[fblike]
Last Sunday, Brazilian voters went to the polls and re-elected Dilma Rousseff by the slimmest margin since the country reverted back to democracy in the 1980s. Rousseff, aligned with the leftist Workers’ Party (PT) defeated center-right candidate Aecio Neves of the Brazilian Social Democracy Party (PSDB) in the runoff election by a three point margin, 51.64% to 48.36%. The results show that the country is divided between its poorer, more dependent northern regions and its more prosperous, middle-class southern regions. Rousseff has promised to do more to clean up corruption, enact political reform, and rejuvenate Brazil’s ailing economy, but her campaign pledge to maintain generous social benefits and the nastiness of the general election campaign may hinder her ability to do any of these things. Since Brazil has the seventh-largest economy in the world and is part of the BRICS nations extempers should be prepared to discuss the country’s economic problems and the outcome of the presidential election at future tournaments.
This topic brief will provide a quick overview of the Brazilian presidential election and its outcome, how the election result could impact Brazilian economic policy, and discuss the chances of Rousseff being able to govern effectively for the next four years.
Readers are also encouraged to use the links below and in the related R&D to bolster their files about this topic.
An Overview of the Election
Brazil’s presidential election process typically takes a month. The country’s electoral law mandates that the winning candidate captures fifty percent of the vote, but this rarely happens in the first round of voting because of the large number of politicians that seek the presidency. For example, in this year’s election eleven candidates vied for the office. When a candidate fails to win fifty percent of the vote in the initial poll, a runoff election is scheduled several weeks later between the two individuals that captured the highest share of the vote. In the United States, this type of format is used to elect senators in Georgia and Louisiana. France also uses this system in its presidential contests. Voting is also mandatory in Brazil, but no one ever goes to jail for not voting. It is not unusual, though, for people to fulfill their civic duty by turning in a blank ballot or write that they are not voting for one of the listed candidates. This is their way of showing dissatisfaction with the choices they have been given.
This year’s election started as a three way race between President Dilma Rousseff of the Workers’ Party (PT), Aecio Neves of the center-right Brazilian Social Democracy Party (PSDB), and Eduardo Campos of the Brazilian Socialist Party (PSB). Rousseff appeared to be heading for an easy victory in early August, but Campos unexpectedly died in a plane crash on August 13. Campos’s running mate, Marina Silva, who served as Brazil’s Minister of the Environment under former Workers’ Party President Lula da Silva, who governed the country from 2003 to 2010, was chosen by the PSB as its replacement candidate and opinion polls put her in the lead. The PT unleashed a devastating ad blitz against Silva in the weeks leading up to the first round of voting on October 5 and Silva opted not to respond to the PT’s attacks, which The Huffington Post on October 28 says were lies about her platform. Silva’s decision not to engage cost her dearly with Brazilian voters, as her level of support evaporated. When the first round of voting took place, Rousseff won with 41.59% of the vote. Neves finished second with 33.55% and Silva finished third with 21.32%. Since Silva finished third, she was eliminated from the runoff election.
The campaign between Rousseff and Neves quickly became a nasty affair. According to The Huffington Post article previously cited, the PT argued that Neves drank too much, used drugs, and beat women. The PT also argued that the PSDB wanted to implement policies that would erode popular social initiatives in Brazil such as the bolsa familia program enacted under da Silva. Bolsa familia provides poor families with financial benefits if they send their children to school. The UK Independent on October 27 writes that anti-poverty programs such as bolsa familia have helped Brazil pull forty million people – 20% of its population – out of poverty since 2000. The social programs are very popular among poor Brazilians and the PT adopted a scare tactic strategy by telling these voters that their benefits were in jeopardy if Neves won. The Guardian on October 27 writes that Neves countered these charges by accusing Rousseff’s government of corruption and comparing PT campaign manager Joao Santana to Nazi propaganda chief Joseph Goebbels. Former President da Silva responded by saying that the PSDB’s neglect of poor Brazilians was akin to Nazi aims for European Jews in the Holocaust. Days before the election, Veja, a Brazilian right-wing magazine, published a story alleging that Rousseff and da Silva knew about embezzlement at Petrobras, the state-owned oil company, and did nothing since embezzled funds helped the PT and its allies. The Los Angeles Times on October 26 writes that Rousseff did not respond to this charge aside from calling it “electoral terrorism.” The PT took the story to the country’s electoral authorities, who mandated that Veja issue a statement from the PT discounting the story.
