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Our purpose is to encourage the knowledge and the debate of issues connected with art and military science. Selection of articles attempts to reflect different opinions. Beyond any ideological ascription. In order to impulse critical thought amongst our readers.

miércoles, 18 de marzo de 2015

Brasil hacia la tormenta perfecta.

Rousseff’s Perfect Storm Signals New Era of Politics for Brazil

 
 
 
 
 
 
 
 
Brazilian President Dilma Rousseff leaves at the end of a government ceremony at the Planalto presidential palace in Brasilia, Brazil, March 16, 2015 (AP photo by Eraldo Peres). 
 
 
              
2015 has already been a very difficult year for Brazilian President Dilma Rousseff. After a hard-fought re-election last October, the most competitive in the past two decades, Rousseff is now confronted with the need to implement meaningful fiscal adjustments amid declining approval ratings and popular unrest, after hundreds of thousands took to the streets in protest Sunday. The series of negative developments since her re-election has been dramatic but is likely to get even worse, with Rousseff in the eye of a political perfect storm.

The scandal and ongoing investigations surrounding state-controlled oil giant Petrobras are the biggest concern, having implicated major Brazilian construction companies and dozens of politicians in an extensive kickback scheme. The costs of the scandal will be felt far beyond Petrobras and the oil sector, as the exhaustive investigations will prolong the disruption of investments in infrastructure and energy. Many construction companies, now locked out of credit markets, are struggling to stay afloat, while Petrobras has slashed its investment plans and crippled its network of suppliers. The risk of contagion from this sector to the broader economy looms large, further dampening growth forecasts for this year.

Politically, Rousseff is likely to become more isolated as members of the ruling coalition face prosecution. The Supreme Court has already authorized investigations of 34 sitting politicians for alleged involvement in the kickback scheme, leading to more tension between Rousseff and her allies. On Tuesday, the main opposition said it would call on the court to investigate Rousseff, too. In addition, Congress has launched new probes and will seek to score political points by uncovering more wrongdoing. All this will drag into 2016 and seriously impact Rousseff’s capacity to govern.

That will make it even harder for Rousseff to work with an increasingly independent Congress. Even though the government retained a numerical majority in both houses in last fall’s election, the ruling coalition includes smaller centrist parties and is more fragmented than it ever was. Lawmakers already feel more emboldened to press Rousseff on many issues, including new legislation that Congress has begun to approve related to the payroll tax and income tax exemption that will water down the government’s fiscal adjustment plans.

Capping Rousseff’s perfect storm is an ongoing drought, which could keep forcing the government to enact measures to curb power and water use in the coming months. The levels of reservoirs for both water consumption and electricity generation are perilously low, the result not only of historically little rainfall, but also of federal and state governments’ refusal to impose any restrictions on consumption and use during an election year. Federal authorities have withdrawn subsidies to the power sector, a measure that could raise utility prices by more than 40 percent this year. But that step is insufficient to redress the supply-demand imbalance in the sector in the longer term. While the government may refrain from more drastic rationing measures this year, the risk of rationing could linger and constrain a stronger economic rebound next year.

All these challenges point to the fact that Brazil has entered a new era of politics, after years of benefitting from a commodities supercycle that buttressed strong presidential leadership, mostly by funding a slew of social services and public spending. Political leaders now face larger middle classes that demand more and better public services amid a less favorable economic environment. Unlike her predecessor and mentor, former President Luiz Inacio Lula da Silva, Rousseff must deliver more with less. But even though Brazil is likely to generate more negative headlines than positive ones for most of 2015, Rousseff’s government can take steps that may help it weather the storm and even emerge stronger from it.

First, Rousseff must go beyond empty promises to tackle corruption and abstract pacts to reform the political system. While such measures should be debated, the Rousseff government actually has to deliver results—and quickly. The focus here is clear: Petrobras. In the coming months, the government should work with every stakeholder to make the necessary changes to the company, acknowledging the corruption scheme and working to improve Petrobras’ corporate governance.

Second, and more fundamentally, the government must change how it operates and open itself to more cooperation with Congress. The administration’s difficulties in Congress stem largely from Rousseff’s habit of not including allied parties in key government decisions. If Rousseff moves to include the rival Brazilian Democratic Movement Party (PMDB), the largest party in Congress, and other parties within her inner circle, it may not completely fix the government’s deficient coalition management skills, but it would mitigate some of the current difficulties with Congress.

Third, Rousseff should double down on fiscal adjustment, no matter the immediate political and economic costs. While a lot of the ongoing popular discontent may stem from the government’s austerity package, in the longer run this course correction on macroeconomic management, including difficult spending cuts and tax increases for a more sustainable fiscal policy, will tend to pay off, laying the ground work for a more robust economic recovery in the next couple of years. It won’t be easy, since it will translate into recession and even lower approval ratings this year, but Rousseff must try to convince Brazilians of the necessity, and long-term benefits, of reforms to address the role the state should play in the economy.

Finally, building on that, Rousseff should revamp the government’s infrastructure agenda by easing the way for more investment. During most of her first term, Rousseff’s relationship with the private sector was marked by suspicion. But with the government now constrained fiscally and in need of more foreign and private money to fund ambitious projects to build and modernize airports, ports, railways and roads, a clearer and more favorable concessions framework is in order to attract capital.

There is no easy path for Rousseff out of Brazil’s perfect storm. After a decade of major economic and social progress initiated by Lula that she carried on, new and old challenges abound. But despite the recent waves of excessive optimism followed by excessive pessimism among Brazil observers, the truth about the country tends to somewhere in the middle. Brazil can still benefit from its natural resources, broad industrial base and large consumer market in the long run. There is also a silver lining to all the political dysfunction. While that frequently hampers structural reforms, it also tends to channel policymaking toward more moderate ground, which sets Brazil apart from many of its more unstable neighbors in Latin America and other emerging markets around the world.

João Augusto de Castro Neves is the Latin America director at Eurasia Group and can be followed on Twitter @BrazilPolitics.