Rousseff’s Call for Dialogue and Change: The Contradiction of Promise and Reality

The recent elections in Brazil were very close with the incumbent president Dilma Rousseff from the Workers Party (PT) winning the election by a small margin of 3% against the pro-business candidate Aecio Neves from the Brazilian Social Democratic Party (PSDB). .

Although the result did not bring about a change of government, it definitely shook up politics as usual in Brazil.

The vote shows a deep division in the country between the richer South and the poorer North. The North has been the largest recipient of social welfare programs from the Federal government. It is precisely because of these welfare policies that a large majority of people in the North voted for Rousseff, giving her a narrow margin of victory. . The business sector, unhappy with high taxes and other obstacles imposed on them definitely voted against Rousseff. The middle class, that was the key to the protests over the poor quality of health and educational services last year, also voted against Rousseff.

Bottom line, it is populist policies that enabled Rousseff to get reelected.

Yet, as soon as the results were announced, the president stated that she will change her ways and spoke about the need for reform.

Rousseff called for a dialogue, implying that she will further include opposition voices in the decision making process. She also promised investors immediate economic reforms to secure economic growth. Such pledges brought about a rise in confidence as was reflected in gains in the stock market.

These declarations look like Rousseff understands that the result of the election is not just a victory but a call for inclusion, not just of the poor and disenfranchised but also of the middle classes.

If indeed she moves in this direction, it would be almost unprecedented in Latin America where the usual rule is the winner takes all, namely, if a party won it feels entitled to rule as the president sees fits. The opposition in that case has to wait until the next election to get another chance to be in power. This is certainly the attitude of too many Latin American presidents, not just those who belong to the ALBA group but also other presidents such as Cristina Kirchner of Argentina on the left and the former president of Panama, Ricardo Martinelli on the center right.

It is hoped that Rousseff fulfills her promise of reform and acts as president of all Brazilians and not only of those who voted for her. If this turns out to be the case, we will see Brazil moving in a direction of consolidating and strengthening its’ democracy.

However… will that really happen? Of course it is easier to say than to do. .

Let us look at the facts. Brazil experienced economic growth of 7.5% in 2010, while in 2011 growth slowed to only 2.7%  , 1% in 2012, and 3 % in 2013, and for 2014 it is projected at 0.9%. According to Moody, an agency which provides credit ratings and research, reforms need to be aimed at reducing the fiscal deficit and securing growth. This requires immediate action, including the reduction of taxes on private enterprise as companies have seen their operations undermined by increasing taxation.

Indeed, increased taxation has made taxes into 36% of the GDP. Although Bolsa Familia, the program that provides help to families as long as they send their children to school, is still acceptable to the majority of Brazilians. The same cannot be said about the inflated government pensions and other programs that the Workers Party (PT) government has promoted. These programs come at the expense of huge taxes that undermine the ability of business to operate. The ideal reform would be to initiate a dialogue with the opposition and come to some sort of agreement.

The Workers Party officially claims that poor people are relatively more taxed than rich people. Therefore, it has suggested relief for the poor and the middle classes and increases on the rich. The argument is made not in the name of fairness, support for deficit reduction or increased productivity. This argument is aimed at providing funding for more subsidies for the poor.

Can Rousseff or would she compromise with the business sector on reforms that would secure economic growth and further productivity? I see little compatibility and I do not necessarily see the Workers Party grassroots or the social movements that support it as capable of accomplishing this kind of compromise since these groups are more radical than Rousseff. The grassroots of the PT as well as some of the social movements have expressed support for a radical social and economic agenda a la Chavez and have repudiated the inclusion of business in the cabinet. Chavez more than Rousseff or the former Brazilian president, Lula Da Silva has been the hero of these groups.

Rousseff has also proposed a political reform that she seeks to implement this year. She hopes to initiate a referendum to elect a constituent assembly to pass political reforms despite the fact that this referendum was rejected twice by the Brazilian Congress. Those in Congress argued that they should be the body to achieve political reforms and that this should not be achieved through a constituent assembly.

The political reform was demanded by Rousseff’s own party and by social movements and trade unions. These reforms were about supporting a constituent assembly to carry out changes to expand greater political inclusion and campaign finance reform to prevent private companies from influencing the political system.

The grassroots of her party and many of the social movements admire the system created by the constitutional reforms created in Venezuela and Bolivia.

So far, I have not found anything concrete in these proposals except the creation of a constituent assembly and the need for campaign finance reform. While the latter is understandable, the former is so unclear that it raises great concern. I assume that if a referendum on a constitutional assembly is approved it will polarize society even further.

Economic and social polices do not have to be part of a constitutional arrangement as the PT wants it. These polices can be the result of political compromises, public debate and transparency.

Is the referendum that Rousseff proposes a mechanism to obtain a majority to carry out policies that cannot be obtained through compromises? If this is the case, Rousseff will become not the president of all Brazilians-including those who did not vote for her- but the president of those who voted for her and support her.

One thing is clear. This election has demonstrated that economic and social populism has factually found its limits. We, of course, know about the case of Venezuela where a country used high revenues from oil to implement populist polices that helped secure re-election. We know Venezuela is now in a state of economic bankruptcy that not even the money from drug trafficking will be able to resolve.

But Brazil has been, for a number of years, considered a successful model where economic growth and populism co-exist. Not anymore. Populism brought about a huge fiscal deficit, high taxation, business disincentives and consequently also economic recession.

If populism has found its limits in Brazil, it will soon find it elsewhere in the region. Furthermore, the anti-capitalistic rhetoric that prevails today in several countries in the region, mainly in the ALBA countries and Argentina, also begins to weaken. Although the heads of state in countries such as Bolivia and Argentina are stubborn and will not admit it, the people will realize that only the private sector, business creativity and industrial growth can increase the national pie. Statist countries have never been able to achieve such steady growth.

This could be the beginning of the end of the populist reason.

In the international arena we should expect no change in Brazil’s foreign policy. Unfortunately, foreign policy was not even an important electoral issue in Brazil. Therefore, we are likely to see a further increase in Brazil’s approach to the Third World in opposition to U.S. and Western policies, particularly on issues related to security such as the war on terror.

As Latin America’s largest economy, Brazil’s economic growth has been disappointing as it has experienced a precipitous fall. Likewise, corruption scandals involving Rousseff’s party also reflect a pattern that is likely to aggravate as the same party remains in power for a long time.

Populism is not just an economic burden. It also makes the party in power feel more complacent and entitled as it enjoys a degree of popularity.

Hopefully this election will help put limits to such negative development. Likewise, we hope the opposition could apply some pressure on the government of Brazil to put an end to its problematic foreign policy. Yet, there is no reason for us to hold our breath.