Neves tried to take advantage of Brazil’s economic recession and argued that he would adopt fiscally responsible policies to curb debt, reduce inflation, and help Petrobras return to profitability. The New York Times writes on October 27 that banks, hedge funds, and other foreign investors were hoping for a Neves victory because they think the PT’s policies regarding price controls and high social spending have hindered economic growth. Foreign Policy on October 27 points out that although the PSDB’s last tenure in power under Fernando Hernrique Cardoso was marked by energy shortages, growing public indebtedness, and low growth rates, the neo-liberal reforms that Cardoso enacted helped bring hyperinflation under control and opened Brazil up to international investment. According to Foreign Policy, the PT loves to bash the Cardoso regime in campaigns, but the social programs that made the PT so popular with poor voters never would have come to fruition without his economic reforms. By the time that voters cast their ballots on October 26, the international community largely considered the election a referendum on the national economy.
When the votes were tallied last Sunday, Rousseff won a very narrow victory over Neves, 51% to 48%. This was the smallest margin of victory in a Brazilian presidential election since the country transitioned away from two decades of military rule in 1985. The result showed that Brazil is divided down the middle between its more prosperous regions and those that are more dependent on government benefits. The Economist on October 27 writes that Rousseff did well in Brazil’s poor northern regions, but struggled in the south, southeast, and central west, which are richer areas of the country. Sao Paulo, a vibrant city that contributes one-third of Brazil’s economic output, gave its vote to Neves by a 64-36% margin. Neves also scored well in Rio de Janeiro. The Guardian article previously cited writes that voters in large cities favored Neves because they see social welfare programs as income transfers that work against their interests and they are tired of PT corruption. However, although Neves ran up healthy margins in more populous areas among Brazil’s growing middle-class, he was unable to capture Brazil’s second-biggest state of Minas Gerais in the southeast. The Economist writes that this defeat probably cost Neves the election and is puzzling because Neves was a popular governor there between 2003 and 2010.
As the Pew Research Center writes on October 27, Rousseff becomes the seventeenth consecutive incumbent in South American presidential elections to win re-election. However, she comes into a second term after winning fewer votes than she did in 2010. In her victory speech, Rousseff said that she recognized that the nation was divided and vowed to enact more reforms to please those who voted for Neves. Time will tell whether she will be able to follow through on those pledges.
Implications of the Election for the Brazilian Economy
As stated above, Brazil’s economy became the biggest issue of the presidential election. Neves and his supporters argued that Rousseff inherited a healthy economy and then proceeded to squander it. Reuters writes on October 27 that when Rousseff took office in 2010 the Brazilian economy was growing 7.5% a year. The economy is expected to grow by less than 1% this year, though, and The New Yorker on October 28 reports that the International Monetary Fund (IMF) expects economic growth to be an anemic 1.4% next year. Economists generally agree that if a developing economy is not growing at 3% a year that it is not going to be able to grow fast enough to provide for its population. In addition to growth problems, high inflation is troubling Brazil’s central bank. Inflation is near the bank’s 6.5% target, but keeping it in check has required high interest rates, which have driven up Brazil’s borrowing costs. Inflation also serves as a tax on the poor, who see the prices of everyday goods increase. Although other Brazilians, such as the middle-class, can best weather inflation it still angers people because they also confront higher costs for goods and it erodes some of their purchasing power.
