The dust has settled on the controversial change of government in Brazil, but the new President Michel Temer could well find his carefully planned and long-awaited victory over Dilma Rousseff a distinctly pyrrhic one. Following a lengthy impeachment process, Ms Rousseff was forced to resign after the Senate voted for her ouster by a margin of 61:20. But her ouster has not changed the grim situation; the economy is suffering its worst recession in three decades. It shrank 3.8 per cent in 2015 and is expected to shrink by a similar amount this year. The unemployment rate has crossed double digits, inflation has come down but still hovers around nine per cent, while public debt is around 67 per cent of the gross domestic product (GDP). Ms Rousseff’s mismanagement and her failure to rein in corruption – the biggest instance being in state-owned petroleum producer Petrobras – have undoubtedly compounded the problems of the long global slowdown and consequent downturn in the commodity cycle that saw the country’s export markets collapse.
These are issues that Mr Temer will have to tackle quickly under the intense scrutiny of the global investing community. Indications that he is better equipped to do so are, however, not yet in evidence. First, there is the question of a lack of political capital. He belongs to the PMDB, Brazil’s biggest political party that has not been in power for two decades. How will he deal with the deep-rooted corruption scandals in which dozens of MPs, cutting across party lines and including many of those in Mr Temer’s party, are embroiled? This is even more of an open question given that his is a minority government and will need support from the opposition party. Doubts about his ability also arise because he has been a key partner in the Workers’ Party coalition since 2002, when the charismatic Luiz Inácio Lula da Silva’s presidency began. Mr Temer was the vice-president under Ms Rousseff and, in fact, he is said to have played a significant role in pushing the policy of state-led investments, a major reason for the crisis in government finances that doomed Ms Rousseff.
Mr Temer’s biggest challenge lies in managing the competing calls on public spending, most of which require Congressional approval or constitutional change. Following Ms Rousseff’s ouster, the serial protests by Workers’ Party supporters and cheering by the business community represent the level of polarisation in the country. The popularity of the Workers’ Party was largely the result of Mr Lula’s ability to leverage the commodity boom to simultaneously boost welfare spending and pursue market-friendly policies. The former helped millions out of poverty but faltered when the world economy shrank. The so-called pro-market policy principally involved periodically capitalising the state-owned bank, the Brazilian Development Bank (Bndes), which, in turn, offered significantly cheaper loans to the country’s largest corporations. Mr Temer’s party’s agenda includes reforms, such as easier hire and fire rules, that will please the business community but do not wean them off cheap government credit even as they envisage cutbacks in health and education spending. This is scarcely an agenda for social stability. As elsewhere in Latin America, Brazil’s crisis remains an object lesson for the emerging world.
