Why Brazil’s crisis could get worse

Editor’s Note: Brian Winter is editor-in-chief of Americas Quarterly and vice president of Americas Society and Council of the Americas. The views expressed are his own.

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Brazilian lawmakers voted on Sunday to impeach President Dilma Rousseff

Brian Winter: It could be a while before things in Brazil start to get better

CNN  — 

With soccer-style cheering and a shower of confetti on Sunday, Brazil’s Congress voted to impeach President Dilma Rousseff. Yet despite the wishful thinking of legislators and financial markets alike, there is a high risk that the country’s crisis will still get worse before it gets better.

Rousseff, a 68-year-old leftist who spent three years in prison under a military regime in the 1970s, has vowed not to go quietly. Because of the rules of impeachment in Brazil, she will likely be President for at least another few weeks – and it could be as late as November until she is definitively removed from office.

That’s a recipe for political problems, especially since Rousseff’s Workers’ Party still has a hard core of support from roughly a fifth of Brazilians. Many of them belong to labor unions, social movements and other groups that will decry any future government as the illegitimate product of a “coup.” These groups have the organizational power to disrupt society with strikes, protests and roadblocks.

Brian Winter

The backdrop to all this is Brazil’s worst recession in at least 80 years, and maybe ever.

The economy shrank 3.8% in 2015 and is expected to contract another 3.5% this year. Only three months before Rio de Janeiro hosts the Olympics, its state government says it is running out of cash for public salaries and basic services. Even the most optimistic forecasts don’t see a true economic recovery starting until mid-2017. It has been a shocking decline for a country that last decade dazzled the world with commodities-driven growth and seemed on a path to achieve a standard of living similar to countries such as Portugal or Croatia.

The good news is that there’s really no mystery to fixing what ails Brazil. The government needs to plug its budget deficit (which hit a whopping 10% of GDP last year) back under control, cut red tape, open up at least a bit more to trade, simplify what the World Bank considers the world’s most complicated tax code and generally make Brazil an easier place to do business.

The bad news is that all of these steps are politically difficult. And that’s where the “With Rousseff gone, Brazil will immediately get better” theory starts to fall apart.

If all goes as expected, Vice President Michel Temer will assume the presidency next month on an interim basis while Rousseff is put on trial in the Senate. Rousseff has accused Temer, a 75-year-old constitutional lawyer, of being a “coupmonger” and a traitor.

Meanwhile, because of the rotten economy and multiple corruption scandals under investigation, polls show that Brazilians have lost faith in their political class generally – not just in Rousseff. Only 16% of Brazilians say they expect Temer would be a “good” president; 58% say Temer should be impeached, too. Several leaders of Temer’s party, the PMDB, are themselves charged with severe corruption.

Does that sound like someone with a mandate to make the tough changes needed to turn the economy around?

To be sure, Temer could turn out to be a positive surprise.

Markets are certainly betting on that – pushing Brazil’s stock market up about 35% so far this year. Indeed, Temer is likely to surround himself with talented economic officials who Wall Street knows and respects. He will enjoy the goodwill of a large swathe of Brazil’s political and business establishment, many of whom have grown weary of the Workers’ Party after 14 years in power.

There is also a good precedent: When Brazil last impeached a president, in 1992, nobody expected much of the inexperienced successor. Yet Itamar Franco recognized his role as a transitional figure, built consensus and laid the groundwork for a successful wave of pro-market reform.

Still, that was then. The Brazil of 2016 is a more polarized country dealing with a far deeper economic slump. Fixing the hole in the budget and streamlining the bureaucracy will in practice mean sizable spending cuts, potential tax increases and the loss of privileges for certain special interest groups. Most of those measures will require the support of Congress – Temer cannot do them alone. As such, he will have only the narrowest of windows to convince Brazilian society that he is not a “cruel” “neoliberal” out to do the bidding of “elites” on Wall Street and elsewhere.

Assuming Rousseff is indeed removed from office, it may indeed take a new election to produce a president with the popular backing that Brazil sorely needs to fix the economy’s problems. The next presidential election isn’t currently scheduled until late 2018. There are some circumstances under which the election could be moved forward, but it’s unclear whether Temer and other politicians would support that. No matter how you look at it, it could still be a while before things in Brazil start to get better.

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