Can Brazil be saved?

Patricio Navia

Buenos Aires Herald, December 30, 2016

 

After completing his first six months in office, Brazilian President Michel Temer finds himself in a difficult situation. A series of scandals have forced the resignation of six of his ministers. The economy has not recovered and expectations over a positive turnaround have worsened significantly. Temer is struggling to stay afloat. Calls for his resignation and early elections have multiplied.

 

Though he will likely hold onto power until the end of the term in late 2018, the president can no longer aspire to be the leader Brazil needs in order to turn the economy around. Brazilians are now wondering if there is anyone who can put the country back on the path to solid and inclusive growth.

 

Though it is the largest economy in Latin America, Brazil is also a country with a history of unrealised potential. Rich in natural resources, Brazil has also been blessed with a climate that makes it an agricultural powerhouse. Sharing a border as it does with most South American countries (with the exceptions of Chile and Ecuador), Brazil also has a diversified economy that makes it an attractive country to have as a trade partner.

 

Unfortunately, Brazil has failed to live up to the expectations. In the 19th century, a plantation economy survived in northern Brazil — slavery was abolished there only in 1888. After the monarchy was replaced by a republic in 1889, Brazil developed rapidly, attracting European migrants to the fast-growing south. At the turn of the 20th century, Brazil seemed destined to establish itself as a great world power. Yet, political instability, caused by the elite’s inability to introduce an economic system that better distributed the benefits of growth to all sectors of the population, fed social discontent. Since 1930, Brazil has alternated between populist leaders, military rule and compromises led by the elite that produced some periods of growth but failed to develop a sustainable framework for social inclusion.

 

Tramautic transition

When the military last stepped down in 1986, Brazil went through a traumatic transition. Elected president Tancredo Neves fell ill and could not assume power. His vice-president, José Sarney was sworn in, but his five-year government was disappointing. The young and energetic Fernando Collor de Mello, who had been elected president in 1990, was forced to resign in 1992 amid corruption accusations. His Vice-President Itamar Franco assumed power and — with the help of finance minister Fernando Henrique Cardoso — stabilised the economy.

 

Cardoso was then elected president in 1994 and governed for two successful four-year terms. In 2002, former labour union leader, and the leader of the Workers’ Party (PT), Luiz Inácio Lula da Silva was elected president. He also governed for two terms with success, winning international admiration. Those were 16 glorious years for Brazil. The country finally seemed to be on the path toward realising its potential.

 

But things turned sour again under the presidency of Dilma Rousseff (2010-2016). The economy ran out of steam as much needed reforms were not implemented. The end of the commodity boom triggered a recession in 2014. Social discontent and corruption scandals further weakened the ineffective Rousseff government. Eventually, she was removed from office on a technicality but her ouster had majority support among Brazilians who believed she was incapable of leading the country back onto the right path.

The master deal-maker

 

Michel Temer, Rousseff’s vice-president and a man who had spent many years broaching political deals as the leader of Brazil’s largest party, the Brazilian Democratic Movement Party (PMDB), assumed power temporarily in May and later, in August, permanently.

 

An admittedly uncharismatic leader, Temer sold himself as a master deal-maker who would take the unpopular measures necessary in order to turn the country around before the 2018 election. Temer’s rise to power was celebrated by the business and political elite as a new opportunity for Brazil. Few noticed that Dilma’s removal had broken a trend of stable governments that began in 1994. But getting rid of Rousseff seemed to be a higher priority among Brazilians than securing the stability of the government.

 

Now that Temer finds himself between a rock and a hard place, many people are calling for his resignation or the launching of new impeachment proceedings. After all, the accusations used to remove Rousseff from office are equally applicable to Temer. Moreover, if Congress dared to remove a democratically elected president, it should have no problem, legitimacy-wise, in getting rid of her replacement.

 

Getting rid of Temer will not solve Brazil’s problem, however. The lack of political leadership on the part of Rousseff and Temer is indeed a problem, but it is not clear that there is a political leader in Brazil who will have the power to implement the reforms the country needs.

 

In December, Temer successfully shepherded a bill through Congress that will link social spending increases to inflation. But another fiscally responsible piece of legislation that would cap generous pensions for former public sector workers faces a more uphill battle.

 

The historical problem Brazil has been unable to solve is the need to build an inclusive economic model that can help alleviate poverty and reduce inequality. That will require cutting subsidies and benefits to interest groups that have long benefitted from fiscal spending.

 

As the year comes to an end, Brazilians will be happy to forget a bad year in terms of politics and the economy. Unfortunately for them, 2017 might not be much better.