Nation, World + Society

What's behind Brazil's economic and political crises?

UCLA experts weigh in on turmoil the country is facing on multiple fronts

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Protesters against corruption march in Brasilia
Wilson Dias/Agência Brasil Fotografias/Creative Commons

A mass protest against corruption breaks out in Brasília on March 13. Brazilians are tired of the political chaos and economic crisis, says a UCLA Ph.D. candidate in political science.

Five UCLA experts from across the campus recently assembled a big-picture view of the political turmoil, economic crisis and investigation into widespread corruption that are shaking Brazil to its core.

“These are turbulent times in Brazil,” said Fabrício Fialho, a UCLA Ph.D. candidate in political science, who moderated a panel discussion hosted by UCLA Center for Brazilian Studies for an audience at the Luskin School of Public Affairs. “It’s hard to predict what comes next and its consequences for the future of the largest country in this hemisphere.”

The situation for the country that is scheduled to host the Summer Olympics beginning on August 5 is dire: On Thursday, President Dilma Roussef was removed from office, stepping down for a period of 180 days while an impeachment process proceeds on charges that she violated the country’s law on fiscal responsibility. Roussef is by no means the only politician in trouble. More than half the members of Congress are currently under investigation as part of a massive corruption scandal linked to the state oil and gas firm Petrobras.

In Roussef's place, Vice President Michel Temer is now at the helm and assembling a new government in what Roussef defiantly charges is a nonmilitary coup.   

At the same time, the country’s economic growth has slowed precipitously, due to a ballooning deficit, falling oil prices and structural inefficiencies.

Currently, conservative parties are poised to dominate the post-Roussef government, but there is no end in sight to either the economic or corruption crises presently gripping the country, said panel members Roberto Véras de Oliveira, associate professor at the Federal University of Paraíba and a UCLA visiting scholar; William Summerhill, UCLA professor of history; Barbara Geddes, UCLA professor of political science; and Manoel Gehrke, UCLA Ph.D. candidate in political science. 

Fiscal deficit drives economic crisis

The heart of the charges of fiscal irresponsibility against President Roussef revolve around short-term, off-the-books loans the government obtained from government-owned banks, Summerhill explained. As revenue arrived in the treasury, the government immediately repaid the loans. Over time, however, it could not keep up with the repayments. 

While the baseline “structural” value of these loans was roughly 1 billion Brazilian reals per year from 2001 to 2008, the volume of these loans later exploded, reaching some $58 billion by 2015. This level of spending, he said, led to inflation (10 percent in 2014) and has undermined the efficacy of Brazil’s Central Bank.

The soft loans were used primarily to fund “a complicated array of subsidies” to big business across economic sectors that has created market distortions and reduced the efficiency of the Brazilian economy. These distortions also represent structural impediments to effective state investment, the historian explained. As a result, investment in capital goods in Brazil, more or less, zeroes out, despite huge public spending that represents 40 percent of GDP.

Brazil’s fiscal crisis is the main driver of its current economic woes, Summerhill said. Today, he concluded, the market has no confidence in the country’s fiscal policy, and, as seen in the collapse of real investment, even entrepreneurs have downgraded Brazil, he said.

A crisis in government

Geddes, a UCLA political scientist, explained what is happening on the government front.  

“[Roussef] is being impeached for a minor infraction, but there’s an aspect of the situation here that's like prosecuting Al Capone for tax evasion,” she said. “What she is accused of is not a big deal — lots of people have done it, and other people didn't get impeached for it. 

"On the other hand, while she's been in charge, amazing levels of stealing from the state has taken place. … The extent of corruption — the very large number of deputies and other political figures that are involved — means that it won’t be just the president who falls, but a large part of the Brazilian political class that is not long for this world.” 

Because of Brazil’s fragmented multiparty democracy, Geddes explained that the president never rules with a majority and needs the support of multiple legislative parties to accomplish anything. Local pork projects and patronage are essential to making the political system work.

“The great irony, and the thing that‘s so upsetting about the current situation in Brazil,” said Geddes, “is that we have Brazil’s most ideological and disciplined party (the Workers’ Party) — the party that was considered honest and that was going to bring about a real change in distributive issues in Brazil — and it apparently ends up relying on corruption to hold the president’s legislative coalition together.”

Yet Geddes held out a note of hope, arguing that the crisis might lead Brazilians to reassess what they want from their government and produce a “real change in the political path.”

Investigation implicates most of Brazil’s political class 

Gehrke, also a political scientist, gave the audience a detailed background on the investigation into the Petrobras scandal that threatens to bring down three governors, 12 senators and two government ministers for corruption.

The Operação Lavo Jato (“Operation Car Wash”) investigation into the Petrobras scandal was begun by the Brazilian federal police and judiciary in March 2014. Authorities uncovered a bid-rigging cartel created by the biggest Brazilian construction companies for service contracts with Petrobras, Gehrke explained. For the past 10 years, legislators were bribed to appoint Petrobras directors, who received kickbacks on overpriced contracts and prevented Petrobras from investigating those contracts.

While most of the huge margins on the contracts went to cartel members, Gehrke said that a certain amount of the profits went to money launderers, who redistributed these funds to politicians and three political parties. The cartel’s profit from the scheme averaged 2–3 percent of the annual revenue of Petrobras, Gehrke said. 

Although most of the CEOs of the companies involved are now in jail, Gehrke explained that some are already out of jail because they named politicians complicit in the scheme.

The Lavo Jato and other investigations have led to serious allegations against high-level actors across the political spectrum, including President Roussef, former President Luiz Inácio Lula da Silva, the presidents of the Chamber of Deputies and the Senate, and others.

Brazilians are tired of the political chaos and the economic crisis, which may lead to some kind of deal that would avoid damaging the entire political class, he speculated.

Several processes converge

According to Brazilian sociologist Véras de Oliveira, several social processes have been converging simultaneously over the past four years in Brazil: a systematic campaign against the Workers’ Party for corruption; the huge growth of new evangelical churches and their political representatives; and rising fascist attitudes among middle-class people.

In his view, the wave of mass social protests in Brazil that began in June 2013 fell into two categories following Roussef’s reelection in 2014 — protests in favor of impeachment organized by right-wing political groups, primarily by means of social networks, and protests in favor of democracy and human rights (and against a possible “coup”) organized by unions and social movements.

The populist Brazilian Democratic Movement Party, the party of Vice President Temer — and the conservatives are now in the ascendant, he said. 

The panel discussion held May 4 was co-sponsored by departments within the Luskin School of Public Affairs and UCLA College as well as the UCLA Institute for Research on Labor and Employment.

Read the complete story posted on the UCLA International Institute website.

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