Brazil

Dilma’s challenges

Print edition : November 28, 2014

President Dilma Rousseff and former President Luiz Inacio Lula da Silva celebrate the results of the elections, in Brasilia on October 26. Photo: Eraldo Peres/AP

Aecio Neves of the Brazilian Social Democracy Party and Marina Silva of the Brazilian Socialist Party at a campaign rally in Sao Paulo on October 17. Marina Silva, who scored just 21.3 per cent in the first round and was eliminated, backed Neves in the second round. Photo: Andre Penner/AP

Demonstrators march along Paulista Avenue protesting against the World Cup football tournament and demanding better public services in Sao Paulo on January 25. A large number of Brazilians see the World Cup and the Olympic Games in 2016 as unnecessary burdens taken on by an overconfident establishment. Photo: Nelson Antoine/AP

A beneficiary of the Bolsa Familia cash-transfer programme displaying the card. According to the World Bank, programmes such as Bolsa Familia of the Workers' Party were instrumental in reducing the Gini coefficient, which measures income inequality, from 58.68 in 2003 to 52.7 in 2012. Photo: Alberto Coutinho

Dilma Rousseff, who has won a second term as President in a tough election, will have to make changes in style and substance if the curtains are not to come down over Workers’ Party rule in Brazil in 2018.

President Dilma Rousseff’s speech on the night of October 26 was modest and frank. At an election victory rally of her Workers’ Party (P.T.), she thanked her predecessor and mentor, Luiz Inacio Lula da Silva, called for national unity, vowed to carry out political reforms and renew the fight against corruption, and promised to be “a much better President than I have been until now”.

She had just won the second round of the presidential election by the narrowest margin in modern Brazil’s history. Dilma got 51.64 per cent of the valid votes as against 48.36 per cent of her rival, Aecio Neves of the Social Democratic Party (PSDB), a Senator and former Governor. She led in the first round, on October 5, with 41.5 per cent over Neves’ 33.6 per cent. Marina Silva, the candidate of the Socialist Party (PSB), then considered the more serious challenger, scored just 21.3 per cent and was eliminated. The 54.5 million eligible votes cast in the second round for Dilma was also a record for a Brazilian President, with a 79 per cent turnout of the 142 million eligible voters.

In all of Latin America in the last three decades, the incumbent has lost a re-election on only two occasions: in Nicaragua in 1990 and the Dominican Republic in 2004. Dilma’s mandate comes as a relief to her coalition, given how close her challengers came to adding her to the shortlist and the odds she had to face.

There is a broad consensus that former President Lula (2003-2010) had accomplished much. His handpicked successor was derided as a pliable surrogate when she won her first four-year mandate in 2010. She demonstrated not only her own mind but also her determination. The former guerilla fighter has, however, had to confront ferocious opposition from the traditional Right. Her opponents leveraged the resentment of the middle class, disenchanted or apprehensive about dissipating dreams of continued prosperity. The challenges to Dilma from both her serious opponents revealed the dilemma at both ends of the political spectrum.

Marina Silva, of indigenous, Afro-Brazilian and Portuguese descent, who describes herself as black, rose like a phoenix before the first round, after the untimely death of her presidential running mate, Eduardo Campos. Like the proverbial bird, she came close enough to the source of power, only to perish. Marina Silva was a Minister in Lula’s government, which she left in 2008 to form her own party and fight Dilma in 2010. Her 20 per cent share of votes in that election revealed her political clout and consolidated her political platform. She changed her party four times in five years and before this election had to compromise with big business, for instance, by supporting genetically modified agriculture “at all levels”. Flip-flops on social issues such as gay marriage hurt her campaign. Her clarion call for clean government and attention to environmental and other social issues, however, continues to reverberate.

Neves, a political princeling (son of a former Brazilian President-elect), has been waiting in the wings at the head of the business-friendly PSDB. Popular disaffection, an impatient and powerful business lobby, and the support of the PSB and Marina Silva personally, propelled the hitherto unlikely challenger close to victory.

Brazil today

The fifth largest country and the seventh largest economy in the world, Brazil has been through troubled times recently. Its enviable image as a glamourous country and as one endowed with natural resources was enhanced when it was awarded the Football World Cup in 2014 and the Olympic Games in 2016. Today, a large number of Brazilians see these accomplishments as unnecessary burdens taken on by an overconfident establishment, not necessarily because of the 7-1 defeat of Brazil’s football seleçao in July at the hands of Germany.

Brazil’s political evolution owes much to the French philosopher Auguste Comte’s doctrine of positivism: “Love as a principle and order as the basis; progress as the goal” is distilled into the motto “Order and Progress” on the national flag. Though this secular religion may have been responsible for the steady progress in political and economic integration, it has been blamed for offering a cloak of legality to illegitimate and self-serving actions by successive governments and politicians, and of acquiescence in the latent racism prevalent in Brazil.

