Brazil at the economic and political crossroads

17th Apr, 2015

Brazil’s struggling economy has been a blight on the first few months of Dilma Rousseff’s second term as President.

In the elections which took place in October of last year she faced strong opposition from Aecio Neves, the candidate of the Social Democratic Party. It was a contest between Dilma’s social-program focussed manifesto, and Neves’ strong emphasis on international investment and business. In a country with compulsory voting, Brazil was at a crossroads. Dilma’s marginal victory (51.6% of the valid votes cast), combined with the on-going calls for her impeachment, soaring interest rates, depleting value of the Brazilian Real make for a volatile economic mood, and an even shakier Presidency.

Five months after the election, and a quarter of the way through a new year, Brazilians look back at their choices in a new light. Neves was the candidate of the Brazilian middle class’ dreams, a middle class which has grown to encompass 47% of the electorate. He proposed a changed economic program, greater freedom for the Central Bank and wanted to encourage more foreign investment. Neves was only narrowly defeated, putting Dilma’s presidency on less than solid ground. People have questioned how governable countries such as the United States are with a similarly even two-party divide. Perhaps the same can be said for Brazil?

Is South America’s most wealthy nation simply split down the middle and ungovernable?

Ungovernable or not, it is certainly financially unstable. TheBrazilian Real is currently worth roughly a third of the US Dollar. In February, interest rates hit a 9 year high. The economy is volatile, with many predicting Brazil will be in recession by the end of the year. Post-election, these frustrating circumstances and an economy in decline would make for an agitated mood in almost any country. Combine these factors with a corruption scandal and you have a recipe for mass protest and calls for impeachment.

When her new term began, Dilma appointed Joaquim Levy as her finance minister, reportedly handing him the reigns to redirect the lagging economy. Famously pro-austerity, Levy was a popular choice to fill the office, however responsibility for policies and austerity measures is still perceived as belonging to Dilma. From an outsider’s perspective, the choice not to curb spending on social programs when the economy is not so healthy may seem like putting principle over pragmatism. The predicted expenditure on social policies, such as renewal of the minimum wage (estimated to total 20.1 billion reals in 2016), seems like a good place to start with austerity measures. But, with a significant proportion of the Brazilian electorate standing to benefit from these changes, any cuts in this area would be political suicide. As a Brazilian friend explained to me, it’s not a cut economically-minded Neves would have made either.

Instead, and in contrast to austerity UK-style, Dilma has targeted pensions, introducing new benefit restrictions and increasing taxes. Caught between a rock and a hard place, these measures have still been unpopular, and Dilma’s involvement in the Petrobras corruption scandal has once again come to the fore. According to a recent poll by polling firm MDA, 59.7% of those surveyed now are in favour of Dilma’s impeachment, with only 10.8% rating her government positively.

It is true that since 1995 contest for the Presidency has been between two main parties: Dilma’s Workers Party and Neves’ Social Democratic Party. With Dilma’s current unpopularity and an opponent who came a very close second, it is a fair suggestion that victory in the next election will slip into the hands of her rival. How this compares with the system in the United States is a question we will address at a future date. In the meantime, it is clear that economic strains have worked in tandem with a particularly insecure presidency to forge a negative mood in Brazil.

Whether the Brazilian economy will enter recession by the end of the year but be able to revive itself remains to be seen. In a political landscape where complex social issues drive policy making, and would likely do so even with an economically focussed presidency, Brazil is at an economic crossroads and it is hard to discern which way it will turn.

Phoebe Ellis-Rees was born and raised in London but has lived in the Netherlands for the past three years. She spent time living in Brazil and since graduating from Maastricht University with her BA in Arts & Culture, has taken up a position in the antiques industry.