Yesterday evening, Brazilian President Dilma Rousseff was re-elected to a second term in office. In a close race, the Workers’ Party incumbent defeated the pro-business Senator Aécio Neves by a 51.64% to 48.36% margin.
Amidst the Workers’ Party euphoria at having clung to power, some important questions need to be asked about the impact the election will have upon both the country’s economy and international standing. On both counts, the outlook is negative.
Observers of Brazilian politics often keenly note that the country is a tremendously polarised one. Yesterday’s results leave it more polarised still. By squeaking back into office by the narrowest of margins, Rousseff has unwittingly exploited divisions which run far deeper than traditional rich/poor sentiments but extend to a regional divide between the North and South of the country, the urban and the rural, the middle class and the impoverished.
Dilma Rousseff’s victory has a rather hollow feel to it and is a world away from the outpouring of optimism brought about by former President Lula’s victory in 2002. Lula, a master of the spoken word and the product of a spectacular political transformation from militant trade unionist to soothing social democrat, built his victories on a coalition of the working poor, aspirational middle classes and ambitious manufacturers. Instead, Dilma took a purely transactional approach; pledging generous social benefits to her base and deriding her pro-business opponents as aloof and uncaring. (Neves, of course, firmly pledged to protect cherished benefits programmes such as Bolsa Familia, ProUni and Minha Casa from any cuts).
In some respects, the Workers’ Party’s (PT) welfare policies have been a victim of their own success. It is indisputable that they have played a big part in lifting millions of people out of poverty and creating a burgeoning middle class that is better educated, better travelled and more socially mobile. With that, though, came problems for the PT: these people wanted more than the welfare state and the “old politics” of cronyism and corruption.
The first moment it because clear that Dilma would face a tough race was back in April of this year when thousands of mainly young, mainly middle class Brazilians took to the streets to protest at widespread corruption and excessive spending on the World Cup and Olympics. Rather than seek to provide this sector of the public – who overwhelmingly backed Neves – with an olive branch, she instead revered to an aggressive core vote, 50%+1 strategy. With the root of their concerns unaddressed, trouble will undoubtedly spill over again soon.
On an economic level, Rousseff’s re-election is nothing short of a catastrophe.
Trade protectionism is widespread – and will remain so under Dilma. In a country as poor as Brazil, it is plainly ridiculous that the most basic of electronic goods – from fridge freezers to cheap televisions – cost more than they do in the United Kingdom. How can it be logical that members of the country’s emerging middle class increasingly find it cheaper to board a budget flight to Miami to shop for clothes rather than heading for domestic shops? How much longer can industry sustain crippling import tariffs for critical machinery?
Brazil’s public spending is a mess. Under the Workers’ Party – and, more precisely, the Rousseff Presidency – the country’s deficit has grown to a gaping chasm, with a tax base unable to fund the state’s generous spending programmes.
Around 90% of the entire spending the state does each year is mandated by a range of arcane laws, many of which are hangovers from the 1980s. With Dilma having pledged to increase social welfare spending on the poorest Brazilians, she will have little room inside the budget to make economisations elsewhere to provide such funds. The Brazilian Congress, a famously dysfunctional body that is dominated by former footballers, telenovela actors and other assorted egotists, has no appetite to change this construct.
In order to keep her base happy, the Rousseff administration has adopted policies designed to keep gas and electricity prices artificially low. While this may have proved to be a clever pre-election trick that has kept inflation at a relatively comfortable level, the state lacks the financial resources to sustain such a policy. Prices will have to rise – and so will inflation.
Despite is reputation in recent years as a hard-charging growing economy, Brazil remains a dire place to do business. Even the most basic of tasks requires multiple, costly government permits. The risk of a government agency deciding to level crippling retrospective taxes is ever-present. What this system does is sustain a state bureaucracy – but it doesn’t bring about private sector growth. While Aecio Neves had made the elimination of red tape a key plank of his campaign, Dilma has remained tight-lipped on the issue.
The days when Brazil’s poor fiscal climate and red tape-saddled regulatory structure, underpinned by external demand and global growth, could sustain growth rates of more than 7% are long gone. This year, the economy will grow by little more than 1% – and that’s an optimistic calculation. A credit downgrade now looms.
On a foreign policy level, the Rousseff Government has adopted an at times bizarre “hear no evil, see no evil, speak no evil” policy which has involved the expansion of cultural links with Iran and propping up machismo-fuelled administrations in Venezuela and Ecuador with economic aid. Such activities have been bitterly at odds with Brazil’s own domestic focus on the expansion of social and political rights, campaigns to eliminate racism and a liberal line on sexuality issues. While Aecio Neves had pledged to discontinue the Workers’ Party’s more recherché international projects, a second Rousseff administration will likely continue to build links with openly anti-American governments around the world – a dangerous position to be in, given the country’s precarious economic state.
There’s an old saying that “Brazil is the country of the future – and always will be”. I’ve never believed that – but I do struggle to see much hope for one as long as Dilma Rousseff remains President of the Republic.