Good luck to Rousseff’s successor

Posted on September 4, 2016

BRASILIA, BRAZIL - AUGUST 31: Impeached President Dilma Rousseff delivers her farewell address in Alvorado Palace on August 31, 2016 in Brasilia, Brazil. Rousseff was impeached by the Senate and is now permanently removed from office while being replaced by new President Michel Temer. (Photo by Mario Tama/Getty Images)©Getty

Impeached President Dilma Rousseff delivers her farewell address

The Brazilian Senate’s decision to impeach Dilma Rousseff seals the political fate of the former president and ends nearly 14 years in power for her Workers’ party (PT). It also gives Michel Temer, her successor, the opportunity to stabilise the country and begin the painful process of reforms before the next scheduled elections in 2018. He is going to need luck and judgment in large quantities.

Brazil is politically restive, not only because many voters, including large numbers of favela residents, supported Ms Rousseff but also because the economy has contracted by about 10 per cent since 2014.

    Several recent indicators suggest the economy has touched bottom but, given the need to bring fiscal policy under control, wean the economy off credit and re-establish public trust in political institutions, full recovery is likely to take many years.

    The main challenge for the government will be to address the clientilist political system that has festered for many years with corrosive consequences for the economy and for Brazilian democracy.

    This system has generated persistent failure to improve low rates of national savings and investment, as well as cumbersome regulations and tax arrangements, resulting in poor competitiveness, weak infrastructure, low productivity growth and an escalating budgetary crisis.

    The failure to impose reforms helped give rise to the far-reaching anti-corruption investigation, focused on state oil company Petrobras. Prominent politicians and business leaders have been arrested, and people across the political spectrum have been ensnared. They include Mr Temer, the president, although he denies allegations that he solicited bribes in 2012.

    Brazilian politics

    Business cheers Rousseff departure

    People celebrate the impeachment of Brazil's President Dilma Rousseff in Sao Paulo, Brazil, Wednesday, Aug. 31, 2016. Brazil's Senate on Wednesday voted to permanently remove Rousseff from office 61-20, more than the 54 votes they needed. (AP Photo/Andre Penner)

    Michel Temer is under pressure to fix the legacy from the ex-president

    The government has shown some zest for enacting fiscal reforms. A high proportion of public spending is linked to inflation, and there are proposals to change the laws underpinning this. This is not before time since the ratio of public sector debt to gross domestic product is likely to reach 80 per cent in 2017
    . The budget deficit has surged since 2013 to more than 8 per cent.

    Such reforms would help transform fiscal governance without necessarily compromising the PT’s biggest accomplishment in social policy: the Bolsa Família.

    This anti-poverty programme, viewed by the World Bank as a global exemplar of poverty relief, costs little more than 0.5 per cent of GDP. It is credited with lifting millions out of poverty and lowering income inequality.

    Equally important is the need to address the fragmentation of the party political system. There are 32 registered parties, of which all but four are represented in the legislature. This has fuelled messy coalition politics, and intense competition for votes in the electorate and the legislature.

    Corporate donations have dominated election financing, and fostered widespread corruption and bribery as well as a feeling among voters that they are being excluded from political processes.

    Brazil's President Michel Temer speaks at a press conference on the sidelines of the G20 Leaders Summit in Hangzhou, in China's eastern Zhejiang province on September 4, 2016©Getty

    In a ruling in 2015, though, the Supreme Court ruled corporate election donations unconstitutional. This October’s municipal elections will be the first to be contested under this system, ostensibly relying on hitherto sparse individual donations and public funding.

    Provided the ruling is respected and covert corporate funding can be policed, Brazilian elections should become cleaner, less coalition-oriented. They are likely to favour larger incumbent parties at the expense of their smaller, elitist counterparts whose interests tend to align with vested business interests.

    Under former president Luiz Inácio Lula da Silva and Ms Rousseff, the PT came to power intent on breaking the mould of Brazilian politics. Yet, despite all the credit it can take for social change, it has also failed to set itself apart as a “clean” party. It now falls to another president and his colleagues, some of whom have been the subject of investigation, to start again.

    In the absence of reforms to politics and governance, the foundation and performance of this middle-income economy is unlikely to change much for the better.

    The writer is a senior economic adviser at UBS and author of ‘Uprising’

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