The Washington Post
How Brazil, the darling of the developing world, came undone
Brazil’s president Dilma Rousseff was suspended from office on Thursday, May 12. (Dom Phillips, Nick Miroff, Jason Aldag/The Washington Post)
By Nick Miroff and Dom Phillips April 15, 2016
BRASILIA — It was called the “Brazil model,” or simply “the Lula model,” back when this country’s economy was roaring and its president, Luiz Inácio Lula da Silva, was a superstar of the developing world.
By balancing support for big business with big social-welfare programs, the union boss turned statesman presided over an era of growth that lifted tens of millions of Brazilians out of poverty. Lula’s presidency cut a new template for a Latin American left that had long insisted that class struggle and revolution were the only road to fairness. The coronation came when Brazil was chosen to host the 2016 Summer Olympics, confirming its rise as a global power.
Now Brazil is limping to the Games. Its economy is facing its worst crisis since the 1930s. A Zika virus epidemic rages. And on Sunday, lawmakers will vote on whether to impeach President Dilma Rousseff, Lula’s hand-picked successor. Their three-day debate opened Friday with Rousseff opponents shouting “Dilma out!” in raucous proceedings.
“We are in an extraordinary situation,” said Otaviano Canuto, the top International Monetary Fund official for Brazil, in an interview. “And it is even more extraordinary because the political dynamic overshadows everything else.” If two-thirds of the lower house votes to remove Rousseff and a similar measure clears the upper chamber, Rousseff will be suspended. Senators will then have 180 days to conduct hearings, raising the possibility that while the world’s elite athletes are jumping, diving and racing for Olympic glory, lawmakers will be conducting impeachment proceedings against the president on live television.
The plunge that Rousseff and the country have taken has laid bare the frailty of Brazil’s commodity-driven growth. Big parts of the Brazil model, it turns out, were glued together with kickbacks, dirty money and lies.
Rousseff is not accused of illegal personal enrichment but of improperly using money from government banks to cover budget gaps. A separate inquiry is examining whether her Workers’ Party benefited from an illegal campaign-finance scheme, which could lead to an annulment of her victory and force new elections.
Rousseff and her supporters, Lula chief among them, have likened the impeachment push to a slow-rolling political “coup,” a loaded term in a country that lived under military rule between 1964 and 1985.
Yet there is little doubt that Rousseff would not be facing the mutiny if she were not so politically weak, with an approval rating of 13 percent. The country is facing a 3.8 percent economic contraction for the second year in a row. In a telling sign of how investors and business leaders view the president’s economic policies, every step that takes her closer to impeachment seems to bring a rally on Brazil’s stock market.
“She’s a bad manager, and she’s behaved irresponsibly,” said Eduardo Mufarej, chief executive of a 5,000-employee company that makes educational materials for private schools.
Enrollment in the private school system was 7.8 million students in 2014, but since then, nearly a million students have gone back to the public system because their parents no longer can afford tuition, Mufarej said.
The Lula approach
Lula grew up poor and never finished high school, but his masterstroke as leader was speaking like a populist while governing as a pragmatist. He put conservative bankers in his cabinet and did not attack business leaders or the United States. It was a marked contrast to Venezuela’s Hugo Chávez, who stood for the more confrontational version of Latin American leftism.
Latin America had been simmering with ideological tensions for decades, and Brazil was no different, with an elite walled off from a huge underclass living in squalor.
Lula, who was elected in 2002, worked diligently to build political consensus. He dramatically expanded a program known as Bolsa Família that provided welfare payments to families whose children showed up for classes consistently and got their scheduled vaccinations, and it became the signature social program of his presidency.
With the economy humming from a global commodity boom and Lula’s government passing the pie around, more than 30 million poor Brazilians found a foothold in a new, aspiring middle class. Lula left office in 2010 with an 87 percent approval rating, so high that President Obama called him “the most popular politician on Earth,” telling reporters: “I love that guy.”
The riches flowing from Brazil’s mines, oil fields and farms fueled a consumer spending binge, but they patched over the structural problems that made Brazil a creaky, onerous place to do business.