Brazil’s economic growth has always depended on its ability to exploit and leverage its massive resource base. This encouraged the creation and perpetuation of a landed and wealthy class that today dominates the economy. It also engendered vulnerability to global recessionary trends. Environmental issues, the needs of the sizable underclass, competition within the region and beyond, and a volatile 21st century financial sector have complicated the management of the economy.

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. Higher economic growth enhances wealth and welfare but also raises expectations and demands for social justice from a growing number of people.

Twelve years of P.T. government boast an impressive legacy. Over 40 million of the 200 million Brazilians have joined the middle class, thanks to effective cash transfers and other schemes directed at the redistribution of wealth in what continues to be a highly unequal society. Unemployment under Dilma, at about 5 per cent, has been lower than that under any of her predecessors. The minimum monthly wage (Brazil real 724; $304) has increased despite the financial crisis. The number of undernourished Brazilians has fallen by more than 80 per cent in the past decade, according to the United Nations.

Lula and Dilma both managed to reduce Brazil’s public debt as a percentage of the gross domestic product (GDP). Brazil at the turn of the century witnessed an economic crisis and massive devaluation but is now a creditor to the International Monetary Fund. The P.T.’s programmes, such as the Bolsa Familia, were instrumental in reducing the Gini coefficient, which measures income inequality, from 58.68 in 2003 to 52.7 in 2012, according to the World Bank. Some say all this was at the cost of economic growth, particularly under Dilma, whose government’s focus has been more social than economic. Others blame the economic problems on the global situation and, to some extent, mismanagement.

The economy

After expanding 7.5 per cent in 2010, Brazil’s GDP grew by 2.7 per cent in 2011; just 1 per cent in 2012; and 2.3 per cent in 2013. GDP growth is expected to be around 0.3 per cent this year. Foreign currency holdings and investment are down, while inflation at 6.75 per cent for the year ending September 30 was the highest in three years. Taxes climbed from 29 per cent of GDP in 1995 to 36 per cent in 2013, the highest level among Brazil’s emerging market peers. As a share of GDP, Brazil’s gross debt is less than a third of that of Japan, one of the world’s most indebted nations—but its debt service costs are almost 15 times as high.

Stubbornly high interest rates, the bête noire of business, are unlikely to come down soon. Household debt grew from 20 per cent of income in 2005 to 43 per cent of income in 2012, and high real interest rates (averaging 145 per cent on credit cards) make this a heavy burden for consumers, according to a report last May of the Mckinsey Global Institute. In the World Bank’s 2014 Doing Business Index, Brazil ranks 120 out of 189 countries in terms of its regulatory burden (India has slipped to 142). The high cost of doing business, referred to as the Custo Brasil, has taken its toll on economic growth.

From 2005 to 2012, Brazil’s commodity exports increased from $11 billion to $64 billion, but over the same period, a trade surplus of $20 billion in manufactured goods turned into a trade deficit of $45 billion. Though an energy superpower, Brazil’s cost of producing gasoline today is above international prices.

The sharp appreciation of the Brazilian real under Lula made Brazil’s exports less than competitive. They are equivalent to 13 per cent of GDP, well below India’s 24 per cent. In 2011, Brazil’s mean tariff rate was 7.8 per cent, higher than its BRIC counterparts, Russia, India and China, and most of the developed world. Free-trade negotiations with the European Union have stagnated over the last decade, while other Latin American nations have signed around 35 of these during Dilma’s tenure.

The attempt by the PSDB Governor of Sao Paulo to raise bus fares in mid-2013, backed initially by Dilma, was the spark that ignited the resentment against a government seen as inept and corrupt. Subsequent riots and demonstrations were clumsily handled by an establishment that was caught napping. The Chamber of Deputies (lower house of Parliament) hurriedly voted 403-9 to halt a Bill that would have diminished the authority of the Public Affairs Ministry to investigate corruption cases. This authority was critical in exposing the 2005 mensalao scandal, involving buying of votes from Congressmen for legislation by Lula’s close aides.

The football World Cup was derided by the middle class as window dressing at best or, at worst, an opportunity for politicians to make money. Reports of cost overruns for stadiums and so on appeared to vindicate such popular accusations. Brazil’s forgettable performance in the tournament itself did not help matters.

A senior official of the national oil company, Petrobras admitted, weeks before the election, that an estimated 3 per cent of Petrobras’ budgeted project expenditure went to members of the ruling party coalition for their campaigns. This could have been fatal for Dilma, who accepted the allegations and promised investigation into it, but for the fact that the PSDB was also accused of receiving funds to forestall the setting up of a parliamentary committee to investigate the accusations.

On October 28, two days after the election, the government suffered a setback in the Chamber of Deputies. A decree issued by Dilma in May, establishing a system of national popular consultations to consolidate “popular participation as a method of government”, was struck down by a phalanx of parties led by legislators of the Brazilian Democratic Movement Party (PMDB), the P.T.’s principal ally.

