Contrasting Perspectives on Brazil's Current Troubles

Despite their opposing views, Sérgio Fausto and André Singer agree that the crisis will be long and difficult but Brazil’s democratic institutions will withstand the test and the country will emerge stronger from its current predicament

A summary of discussion held on April 9, 2015

5th Floor Conference Room, Woodrow Wilson International Center for Scholars

Speakers:

André Singer, Professor, University of São Paulo

Sérgio Fausto, Executive Director, Fernando Henrique Cardoso Institute

Moderator:

Paulo Sotero, Director, Brazil Institute

Four months into her second term in office, President Dilma Roussef faces a political and economic crisis described by politicians and commentators as “the most serious” in over two decades.  A stagnated economy combined with a demoralizing corruption scandal involving the state oil company Petrobras, has led to what is perhaps the weakest executive government branch in Brazil since the return to democracy in the mid 1980’s. 

On April 9th, 2015, the Brazil Institute brought together André Singer and Sérgio Fausto, of opposing camps in policy debates, to present their assessments of what lays ahead for Brazil. The meeting, which took place in the 5th Floor Conference room of the Woodrow Wilson International Center for Scholars, was moderated by Paulo Sotero, Director of the Brazil Institute. Singer is a political science professor at the University of São Paulo and former press secretary to President Luiz Inácio Lula da Silva. Fausto, a sociologist, is the Executive Director of the Fernando Henrique Cardoso Institute. Despite opposing opinions with regards to economic adjustments and fiscal reform, both concurred that overcoming the current crisis will require meticulous negotiations which may, in turn, lead to a change in the political landscape.

Sergio Fausto held that the economic model implemented during Rousseff’s first term in government proved untenable, demanding that four major economic adjustments be adopted simultaneously: fiscal adjustment, external accounts adjustment, adjustment of controlled prices, and inflation control. If implemented correctly, these economic moves will lead to the long term stability that Brazil so urgently needs. Nevertheless, the short-term social costs of such policies will be inevitable, affecting the middle and low income classes most severely – “the most important sector of the population in electoral terms, and also the sector that has experienced an upward social mobility in the last twelve years and is now facing a very different situation.”

On the political front, Fausto highlighted two pressing issues: political credibility and functioning coalitions in Congress. While admitting that the current crisis “is a challenge for any government, but especially for a government that is weak,” Fausto explained that the current predicament was self-inflicted and partially inherited from the government prior to President Dilma’s. Shifting the blame to her predecessors is a challenge, given the fact that she was present when the problematic and unsustainable policies were adopted. “This generates a credibility deficit, in relation to market agents, and social credibility deficit in relation to those who voted for Dilma in last year’s election, on a platform that was antagonistic to the policies being adopted today.” 

The immediate repercussion of the weakened government has reached Congress, where keeping Dilma’s coalition functioning has proven more difficult than expected.  “This is the most fragmented Congress we have ever had since the return to democracy.” In addition to the impact of the crisis, this is a structural problem, “the political system as a whole, the congress and government, are under tremendous stress stemming from the Petrobras scandal, leading to difficulties in managing the parliamentary base in Congress.”

Notwithstanding the friction of the political and economic crisis, Fausto aligns with the optimists. The government is weak, but it is not likely to continue to get weaker, and in fact, some might argue that it is beginning to get stronger. Minister Levy has unequivocal support from President Dilma to implement the needed economic adjustments. More recently, Vice President Michel Temer has been given sole responsibility as chief political negotiator of the government with Congress. This is an important political achievement. “The inner circle of the government has improved its quality significantly in the last couple of weeks.”

Impeachment is not a real possibility. “Major political and economic actors have no interest whatsoever in rocking the political boat, because the costs far exceed the benefits. Paradoxically, we are living through an acute crisis, but institutions are robust and working well.” Not only do the executive institutions have the necessary tools to manage the situation, but the relationship between Congress, the judiciary, and the executive branches is working well. 

