Institutions and Competition

Brazil's impending governability crisis

July 5, 2015
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Having reset relations with Washington and wooed business and high tech leaders in New York and Silicon Valley president Dilma Rousseff of Brazil flew home to a 9 percent approval rating and opponents demanding her impeachment.

 

Obama offers praise but no new money

President Obama anointing Brazil as a “major world power,” high profile meetings with global economy architects Madeline Albright and Henry Kissinger and a massive social media campaign by Dilma's new communications minister can't hide the fact that Brazil's economy is in big trouble.

 

Jason Furman, chairman of president Obama's Council of Economic Advisers said recently that Brazil shouldn't count on the United States. 

 

Folha and other Brazilian media are starting to frame the story as a “governability crisis.”

 

After thirteen years of Workers' Party government servicing the debt to finance the social programs enacted by Dilma and former president Luiz Inacio Lula da Silva now eats up two thirds of the nation's annual gross domestic product.

 

An ideological split in the Workers' Party?

Lula recently called the situation “the end of utopia.”

 

Having already announced that he is running for president in 2018 Lula has been vacillating about his support for his hand-picked successor- president Dilma- criticising her and then praising her. By doing this he is promulgating an ideological crisis in the Workers' Party.

 

Although Dilma won a second term in last October's national elections by a narrow margin her Workers' Party lost control of congress and she now operates in a classic divided government scenario.

 

American-style political gridlock

Both the president of the senate and the president of the lower house are behaving like they are president of Brazil and are filibustering reforms that will change the political and economic future of the nation.

 

Term limits, elimination of mandatory voting, liberalization of campaign financing and a constitutional amendment implementing a president-prime minister form of government are all in limbo.

 

Under pressure from the international financial community Dilma and the congress in January rapidly approved the neoconservative tactics being used to by the finiance minister and central bank that have slowed the economy by raising the cost banks pay to borrow money.

 

Caught in the classic “middle income trap” working families struggling to make ends meet are paying 300 percent annual interest on credit cards issued by commercial banks that are posting record profits.

 

Brazil is on the bubble of recession, double digit inflation and nationwide social unrest.

 

Financing big government is a dangerous financial burden

Funding a cabinet that operates with 39 secretaries who regulate all aspects of mainstream business in the world's 7th largest economy is another part of Brazil's economic crisis.

 

Analysts call the sticker shock associated with doing business in the land of the samba the “Brazil cost.”

 

Brazil's political class roils at hearing the meme. But if you talk to the American Chamber of Commerce in Brazil or experts at the pro-business Getulio Vargas Foundation in downtown Sao Paulo, they'll tell you everything you need to know about it.

 

None of the long term trade deals Brazil inked in Washington are likely to eliminate the “Brazil cost.”

 

In contrast, the United States operates with half as many cabinet secretaries as Brazil and has become adept at quickly adapting to changes in the global economy.

 

Russia and Venezuela operate with 32 cabinet ministers. China, which is now bankrolling Brazil's economy through a $52.6 billion oil and infrastructure deal that includes dual-use nuclear technology, has 25 ministers. .

 

Hoping to use her presidential mojo Dilma and the leadership of the Workers' Party are pressing congress to approve major reforms that can help restore Brazil's reputation with international credit rating agencies before they recess for vacation later this month.

 

While millions of Brazilians can't afford to take their families to the beach, it's no problem for Brazil's congress. They recently voted to double their salaries.

 

note: this article is cross posted from my opinion column on The Huffington Post-Worldpost blog entitled "Trouble in Paradise"

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