Brazil: a devalued country

Since the presidential elections in October 2014 when President Dilma Rousseff was re-elected for her second term in office, Brazil has been facing unprecedented economic and political instability as a consolidated democracy. The origins of the problem are multiple: economic recession, growing political polarization and corruption scandals involving high profile politicians and businessmen. These three problems are buttressed by the persistence of systemic governance challenges hidden behind an illusion of Brazilian prosperity in recent years.

Brazil, until last year, was internationally perceived as an up-and-coming emerging country whose promises of fast prosperity were leaving an imprint at the world stage. However, as this illusion of prosperity is fast fading, the country urgently needs to re-invent itself. While Brazilians wait for prosperity to re-emerge, Brazil is condemned to becoming a minimally functioning democracy with low economic growth with its failing “state capitalism” economic model.

The prospects of improving the quality of its institutions and finding a sustainable path to economic prosperity are meager. Politically, the current government is unable to impose its political agenda, and polarization in the congressional arena has created a stalemate in the approval of critical legislation. Socially, the crisis has further deteriorated the confidence of citizens in public institutions, leading to higher levels of social discontent. Economically, the international financial community has lost confidence in the ability of Brazilian authorities to control inflation and balance public accounts.

The challenges of overcoming the current governance crisis are many as the crisis continues to unfold. Day by day, the leadership of President Rousseff weakens due to alleged corruption of close aids and politicians from her party coalition. These investigations, which have been the catalyst of the crisis, are related to overpriced contracts of the Brazilian state oil company, Petrobras. These contracts were granted to a cartel of private companies that in return bribed public officials. Estimates indicate that the total amount siphoned off reach $2 billion US. The corruption resulted in an estimated loss of $50 billion U.S. to Petrobras, an amount that is half of the total annual public expenditure on health in Brazil.

The tales of corruption under President Rousseff’s Worker’s Party pose several moral dilemmas for Brazil and its politicians. The first dilemma has to do with social justice, a topic that the Worker’s Party has systematically embraced since the 1980s. How can a party that rhetorically promotes social justice condone practices that counter these principles? Another moral dilemma is the Worker’s Party’s tactics to confront the crisis. The party condemns as undemocratic any attempt from the opposition to impeach President Rousseff on grounds that she illegally financed her 2014 presidential campaign, bridged the fiscal responsibility law in the last fiscal year, and is indirectly implicated in the Petrobras corruption scandal.

Exiting the current crisis is not easy. Nowadays, Brazil’s political arena is in a stalemate in which no political actor has sufficient power to overcome the acrimonious disagreements and lead the country towards a path of political stability. As a result, one possible outcome is the attempt of leading politicians to create small pacts to insulate each other from becoming accountable for any wrongdoing. Essentially, this means that the politicians implicated in the corruption scandal would be overlooked to guarantee their survival. While President Rousseff, her party and her former political allies employ their political capital to keep their heads above the water, this year’s inflation reached 7.7 percent, unemployment hit 8.3 percent and the Brazilian real already devalued 50 percent in less than twelve months.

As the crisis deepens without any feasible way out, the positive legacies of the recent past are threatened. Clearly, the commitment to responsible macroeconomic management of the economy, cemented in the late 1990s, has been abandoned and restoration of market confidence will take a long time. The growing middle class and the reduction of income inequality achieved in the past decade are threatened by the persistence of high inflation. Several institutions that ensure the application of the rule of law, such as independent groups of public prosecutors, judges and federal police officers who have been successfully uncovering Petrobras’ corruption scheme, could be undermined if politicians are not brought to justice for their criminal activities. However, if the current political dynamics of instability are protracted, the few institutions essential for good governance might not endure.

Certainly, 2015 will enter into Brazil’s democratic history as the year that Brazilians woke up from a dreamy sense of prosperity. For a new start, Brazilian politicians must take responsibility for the current crisis and governance institutions must be strengthened in order to reduce the risks of other corruption scandals disrupting Brazil’s path to prosperity.

*The author is a professor at Hankuk University’s Graduate School of International and Area Studies.

by Helder Ferreira do Vale