Can Dilma Weather the Storm?

US Department of State

The problems facing Brazil – an economic recession, a massive corruption scandal, single-digit presidential approval ratings, and the breakdown of the ruling coalition – have evolved into a deep, multifaceted crisis that has led to the emergence of massive demonstrations requesting the removal of President Dilma Rousseff. On August 19, 2015, the Inter-American Dialogue hosted an event to discuss the challenges facing the President and to analyze the effects of her potential ouster on Brazil’s future. Michael Shifter, the President of the Inter-American Dialogue and moderator of the event invited three distinguished experts on Brazil to weigh in on this issue: João Augusto de Castro Neves, the Director of the Latin America practice group at the Eurasia Group, Pablo Sotero, the Director of the Brazil Institute at the Woodrow Wilson Center for Scholars, and Peter Hakim, a Senior Fellow and President Emeritus of the Inter-American Dialogue.

Although the panelists offered their predictions for Brazil’s future, they all tempered their analysis by emphasizing the sheer unpredictability and uncertainty of the situation. Due to the rapid development of events, it is difficult to know exactly what is happening on the ground in Brazil. As Sotero indicated, even academics in the country are perplexed by the situation and are noting that it will be very difficult to call the results. Hakim stressed that there is no sure path of out of the crisis and the corruption behind it, and that any prediction will have to be modified as trends develop.

The country’s troubles began to be expressed with the end of the global commodity boom –an unfavorable change in the global economic condition for resource-rich Brazil. According to Castro Neves, the economic model that had been put in place by the Partido dos Trabalhadores (PT) under former President Luiz Inácio Lula da Silva’s administration, reached an exhaustion point at the start of President Rousseff’s administration, and the challenge of changing Brazil’s economy from a consumption-led growth model to an investment led growth model has fallen on her. A new economic model is necessary for the recovery of the Brazilian economy and Castro Neves stressed that even if Rousseff is removed, “there is no quick solution to this broader problem.”

Surely, the economic recession will continue to be a destabilizing factor in the country’s socio-political space. According to Sotero, “the recession that is now in full bloom will deepen; it will continue at least until next year.” The thousands of jobs being lost and the deteriorating conditions for the populace are bound to fuel discontent and impact the discussion in the government. Sotero highlighted that the novelty of this particular phenomenon in Brazil’s history stems from the emergence of an informed, mobilized public, which didn’t exist to the same extent during past politico-economic crises. According to Hakim, although the austerity program was designed by one of Brazil’s most respected economists, Joaquim Levy, the plan has faced challenges in implementation.

There also exists a reciprocal relationship in which the corruption scandal and the economic problems both exacerbate one another. Not only has the Petrobras scandal accelerated some of the economic trends that preceded it, but part of the economic change has also led to the discovery of corruption. According to Castro Neves, “once [the liquidity of the commodity boom] started to recede, corruption schemes became more visible. It’s not just a coincidence that you have corruption scandals popping up in a lot of countries in the region…there is a common denominator there.” The intricacy and magnitude of the systemic Petrobras scandal displayed the perverse incentives that were available for corruption in Brazil. According to Hakim, the scandals in Brazil will continue to spread. “Petrobras was 10% of the Brazilian economy, that’s huge,” said Hakim. The involvement of both the public and private sector in the scandal as well as various corporations and industries heavily affects the Brazilian economy, especially investor confidence, and contributes to the unpredictability of the situation.

Operação Lava Jato, the corruption investigation being conducted by the Federal Police of Brazil, started in March of 2014. According to Sotero, there have been 18 phases of the investigation, 476 individuals in 16 companies are under Federal criminal investigation, including 49 members of Congress, 143 people have been accused of committing 31 different crimes, 105 people have been arrested, 30 people were found guilty and so far, have been sentenced to a total of 225 years of jail time combined. Sotero shared a quote from the Director General of the Federal police, that when asked if President Lula could be investigated, said, “We don’t investigate people, we investigate facts. We go where the facts lead us.” The fact that the investigations will not spare even one of the most popular political figures in Brazil and is willing to arrest figures that, as Sotero indicated, “were once considered un-arrestable” magnifies the positive changes in the country for the rule of law.

While the panelists agreed about the gravity of the economic situation, there was less consensus on the type of crisis Brazil is experiencing –is it one of ineffective institutions or unproductive political governance? Castro Neves defined is as a deep political and economic crisis, emphasizing that the strength of the independent judiciary was a sign that institutions were strong and functional. Sotero also noted the institutional character of the crisis, indicating that the discovery of the corruption resulted from reforms that have been implemented in the last few years. These institutional mechanisms, such as the plea bargain, have been instrumental in deepening the investigation and uncovering the corruption that many people already thought existed in the country. Hakim, on the other hand, stressed not the institutional sturdiness of the judiciary, but rather, the institutional turmoil brewing in the executive and legislative branches. Members of both branches are under investigation and the breakdown of the coalition in the legislature has resulted in a paralysis of these institutions.

While President Rousseff faces many challenges in the months ahead, it seems unlikely that she will be impeached. According to Castro Neves, four conditions need to be met for her impeachment: low approval ratings, the President’s political isolation from social movements that support the PT, an alignment of incentives between the PSDB and PMDB, as well as more concrete evidence of wrongdoing. While Castro Neves noted that President Rousseff is close to the brink, and will continue to be near the brink, he doesn’t think these four conditions will be realized: social groups like labor and the poor are unlikely to remove their support for Dilma and the challenges of forging a coalition between the PSDB and PMDB are difficult to overcome. The worsening crisis might result in the loss of support for the investigations and the diversion of attention elsewhere. More than anything though, there has been no proof of her involvement.

However, in Sotero’s opinion, Dilma may not weather the storm if there are continued investigations into the Petrobras scandal, continued plea bargain agreements, and continued imprisonment. “The expectation of impunity that was once part of popular belief is giving way to the expectation of prosecution. People are expecting that there will be justice,” said Sotero. Hakim noted that her single-digit approval rating, of 8-9%, which is not expected to improve in the near future, lays a weak foundation for the government. Nevertheless, Dilma is breathing more easily today than in the past, and while the last couple of weeks suggest an easier path for her, the situation can evolve very quickly.

Despite the difficult predicament the country faces, the lessons learned from the Lava Jato and the current multidimensional crisis can be leveraged in the future to implement reforms that can improve governance, foster economic growth and stability, and shift the political culture towards accountability and transparency.