Brazil Stays Populist

In a free and well informed election, a slim majority of Brazil’s 142 million eligible voters chose Sunday to reelect President Dilma Rousseff to a second four-year term, during which Latin America’s largest country will continue in the nationalist populist camp. The election was deeply confrontational and nothing in the campaign indicates Rousseff plans to modify her alliance with the Latin America’s leftist regimes, particularly those in Venezuela, Cuba and Argentina. Officials in these countries were jubilant with Sunday’s returns and showered congratulatory messages on Rousseff. President Obama also called Rousseff on Tuesday and, in addition to congratulations, offered an invitation for her to make an official visit to the United States in the near future, her previous visit having been cancelled after revelations that the NSA had recorded her personal communications.

Thus democracy has kept populism alive in Brazil, as it has elsewhere in the region. Last week, Bolivian voters reelected President Evo Morales to a third term and President Rafael Correa of Ecuador won the right to run for a new term. The political parties of the center and right in these small countries were easily defeated by a populist formula that blames the wealthy “elite” for poverty and inequality and provides generous social benefits to the poor through state subsidies and deficit spending. Coupled with these class warfare tactics, the populists chant a militantly “anti-imperialist” message that blames the United States for whatever they consider contrary to their interests.

However, Brazil is not Bolivia or Ecuador. A huge country of more than 200 million people, and one of the world’s largest emerging markets, Brazil aspires to exercise international influence beyond its region. Yet its $2.2 trillion economy is now stagnant, with zero growth in 2014, although employment remains high and easy consumer credit is maintaining market demand. One of the five ascendant economies that make up the BRICS, Brazil has accumulated some $600 billion in direct foreign investment, and this week’s election results must be making those investors nervous. Is Brazil going to join Venezuela and Argentina in the dismal ranks of Latin American countries with negative growth and runaway inflation exceeding 40 percent a year? This is the stark dilemma facing Rousseff as she begins her second term, which will extend the 12-year rule of her Workers Party (PT) by another four.

Rousseff’s victory illuminates Brazil’s deep political divide. The poor and less educated “red” states of the northeast voted for her by a landslide, 70 percent to 30 percent, giving Rousseff what she needed to overcome her more conservative opponent, Aécio Neves, whose strength lay in the industrialized “blue” states of the southern region, centered on São Paulo. In the south and the booming agriculture frontier states of central Brazil, the anti-PT sentiment favored Neves by a wide margin. PT candidates for governor and federal senators were trounced in São Paulo, Parana, and Rio Grande do Sul. The tilt in favor of Rousseff came in Minas Gerais, a central state that is the second-largest electoral district after São Paulo, and the home state of Neves. This was a stunning defeat for Neves and his Social Democracy Party (PSDB), which will have to build for the future on a strong opposition role in the Senate, where Neves, already a senator, will be joined by José Serra, a former presidential candidate, who was elected senator from São Paulo.

Evidently, Brazil is badly split politically, and Rousseff in her new term will have a difficult time introducing economic reforms and applying deficit reductions that she avoided during her first term. If she continues to deny the flaws of her economic policies, it will be to serve the populist political combinations that the PT and its allies made to win this year’s election (including corrupt payments to other parties for a PT-led coalition majority in Congress). Those interests hope for another presidential victory in four years, most likely under former PT President Luiz Inácio Lula da Silva. He was very active in Rousseff’s campaign and is already negotiating support with other parties, like the Brazilian Democratic Movement Party (PMDB). There are 28 political parties in Congress and many of these, starting with the PMDB, provide their votes to highest bidder. With a PT president holding the federal checkbook—the largest single source of public funds in Brazil—everything is negotiable with a Congress dominated by interest groups and political opportunists. The money comes from shakedowns of contractors bidding for lucrative public projects in state-run companies like Petrobras. This leads to widespread political corruption involving officials who enjoy guarantees of impunity that have only recently begun to be challenged by public prosecutors in Brazil’s evolving democracy.

In her victory statement, Rousseff said she was open to “dialogue” with the opposition, without providing any specific proposals other than a vague reference to “political reform” reducing private campaign financing. She has said that she will replace Finance Minister Guido Mantega, who has held the key post for eight years, but she has said repeatedly that her populist economic policies will continue, with no austerity “shocks” to reduce deficits. This sounded very unconvincing to economic analysts, and the Brazilian stock market fell sharply on the first day of trading after the election, led by a 12 percent fall in Petrobras, the state oil company. Petrobras, dominated by the PT, is a political asset of primary importance and it is now facing a major criminal investigation for a corruption scheme involving reported payments by contractors of $4 billion into a fund, operated by a Petrobras director, that made payments to political parties and legislators allied to the PT. As this unfolds it promises to be a major political issue in whatever dialogue Rousseff is going to develop with the opposition. 

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