ANCLAS Deputy Director Dr Sean Burges has published in today’s The Australian.

Rousseff’s Brazilian Challenge

published in today’s The Australian  (pre-publication text)

Dr Sean W Burges, Deputy Director of the Australian National Centre for Latin America Studies at the Australian National University
Brazilian president Dilma Rousseff has won re-election for a second term by the skin of her teeth, scrapping in just 51.6% of the vote in the second round runoff held on Sunday. Her victory represents a remarkable triumph of former president Luiz Inácio Lula da Silva’s legacy amongst the poor and socially marginalized as well as the power of sophisticated political marketing to drive voter understanding of campaign debates.

It would be an understatement to say that the economic elites of Brazil opposed Dilma’s re-election. The major newspapers and television shows adopted a staunchly anti-Dilma editorial line. Most emblematic of this was the accelerated Friday publication of the weekly news magazine Veja, which carried details of a criminal investigation into a scheme that allegedly saw Dilma’s Workers Party (PT) divert close to AUD$4.6 billion from state oil giant Petrobras to its political coffers. While these and other charges of corruption at the heart of the PT certainly hurt Dilma’s support base, which is significantly down from 2010, ultimately voters decided to go with the devil they know.

Perhaps voters were thinking back to former mayor and governor of São Paulo, Adhemar de Barros, who was famous for his corruption, but lovingly embraced with the pragmatic justification: “he robs, but he gets things done.” Indeed, at one level the election can be seen as coming down to a choice of who would get the most done amidst a sustained mire of governmental corruption – opposition candidate Aécio Neves was also the subject of serious allegations of corruption stemming from his time as governor of Minas Gerais state.

Dilma is a dependent heir of Lula’s legacy of social programming and pro-poor inclusiveness, policies which helped lift well over thirty million out of poverty and transformed the country. Throughout the campaign Dilma’s team repeatedly pushed the message that Aécio would rollback social programming to balance the government’s books. For his part Aécio was clear that Lula’s programs stemmed from initiatives started by his party in the 1990s, and that he would extend and deepen the existing programs to make them constitutional rights, not mere governmental programs. In the end it came down to trust, with a thin majority of Brazilians placing their faith in the party of Lula, which widened the programs that lifted them from poverty, not the party that stabilized the economy to create the conditions allowing the establishment of a strong social welfare state in Brazil.

Dilma’s challenge is that the magic aura of Lula is not going to help her address the pressing issues already waiting on her desk. First, and most worrying for Brazilians who remember the 1980s and 1990s is the question of inflation. Brazil has already exceeded its desired annual inflation ceiling of 6.5%, barely keeping the rising rate under control by artificially suppressing energy costs, most notably that of the gasoline sold by Petrobras, a company which is itself coming under pressure from creditors.

The second issue Dilma must address is the country’s anemic economy. With the commodity boom over, current projections from the IMF forecast a 2014 GDP growth rate of just 0.3%, rising to 1.4% in 2015. These numbers are inline with disappointing performance during the Dilma years, which the World Bank averages at 2.5%, one of the lowest levels in South America. Two factors are holding Brazil back, both of which can be addressed directly by Dilma. First, government banks and state-controlled companies are crowding out private investors, matters which are compounded by high interest rates. Second, the failure of the previous twelve years of PT government to implement effective regulatory and tax reform means that Brazil remains an incredibly difficult place to start and run an enterprise, languishing at 116th place in the World Bank’s ‘ease of doing business’ league table.

Addressing the economic hurdles of inflation, heavy-handed state intervention in the economy and oceans of regulatory red tape are critical hurdles that Dilma must address if her next presidency is to preside over further reductions in poverty. As effective as the Lula era social programs are at addressing the symptoms of poverty, the reality is that they do not address the cause, which is low economic growth.

Finally, Dilma must restore public faith in politics, which means addressing corruption. Alberto Youssef’s detailed revelations that billions of dollars were siphoned from Petrobras to PT mean that Dilma can no longer hide behind the plausible deniability line of “I did not know” when she oversaw the company first as mining and energy minister and then as president. In the past Dilma has studiously avoided rescuing public officials accused of corruption, most notably the eight ministers she inherited from Lula who were resigned amidst scandal at the start of her administration. The constant stream of allegations strongly suggest that her party has a serious cancer of corruption at its core, something which she is free to address now that she no longer needs Lula’s support for reelection.

Layered on top of these three big issues are the ongoing challenges of providing the public services that Brazilians are demanding – the health, transportation and education services claimed loudly during the massive street protests of 2013. Delivering is going to take serious effort at rebuilding bridges badly burned by the extremely negative campaign run by PT strategists. Although Dilma and the PT secured the presidency, they control neither congress, nor the a majority of powerful state governors, all of whom know that their electorate is angry and holds little faith in their leadership. For Dilma the campaign may prove to be the easy part. The hard work is only just beginning.

Dr Sean W Burges is Deputy Director of the Australian National Centre for Latin American Studies at the Australian National University and a Senior Fellow of the Washington, DC-based Council on Hemispheric Affairs.

The author will be providing a series of briefings next week in Melbourne and Canberra on the implications of the election result. Details at www.anclas.anu.edu.au.

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