The looming impeachment of Brazilian President Dilma Rousseff is about more than cooking the books to hide election-year spending or looting the state-owned oil company for her campaigns and cronies. What’s really on trial are Rousseff’s socialist policies.
Those policies drove up deficits to win votes, bet too heavily on exports to China and not only failed to retool the world’s ninth-largest economy to compete in the world but drove it into a recession.
Rousseff was first elected in 2010 on the coattails of her mentor Luiz Inácio “Lula” da Silva — a leftist labor leader who exceeded expectations as president from 2003-2011. Da Silva benefited from the windfall of revenue from exports of oil, natural gas, minerals and agriculture goods — which convinced him that his bloated anti-poverty programs were sustainable.
Unfortunately, both da Silva and Rousseff ignored the dire need to improve education, reform tangled tax codes, fix stifling labor laws, invest in infrastructure or make it easier to create or operate a business.
Protectionist policies intended to preserve Brazilian jobs and industry drove away foreign investors. Instead of jumpstarting private-sector growth and controlling government spending, they expanded welfare programs that drove up their popularity among the very poor.
By the time Rousseff sought reelection in 2014, polls showed that Brazilians blamed her for sluggish growth and rejected her handling of taxes, poverty, hunger and education. But her party machine mobilized poor voters to win a narrow victory over a pro-business reformer.
When the price of oil and other commodities began to drop along with Chinese demand in 2014, Rousseff allegedly hid election-year spending. That deceit is the legal basis of the impeachment vote in Congress’ lower house on Sunday; if a simple majority of the Senate concurs in this judgment some time in the next month or so, Rousseff will be replaced temporarily by Vice President Michel Temer pending the final outcome of a Senate trial.
In recent months, millions of protesters have called for Rousseff’s ouster and da Silva’s prosecution on corruption charges. Wide-ranging investigations have jailed powerful executives and party leaders for conspiring to fund campaigns and bribe politicians using the kickbacks from the state-owned oil company, Petrobras.
Indeed, over half of the members of both houses of Congress are accused of corruption. Rousseff sealed her political fate in mid-March when she offered da Silva a job in her cabinet to shield him from a local prosecutor. That brazen act exposed the president as a willful participant in a coverup.
There’s little doubt corruption has been the catalyst in Rousseff’s downfall. But she might have been able to ride out the storm if not for the economic woes confronting the country.
For example, although welfare spending is credited with helping millions out of poverty, those who rose to the middle class soon discovered that the government’s promises of better jobs were empty.
Also, Brazilians now realize the dire consequences of their Congress bleeding Petrobras of essential exploration and operating funds, as the company’s production waned and its stock value plummeted in recent years. The country slipped into a recession within months of Rousseff’s reelection in 2014, and the economy now is expected to shrink by around 3.7 percent for the second year in a row. Brazil’s inflation and unemployment are creeping up, and “business confidence” is half what it was in January 2010.
Although the recession can be traced to the 70 percent drop in the price of oil and other commodities, Brazil’s politicians also clearly depended too heavily on Chinese demand for commodities so they wouldn’t have to do the hard work of reforming their economy. As Warren Buffet has observed, “When the tide goes out, you find out who’s been swimming naked.”
Yet Rousseff may survive this. The chief justice of the Supreme Court (packed with judges by Rousseff’s own party) has even hinted it may “review” the grounds for impeachment. It seems that the leftist party is prepared to shatter the country’s institutions and economy to keep power and evade accountability.
The political crisis in Brazil is part of a trend in South America — from Argentina to Venezuela, from Ecuador to Bolivia — in which voters have rejected power-hungry populists who have wrecked their economies. The lesson is clear: Leftist politicians who don’t know how economies work shouldn’t try to run them.
Roger F. Noriega was US ambassador to the Organization of American States and Assistant Secretary of State for Western Hemisphere Affairs from 2001-05. He is a visiting fellow at the American Enterprise Institute.