Brazil on the edge: rhetoric and reality in Rousseff’s impeachment proceedings

Giselle Datz  - Associate Professor of Government & International Affairs, Virginia Tech, USA

No one doubts that the case for the president’s impeachment has been made more appealing to a vast majority of Brazilians because of the deep recession the country now faces – the worst in the past 80 years. Brazil in effect ran out of luck in terms of exogenous, benign conditions.  In particular, the country can no longer benefit from record high commodity prices and an expanding Chinese economy with seemingly endless needs for primary resources.

Having inherited a growing economy which had weathered the 2008 global crisis surprisingly well, President Rousseff and her team’s ‘New Economic Matrix’ chose to extend countercyclical policies beyond a point that was fiscally sustainable, ignoring signs that inflationary pressures were mounting, indebtedness increasing and international confidence withering. They also bet on the effectiveness of a heterodox approach that included excessive investment plans for Petrobras as part of a new oil concession scheme that was both centralising and unrealistic, particularly given the real state of the oil company’s investments in bribery-ridden purchases of refineries abroad.

The government further changed the regulatory policy framework for the energy sector, decreasing its revenue stake. To reduce inflationary pressures that became more apparent in 2013, following lowered interest rates the year before and the pursuit of a ‘growth model’ based on consumption, the government fixed gas prices, adding more losses to Petrobras.  The pursuit of an ‘industrial policy’ through subsidised credit channels was yet another layer of the fiscal mess for which Rousseff is ultimately being penalised both in Congress and in the country’s main streets.

Despite public credit expansion, productive activity did not return to pre-crisis levels. Unemployment has now reached 9% and a further 3.8% contraction of GDP is expected this year, on top of last year’s similar results.

No one can deny that a central legacy of Lula da Silva’s government was substantial improvements in income redistribution, both through increases in the minimum wage and the expansion of a cash transfer programme, which under Lula was known as Bolsa Família.  The programme’s great achievements became a political weapon for the Workers’ Party.

However, current negative economic performance impacts the poor in particular, as inflation eats away at individuals’ purchasing power, whilst the lack of public investment in health services amid a Zika virus epidemic has further exposed the chaotic nature of public services.

What can we expect in the coming months? The chances are now high that Rousseff will have to leave office. Michel Temer, her vice president, hardly inspires a sense of substantive change when it comes to rebuilding the moral authority of the presidency. Nonetheless, it is the team that he will put together that will set the tone of his administration – possibly reversing domestic and international pessimism regarding Brazil’s economic recovery.

It is well known that putting the fiscal house in order will be the most pressing and arduous task at hand, given the need for change in social security parameters, labour laws, and the tax system. Recession is already helping to tame inflation, but the path to living within inflationary targets (set by the central bank but so far not abided by) will be paved by new leadership of the monetary authority, whose autonomy must be reasserted in practice.

Brazilians are not naïve about their circumstances. The road ahead will be tough.  Yet history may come to reveal that democracy has proven, once again, to be remarkably resilient.  The same cannot be said about the Workers Party, whose important legacy as a progressive opposition force in its early years did not translate into the ability to lead the country to a sustainable socio-economic direction.