This is perhaps, according to Fausto, the most robust component of the Brazilian model, which bolds well in terms of future stability. “The digestion of the crisis will take time, but we will return to normality,” hopefully, with more improved institutions, with a more active and autonomous civil society, and having learned that “macroeconomic stability is not a new liberal flag, but something that is good for the country as a whole.”

André Singer concurred with Fausto in so far as the positive prospects for the future, but emphasized that the current crisis is strictly political, not economic.  “The economic adjustment is not necessary, but rather a political option that was pushed by the capitol and forces of the center-right, inside and outside of Brazil.” From stagnation to recession, the government’s decision to implement these reforms will have important economic costs, affecting unemployment and wages. The extent of the recession that the adjustment is causing will undoubtedly affect the depth of these social costs. “If the recession is massive, we might see some form of social turmoil,” which is a component we cannot control directly. According to Singer, who opposes the economic adjustments altogether, “the government must care obsessively about making the social consequences as low as possible.”

Currently, Brazil is facing three challenges, “a corruption scandal, growing difficulties with the parties that form its political base in Congress, and an economic problem.” With regards to the Petrobras corruption scandal, Singer emphasized that the structural aspect of it is nothing new, neither in Brazil nor anywhere else in the world, “it is a problem faced by all democracies, to varying extents.” However, its effect on the Workers’ Party has proven to be significant.

In addition, the parties allied with the government in Congress are divided. The presidency of the Chamber of Deputies and the Senate are both members of the PMDB (Brazilian Democratic Movement Party), which is normally the principal ally of the Workers’ Party but has turned out to be in reality the main opposition party to the president. Singer sees in this discrepancy a significant component of the crisis. “The presidents of the Senate and the House of Representatives are being investigated in the latest corruption scandal, putting them in a weak positon.” Nevertheless, even from a weakened position, they are successfully implementing changes, such as a recent decision regarding the long debated reduction of the penal age for imprisonment and measures allowing enterprises to outsource service to workers not on their payroll. Another proposal being pushed by the president of the Senate involves granting formal independence to the Central Bank, a contentious issue over which the right and the left clash. Singer noted that, “perhaps we are seeing, to some extent, an important conservative political turn in the country led by a Congress that is itself weak.”

Singer’s main concern with the social costs of the fiscal adjustments is the possibility of losing the reformist perspective brought by the Workers’ Party and the gains achieved by Lulismo. This political phenomenon used incremental reforms to integrate a large sector of Brazilian society, which was otherwise marginalized, into the market economy. “It was a capitalist program, but a specific type of capitalism, one that prioritized integration,  and these current changes in the economic model put those gains into question.”

Yet, in terms of the crisis as a whole, Singer said he strongly believes there will be positive outcomes, mostly due to the robust and resilient institutions in place today. “We can emerge from this with a stronger, more mobilized, democracy and civil society.”

Conclusion

The economic and political crisis currently plaguing Brazil sheds light onto a number of challenges that have emerged, from political legitimacy, to power dynamics in Congress, to the paralysis caused by the Petrolão. Central to the debate of the economic and fiscal adjustments is the pressing concern for maintaining the social gains achieved over the past decade and the extent of the inevitable recession. Fausto argued that fiscal adjustments are paramount to long term economic stability, but that the short-term social implications and economic recession are likely to be severe. Central to his premise is the notion that macroeconomic indiscipline has been extremely costly for Brazil, and that macroeconomic stability is the only way forward.

Singer, to the contrary, believes these adjustments were strictly a political decision. He sees the short-term result of the recession as hugely concerning, especially in regards to its effects on the social development the Workers’ Party helped bring about over the past 16 years. 

Despite being of opposing teams in policy debates, the fruitful discussion between André Singer and Sergio Fausto led to two converging conclusions:

1. The path out of the current troubles will require significant negotiations, and will potentially lead to a shift of the political landscape.
2. Despite prevailing pessimism, democratic institutions Brazil built in the past three decades are resilient enough to allow the country to overcome the crisis and emerge stronger than before.

Summary by Anna Carolina Cardenas, Program Assistant, Brazil Institute

*Photo courtesy of Agência Brasil.