So what has gone so wrong for Brazil? Part of the problem are the PT’s policies, but there are other factors at work as well. A podcast from The Financial Times on October 30 notes that Brazil used to be one of the fastest growing economies in the world and it still has lots to offer. For example, the country is the third largest commercial airline manufacturer in the world and its agricultural exports are acquiring a greater market share in China. The PT paid for its generous social programs through taxation on economic activity, as well as funneling money to those programs from the profits of state-owned industries. With slowing economic growth, these funds are no longer there and the government’s fiscal deficit has grown. The Reuters article previously cited writes that the federal government’s budget deficit has also grown because the government’s strategy of issuing tax breaks and subsidies for industry have not produced the desired levels of economic growth. In addition, The Business Insider reports on October 26 that China’s economic slowdown has depressed Brazilian exports and a decline in commodity prices have hurt the country, as well as other Latin American nations (see Venezuela’s dire economic condition now that global oil prices have fallen). There is very little Brazil can do about these two global factors, but the government could pursue policies to bolster more domestic output. The failure of the Brazilian government to engineer policies to great more job growth and provide adequate public services with regards to education, health, and basic sanitation, according to the BBC on October 27, are contributing to the economic malaise that the nation is now facing.
The day after the election, investors expressed their displeasure with the result by pulling money out of the Brazilian stock exchange and its currency, the real. Reuters notes that the real closed at 2.52 per American dollar, the weakest level that the real has closed at since April 2005. In addition, Petrobras stock fell by 12% last Monday, the biggest one-day drop in the stock’s trading in six years. The Guardian article previously cited explains that the national stock market lost six points the day after the election. Clearly, the investors gave Rousseff a financial vote of no confidence, so it will be incumbent upon her to appease them in some manner. One of the demands of the business community is to replace Finance Minister Guido Mantega with someone that is more effective. The government has announced that Mantega will be stepping down at the end of the month and Business Week argues on October 30 that Rousseff should consider looking outside of the PT for the post. Selecting an outsider may show foreign investors that Rousseff is serious about fixing the economy because she will not let partisanship dictate policy. Business Week adds that Rousseff should appoint a technocrat to succeed Edison Lobao as Energy Minister. The Ministry of Energy handles Petrobras, which is now $44 billion in debt due to Rousseff demanding that it buy gasoline from other countries and sell it at reduced prices to Brazilian consumers. Fixing Petrobras’s debt will be a critical issue over the next four years as many Brazilians see the country’s oil resources as a national treasure and they will be unwilling to tolerate more corruption or waste within it. However, some fear that Rousseff may not listen to what investors want as The Global Post on October 27 writes that her supporters criticized investors for throwing a “tantrum” in the market.
Still, it is very likely that Rousseff will do something on the economy for the simple fact that Lula da Silva will probably run for the presidency in 2018. Brazil’s constitution bars a president from serving more than two consecutive terms, so Lula will be eligible to seek the office again. Lula will not be able to win re-election, though, if the economy is in poor shape. It is expected that Neves will run for the presidency again, so if the economy does not improve that will serve to strengthen his pro-business arguments. Already it appears that Brazil is making positive steps toward changing its economic policies. The Latin American Herald Tribune on October 31 reports that Brazil’s central bank raised interest rates to 11.25%, an increase of a quarter of a point and the first increase in rates since April. Although Brazil’s central bank is independent, the fact that Rousseff was mum on the rate hike is indicative of her approval of the move. Forbes on October 29 writes that if Rousseff wants to improve the economy over the next four years she needs to ease the anxieties of Brazilian corporations who fear high inflation and high interest rates. By reducing government spending some of these inflation fears might be tempered and if the government is willing to flirt with structural reforms to the Brazilian labor market that might bolster confidence as well.