A privatization plan to build much-needed roads and railways faltered. Productivity remained low because the workforce was badly trained and poorly educated. Companies wasted thousands of hours deciphering a greedy tax system. And all the while, the old way of making deals — lubricating them with graft — went unchanged.
Big construction and energy companies grew fat on state contracts and government loans under Lula and Rousseff, and the opportunities for illegal enrichment were infinite. Slush money poured into political campaigns.
The dirt from those years is now being unearthed by a hard-charging team of prosecutors and a tough lower-court federal judge, Sérgio Moro, who is overseeing the investigation of a bribery scheme at national oil company Petrobras. Through wiretaps, raids, arrests and plea deals, the probe has exposed spider webs of corruption throughout Brazil’s elite.
At least 130 people, including company executives, former lawmakers and others in the pay-to-play scheme have been jailed at one point or another. Nearly two-thirds of federal lawmakers are undergoing some form of investigation or legal probe.
Rousseff lacks her predecessor’s back-slapping personal touch, and critics say she has governed rigidly and intervened in the economy with disastrous results. That criticism extends to her 2012 decision to force power companies to slash electricity rates. As the boom years ended, “a combination of mistakes created a crisis of confidence” in her leadership, said Rafael Cortez, a political analyst at the Sao Paulo consulting firm Tendências.
If lawmakers vote to remove her, she would be replaced by Vice President Michel Temer, her former running mate turned political enemy. Known for his flashy suits and slicked-back hair, he also has been named in the Petrobras inquiry and is potentially facing his own impeachment process.
Next in line is lower-house leader Eduardo Cunha, the figure leading the drive to oust Rousseff. He also happens to be under investigation on suspicion of money laundering, corruption and allegedly funneling $5 million in kickbacks into Swiss bank accounts.
In all, federal police think as much as $12 billion was siphoned from Petrobras, once one of the world’s mightiest oil companies.
Much of the affair has come to light through the “Car Wash” investigation, which has reached all the way to Lula. Brazilians were shocked last month to see him taken in for questioning by federal police amid allegations that he received properties and other gifts from former government contractors. Rousseff tried to appoint Lula to her cabinet as chief of staff, a move that would afford him broad legal protections, but a judge blocked the attempt, opening yet another courtroom battle.
With both sides digging political trenches, anger has surged in a famously easygoing country whose unofficial national symbol is a beach sandal.
“I don’t remember another moment in Brazilian history when passions were as visceral as they are now,”said Ricardo Boechat, a popular radio and television commentator. “Not even during the military dictatorship.”
A symbol of polarization
With the expectation of large pro- and anti- demonstrations outside Brazil’s Congress during the impeachment vote, prison laborers were brought into the capital last week to put up a separation barrier between the two sides. The structure was the most poignant symbol yet of Brazilians’ polarization.
It has become something of a cliche to say that Brazil will inevitably emerge stronger from the corruption investigations and the political bonfire they have lit. Another possibility is that the damage will be so extensive that the country and its politicians will languish in scandal and cynicism for years.
No single figure has emerged as a strong, corruption-free alternative to Brazil’s current leaders. Lula would be eligible to run again in 2018 and has all but said he plans to do so, meaning he could soon be back in power — if he does not end up in prison for corruption. He remains popular among Brazilians who remember his presidency as the best years of their lives.
“This whole crisis is about the possibility that Lula will run again in 2018,” said Wagner Santana, secretary general of the metalworkers union where Lula was president in the late 1970s before going on to found the Workers’ Party.
Santana sees the anti-corruption drive as a witch hunt and the impeachment attempt against Rousseff as a naked power grab. But many Brazilians, including quite a few who once cheered Lula, are fed up.
Santana’s office at the union’s shiny headquarters on the industrial outskirts of Sao Paulo looks out on new condominium towers that sprouted during the boom, but also the slums that have grown with the crisis. Between them is a massive Volkswagen plant, the largest in South America, where many of the union’s rank and file are employed.
The plant has the capacity to produce 390,000 cars a year, Santana said. This year, it will make fewer than half that number.