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Brazil’s Political Impasse

Author(s): Andrés Velasco

Brazil is facing its biggest political crisis since the restoration of democracy in 1985. Unfortunately, the political leadership needed to pull the country out of its deep malaise is nowhere in sight.

From Project Syndicate:

It was the kind of politics Brazilians thought they had left behind: One day the sitting president appoints a popular former president to her cabinet in order to save him from prosecution, and pundits are quick to conclude that he is in charge. The next day, a federal judge blocks his appointment, claims and counterclaims are filed before the courts, millions take to the streets demanding the president’s impeachment, and no one is quite certain who is in charge.

Brazil is facing its biggest political crisis since the restoration of democracy in 1985. President Dilma Rousseff has done much to earn her single-digit approval ratings. Until recently, she seemed likely to muddle through to the end of her four-year term in 2018, if only because opposition parties were reluctant to clean up the economic mess her government created.

Today, no one is sure. By trying to save her predecessor, Luiz Inácio Lula da Silva, Rousseff made it harder to save her own presidency. Now that the Brazilian Democratic Movement Party (PMDB), once the largest government party, has quit the ruling coalition, the two-thirds vote in Congress needed to impeach Rousseff is within reach.

The good news is that certain institutions of Brazilian democracy are working well. After all, it is not in every democracy that prosecutors and judges have the autonomy needed to go after billionaire businessmen or a once-popular former president.

The bad news is that the political leadership needed to pull Brazil out of its crisis is nowhere in sight. Latin Americans everywhere are telling pollsters they are sick and tired of establishment politicians. Brazil’s political legitimacy problem is particularly acute. Not only are government leaders under fire; when opposition leaders joined the street protests two weeks ago, they were booed.

The dismal state of Brazil’s economy makes strong political leadership especially urgent. The economic contraction of nearly 4% in 2015, together with a similar dip anticipated for this year, implies the deepest recession in a century. Part of the problem is imported: The collapse in commodity prices and the tightening of international financial conditions hit Brazil hard. Yet other commodity exporters in South America are in much better shape. The contrast suggests that a good share of Brazil trouble is homemade.

The world applauded when Brazil stepped on the fiscal accelerator to offset the domestic effects of the 2008 financial crisis. Being able to implement a counter-cyclical fiscal policy was rightly viewed as a sign of economic maturity. But the Rousseff administration forgot to take its foot off the accelerator once the crisis was over. Last year, the total fiscal deficit exceeded 10% of GDP. Because Brazil has some of the highest nominal and real interest rates in the world (interest payments on the public debt exceed 7% of GDP), snowballing debt dynamics are particularly tricky.

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