Governing Effectively
Outside of the economy, Rousseff is hoping that she can enact political reform. This was not something that was at the center of her agenda on the campaign trail, but it is very popular with young Brazilians and elements of the country’s growing middle class. Reforms that Rousseff wants to pursue include a campaign finance law that would eliminate money from politics and increase the threshold that parties have to meet in order to enter the national legislature. The Economist on November 1 writes that the proliferation of minor parties into the National Congress makes it very difficult to pass effective legislation and it encourages corruption as larger parties give favors to minor parties in exchange for votes. The Economist on October 27 noted that in January 2015, twenty-eight parties will enter the National Congress, which is an increase from the twenty-two that are there now. The PT actually lost seats in the general election despite Rousseff’s victory, so this will make it very difficult for her to push reform (the PT still has the largest coalition in the National Congress, though, with 304 seats). In 2013, protests forced the National Congress to consider political reform, but minor parties were unwilling to cooperate (no surprise there). With a weak mandate after the election, it is unclear whether Rousseff will be able to push political reform through.
Another problem Rousseff might face is bringing the country together. As The Economist explains, PSDB elders believe that they lost the election because they were not aggressive enough in attacking Rousseff and the PT. They may plan to use the National Congress as a vehicle to bolster Neves’s chances of winning the presidency in 2018 and indeed, Neves is a sitting senator so he will continue to play a prominent role in PSDB and national politics. Rousseff talked of bringing the country together in her victory speech, but she did not mention the PSDB or Neves, which may be a sign, according to The Economist, that things are not really going to get better. If Rousseff fails to work effectively with opposition in the National Congress her second term could be marked by gridlock, inefficiency, and increased polarization among the country’s economic classes. Polarization is a big problem because the PT’s supporters will demand an improvement to social welfare spending as a payback for their support of Rousseff’s campaign. Thus, Rousseff must balance the demands of her supporters with what is acceptable to the country’s investors in an attempt to grow the economy and reduce disaffection among Brazil’s middle and upper classes.
Rousseff’s domestic mandate will probably not affect her international standing, where she has positioned Brazil as a leader of South America. The Center for Strategic and International Studies writes on October 27 that foreign policy is not a top priority for Rousseff, but her re-election means that Brazil will continue to chart an independent course from the United States. Extempers can expect Brazil to continue working with other BRIC nations and to push for UN Security Council reform. The Center recommends that the United States should engage with Brazil’s leadership to improve trade and soothe the fallout of the National Security Agency (NSA) spying activities in the country. Still, a significant improvement in Brazil’s relations with the United States is not likely to happen under Rousseff because she does not deem it to be a top priority and Brazil’s economic interests appear to be concentrated on China and other growing powers in the developing world instead of the U.S.
Another reason that Brazil’s relationship with the United States may not improve is because of Rousseff’s stance on protecting the environment. In 2010, Rousseff argued that she favored sustainable development of Brazil’s natural resources and that she wished to conserve the rainforest. Advocates for indigenous peoples and environmentalists supported her, but her first term, as Think Progress explains on October 30, saw her place economic development over environmental protection. For example, Rousseff has backed the construction of the Belo Monte Dam that would flood 1,500 square kilometers of rainforest (akin to flooding an area the size of the state of New York) and displace 40,000 indigenous people. Rousseff has also overseen a significant increase in rainforest deforestation. The weak PT record on the environment is one of the reasons that Marina Silva backed Neves in the presidential runoff and in fact, Neves acquired the support of a large number of environmentalists. The debate over how Brazil develops areas near the rainforest is a controversial one for the country and the world. How far can the world go, or should it go, to protect the rainforest? Does Brazil own the rainforest and does the international community have a right to tell it what to do there? There are significant questions about national sovereignty, environmental protection, and globalization that factor into answering such questions and Rousseff’s second term will see debates over environmental issues continue. Pressured to get the economy going, she may continue to turn a blind eye to deforestation, but doing so may allow the PSDB to posit itself as a protector of the nation’s environmental treasures and win over voters in the next presidential election. It may also lead to a fight with other nations such as the United States that are working through the United Nations to protect the world’s rainforests.
The next four years will be very crucial for Brazil. It hosts the Summer Olympics in 2016 and the event is supposed to be a coming out party for the nation, much like the World Cup was last summer. However, Rousseff must enact the necessary reforms to alleviate corruption and get the economy going again. A failure to do so would not only harm her historical legacy, but could setback the country’s significant economic achievements over the last two decades.