Of crises, opportunities, and construction behemoths

Brazil’s current political and economic crises present the country with the unique opportunity to implement much-delayed reforms that can revitalize its democracy and put the country on the path to sustained growth and development. Still, turning these reforms from possibility into policy is a major challenge, as they not only face resistance on many fronts, but also depend on a political class that is widely perceived as corrupt and out of touch.

Aware of the uniqueness of the moment, president Michel Temer has decided to bank on his almost unprecedented unpopularity to enact the necessary reforms. His government’s first target is the economy, which for decades has been plagued with structural problems that more popular presidents were unwilling or unable to confront. Mr. Temer’s strategy has consisted of, on one hand, putting together an economic dream team and, on the other, distributing cabinet posts and high-ranking jobs among the many (often unsavory) parties and politicians that make up his support base to ensure that the bills he proposes will face no major resistance in Congress. So far, this approach has been a qualified success.

Recovery from the latest recession is now palpable. Inflation, which was above 11% about a year ago, is now back under control and is expected to end 2017 at about 4.15%. Interest rates are still among the highest in the world, but have been progressively cut by the Central Bank. The government also began to address two of the long-term structural problems, the ever-increasing growth in public sector spending and the country’s excessively rigid labor laws, by issuing bills establishing a cap on government spending for the next 20 years and allowing any job to be outsourced.

The spending cap bill didn’t have a hard time getting approved by Congress, despite aggressive resistance by the opposition parties. The outsourcing bill passed with more difficulty, facing resistance not only from the opposition, but also from Mr. Temer’s own allies. This serves as a warning sign, as next in the government’s plans are bills making labor legislation more flexible and overhauling Brazil’s unsustainable pension system. These are measures that are crucial, but strongly opposed by labor unions and a sizable portion of the electorate, who sees them as a “reduction of rights.” With the 2018 election just around the corner, this may be a problem as Congress members might be reluctant to vote for unpopular legislation that could prove costly in the ballot box.

The pension reform is particularly key to ensure Brazil’s future economic viability. The pension system currently eats up about 12% of the country’s GDP (about the same as Japan, despite a much younger population) and it tends to become even more of a burden as the population continues to age. The mother of all reforms, though, is not economic, but political.

With two presidential impeachments in a little over two decades, a legislature that includes representatives of 27 out of 35 registered parties (most of which with nebulous ideologies), ever more expensive electoral campaigns, and an executive branch that is forced to govern by handing out chunks of the public sector in exchange for political support, it’s clear that the current system of government has run its course.

There has been talk of reforming the political system for years now and many politicians have paid lip service to it, as they know this is a popular subject with the electorate. Ideas that have been floating around include ending presidential re-elections, banning electoral coalitions, restoring electoral thresholds (which had been deemed unconstitutional by the Supreme Court in 2006), and changing the electoral system from proportional representation to either single-member district or mixed-member proportional representation. Many of these ideas are in fact good, as they would increase constituency representation, reduce the influence of interest groups, and make campaigns cheaper, but politicians have little motivation to actually enact them, as they depend on the current system to keep their jobs and their many privileges.

Last week, chances of a system reform became even slimmer, as Prosecutor General Rodrigo Janot released a new list of politicians that are to be investigated by the Car Wash corruption probe. This list is based on plea bargain statements given by 78 executives of construction giant Odebrecht, which is at the center of the massive bribery scandal that has been shaking Brazil’s political establishment. The list includes leaders from all major parties, among which three potential presidential candidates (Aécio Neves, José Serra, and Geraldo Alckmin), three former presidents (Fernando Henrique Cardoso, Luís Inácio Lula da Silva, and Dilma Rousseff), 10 state governors (out of the country’s 27), many current and former cabinet members, the speakers of both houses of Congress, over two thirds of the Senate, and 10% of the Chamber of Deputies. The Odebrecht statements themselves were made public by the Supreme Court one day after Mr. Janot’s list—a whopping 90 hours of Eichmanesque videos.

Not surprisingly, the trust of the population in the entire political class—which was already low—has now almost completely eroded. Anything Congress tries to pass might be perceived as a multi-partisan attempt by politicians to save their own skins. Mr. Janot’s list, however, doesn’t distinguish between those involved in corruption (a crime under Brazilian law) and those who had slush funds for campaign funding (also illegal, but merely an electoral infraction instead of a crime). This is in tune with the narrative being sold by the Federal Public Prosecutor’s Office (“Ministério Público Federal”), which has been trying to demonize all politicians in a bid to corner Congress into passing its own legislative agenda.

As a form of damage control, Mr. Temer has said in interviews and statements that he will continue to push for the necessary reforms. He has also reaffirmed that cabinet members that are formally accused of a crime will be suspended until their names are cleared, suggesting as well that some may “wish to resign” if their situation becomes “uncomfortable.”

At this moment, it is still very hard to say if Mr. Temer will be able to pull off his reforms, as political paralysis becomes a real possibility after the Oderbrecht apocalypse. Still, the situation is not completely hopeless. Congress members may decide to use the reforms as some sort of positive agenda that will distract the electorate from the criminal investigations and give the impression that the country is still moving forward. Even if they end up being scaled back, less ambitious reforms are still better than no reforms. Also, in the worst-case scenario of most currently active politicians ending up in jail or ineligible, Brazil will at least have the opportunity to clean up and reinvent the political aristocracy that has been ruling it for the past 30 years.

Image Source: José Cruz/Agência Brasil

3 years ago

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