishful thinking by some who see this as a constitutional way to displace an elected PT government. A voluntary withdrawal by Rousseff is equally unrealistic. Rousseff has a famously obdurate personality that makes her resistant to pressure and she doesn’t welcome unsolicited advice. She is also a fighter, as she made evident in her early days as a student who joined a subversive resistance movement against the military regime that ran Brazil. Rousseff wound up in jail and the movement failed to end military rule, but her extremist experience paved the way for Rousseff’s later political involvement with the leftist political parties, like the PT, that emerged after the military restored democracy.
Moreover, Rousseff is a political creature invented by President da Silva, who continues to give his protégé advice and active support. The future of the PT depends on da Silva, a poverty-stricken boy who migrated from the rural backlands to the industrial metropolis of São Paulo, where he became a blue-collar factory worker, union leader, founder of the PT, and folk hero for the Brazilian left. From that background he became president, not as a political radical but as a social reformer. This is the origin of Rousseff’s political creed, and the PT will make every effort to keep her in power for the next three years, until the next presidential election in 2018. But for the PT to recover its electoral power, Rousseff will have to be successful in the salvage operation she is now conducting in the stormy political waters of Brazil. If she fails, the electorate will vote for change, not continuity.
Brazil is rife for public protests. Massive street demonstrations began in 2013 against increases in urban bus fares. The focus then shifted to extravagant spending for stadiums for the World Cup, the summit of world football, hosted by Brazil last summer, instead of financing badly needed pubic housing and hospitals. But what has generated protests this year is public indignation over evidence of unprecedented political corruption stripping billions of dollars from Petrobras, the state-owned oil company, emblematic of Brazilian nationalism. In an audited statement of Petrobras financing for 2014, a new administration at the firm said the company lost $3 billion from the corruption conducted by Petrobras directors and managers in collusion with contractors who paid kickbacks to obtain lucrative works building refineries, pipelines, and drilling equipment. These revelations brought up short the ambitious Petrobras development program that was supposed to invest $265 billion by the year 2020. This has had a crippling effect on Brazil’s industries and shipyards and forced Petrobras to cutback its goals of production of oil and gas, vital for Brazil’s economic growth and foreign trade balance.
President Rousseff, a self-styled energy expert, is directly responsible for the errors of economic navigation that led to the Petrobras disaster. During her days as President da Silva’s chief of staff she promoted price controls for petroleum products that reduced Petrobras revenues by an estimated $30 billion. The objective of Rousseff was political popularity for the PT achieved by holding down price inflation. The same populist political rationale led Rousseff to reduce electricity rates, leading to a reduction of private investment in power plants and eventually energy shortages when a bad drought reduced hydroelectric production. These policies were intensified during Rousseff’s first term, and the cumulative effect of her politically motivated state intervention in the economy slowed Brazil’s economic growth to zero in 2014. Nevertheless, employment remained high with subsidies for consumer credit maintaining demand, increasingly supplied by imports from China and other low-cost producers. Exchange controls favor imports and Brazilian industrial growth collapsed. This has now generated growing unemployment as Brazilian factories close or shrink output. A devaluation of Brazil’s currency, the real, has restored some export vitality, but the inflation caused by higher cost of imports is pushing prices higher.
So, what is Rousseff going to do to salvage Brazil from the situation she created during her first term? She has already made a U-turn in discarding the economic populism that was her campaign promise for re-election. She dismissed her incumbent finance minister, Guido Mantega, known as a big public spending “developmentalist,” and brought in Levy, who is applying the budget-balancing policies that Rousseff denounced during her re-election as “elitist regression.” The PT populist ideology is on the scrap heap, but Rousseff has refused to make cuts in public spending. Undoubtedly she is reluctant to reduce the 39 ministries and 30,000 public jobs that make up her party’s spoils system and keep the PT’s multiparty government coalition in power.
Yet this coalition has now split with the major PT partner, the Brazilian Democratic Movement Party (PMDB), adopting an independent agenda in the National Congress, where the centrist PMDB elected presidents in both houses and has controlling pluralities. The PT has only 64 of 513 members in the lower house, the Chamber of Deputies, and has bowed to the rule of Senator Renan Calheiros, a PMDB stalwart, in the powerful upper house. The loss of a rubber-stamp congress has produced serious blows to Rousseff’s control over national politics. For instance, on May 5th the Chamber of Deputies, by a vote of 333 to 144, passed a constitutional amendment that stripped Rousseff of the power to name five new justices to the 11-member Supreme Court during the remaining three years of her presidency. This was preceded by Rousseff’s choice of a federal judge with close ties to the PT when he was a labor lawyer to fill the vacancy created by the resignation of Chief Justice Joaquim Barbosa, who led the high court in the conviction of senior PT party leaders, in a case involving corruption payments by the PT during the government of President da Silva to members of Congress who would vote as the government wished. The president was spared from prosecution by the federal Public Ministry because he said he knew nothing about the corruption scheme, but the PT has ever since been actively trying to build a new majority in the court. The new Petrobras scandal, again investigated by the independent Public Ministry, will eventually reach the Supreme Court, and a new conviction of prominent PT figures would be very damaging to the party’s electoral standing.
The crisis surrounding Rousseff and her party has led to a lot of speculation. Some radical antigovernment minorities have launched a pubic campaign for the impeachment of the president because of her responsibilities in the Petrobras debacle. However, impeachment is a very remote possibility because the major opposition parties, such as the Social Democratic Party (PSDB), led by former President Fernando Henrique Cardoso, fear a failed impeachment could benefit the PT in a future election. The strongest currents in the opposition would prefer that Rousseff pay the political price of trying to salvage Brazil, laying bare the errors of the populist measures that produced the crisis and the incompetence of the PT administration.
Some commentators have also raised the possibility that Rousseff would resign and hand over power to her vice president, Michel Temer, of the PMDB. This is wishful thinking by some who see this as a constitutional way to displace an elected PT government. A voluntary withdrawal by Rousseff is equally unrealistic. Rousseff has a famously obdurate personality that makes her resistant to pressure and she doesn’t welcome unsolicited advice. She is also a fighter, as she made evident in her early days as a student who joined a subversive resistance movement against the military regime that ran Brazil. Rousseff wound up in jail and the movement failed to end military rule, but her extremist experience paved the way for Rousseff’s later political involvement with the leftist political parties, like the PT, that emerged after the military restored democracy.
Moreover, Rousseff is a political creature invented by President da Silva, who continues to give his protégé advice and active support. The future of the PT depends on da Silva, a poverty-stricken boy who migrated from the rural backlands to the industrial metropolis of São Paulo, where he became a blue-collar factory worker, union leader, founder of the PT, and folk hero for the Brazilian left. From that background he became president, not as a political radical but as a social reformer. This is the origin of Rousseff’s political creed, and the PT will make every effort to keep her in power for the next three years, until the next presidential election in 2018. But for the PT to recover its electoral power, Rousseff will have to be successful in the salvage operation she is now conducting in the stormy political waters of Brazil. If she fails, the electorate will vote for change, not continuity.