Dilma’s centralised rule and her apparent single-mindedness have also put her at odds on occasion with Lula, primarily over monetary and economic policy. The P.T. has all but declared him as the party’s candidate in 2018, when he will be 73.

Apart from Neves and Marina Silva, there were eight other candidates in the first round, all of whom knew they stood no chance of winning. Brazilian analysts cynically claim these candidates negotiate their votes for political favours from the prominent candidates. Elections were simultaneously held to the 26 States, the federal capital district, one-third of the 81 Senate seats and all 513 seats in the Chamber of Deputies.

In the new Chamber, the P.T. got 70 seats, 18 seats fewer than last time and the lowest for the party since it took power in 2003. The PMDB, to which Dilma’s Vice-President belongs, came second, with 66 Congressmen (five fewer than its current representation). The PMDB was one of the main targets of the protests last year. The PSDB gained 10 seats, and will have 54 deputies.

It will take 308 votes in the Chamber for Dilma to amend Brazil’s Constitution. The P.T.-led coalition nominally has a majority—304 seats (down from 339)—in the Chamber and 52 (up from 51) in the Senate. Given the votes the P.T. received on October 28, there is no guarantee its coalition partners will unconditionally support any P.T.-backed piece of legislation, let alone a constitutional amendment.

Fourteen States had to vote in a runoff for Governors. Significant results include the first round re-election of the PSDB’s Geraldo Alckmin as the Governor of Sao Paulo, which saw riots in 2013 against his move to raise bus fares. The PSDB lost Minas Gerais, the State which had been governed by Neves, to Fernando Pimentel of the P.T., who was Dilma’s Minister of Commerce.

Future tense

While it may be too early to tell, it is likely that the second round face-off will characterise Brazilian politics more than the debate over the environment or topical social issues. There are genuine fears over Brazil’s economic future. Neves’ performance in the first round and subsequent endorsements resulted in a temporary appreciation of the real and a 10 to 12 per cent rise in the shares of Petrobras, Bank of Brazil and other companies. His convincing victory in most of the “white” and wealthy south, contrasted with Dilma’s steamroller in the mainly black and mixed race and less prosperous north and north-east, exposed an undeniable political divide and provoked the latter to cite dialogue and national unity as her priorities.

Neves tried to co-opt the platform of the PSB in exchange for support. On October 11, he included in his manifesto issues such as land reform, the demarcation of indigenous lands, the rights of rural communities, and environmental concerns. Dilma countered his assertion that Brazil’s social and redistributive policies were a legacy of earlier PSDB governments, saying her government had spent more on social programmes in two months than the PSDB had in its eight years in power.

On the international front, Brazil has gained ground in recent years with its participation in BRICS, G20, and BASIC (Brazil, South Africa, India and China); a higher profile in international peacekeeping operations and election to international organisations such as the Food and Agricultural Organisation (FAO) and the World Trade Organisation (WTO). From 2003 to 2010, Brazil opened 40 new embassies abroad, reaching a total of 140. By 2013, Brazil had 37 embassies in 54 African states, more than the United Kingdom.

It has acquired a higher strategic profile, embarking on the acquisition of nuclear submarines and jet fighters, missile development, and the protection of the Amazon. Within the region, Brazil enjoys undisputed status as the weightiest political economy. It steers, albeit discreetly, the Union of South American States and Mercosur, and maintains a balance between contending political forces.

Its geopolitical stature was enhanced when Dilma cancelled an official visit to the United States in 2013 in retaliation for that country’s cyber-espionage, and campaigned along with Germany to establish international norms for cyber security. The BRICS Summit in Brasilia in July 2014 was a hit by all accounts, with the establishment of the BRICS bank. Brazil’s partnership with India has prospered and both seek permanent membership in the U.N. Security Council.

Most of these achievements, however, are attributed to Lula, while Dilma’s diplomacy has been considered more reticent. The failure to set dates for the IBSA (India-Brazil-South Africa) Summit due in New Delhi in 2013, some say, reveals flagging interest. Brazil has not managed to convince Mercosur to amplify the preferential trade agreement with India. According to business sources, Brazil’s own trade policy has turned more protectionist. India’s trade with Brazil has actually come down in the past year.

Dilma faces challenges: her pledge to carry out political reform, to end election campaign financing by private companies among other things, will require huge political effort. Her call for a plebiscite last year was shrugged off by an entrenched establishment, which claims only the legislature has the right to call a popular consultation. She is expected to change her Finance Minister. Accommodating competing and contradictory interests will be all the more difficult given her allegedly stubborn nature.

While Dilma has steered the ship of state through turbulent waters over the last four years, she will probably have to make some changes in style and substance. Her aloof, stern demeanour is believed to have overshadowed her reputation for honesty and sincerity. She will have to resolve many dilemmas if the curtains are not to come down over 16 years of P.T. rule in 2018.

Deepak Bhojwani served as Ambassador of India in seven Latin American countries, including Venezuela, Colombia and Cuba, and as Consul General in Brazil.

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