In attempting to guarantee her re-election in the fall of 2014, the incumbent Brazilian President Dilma Rousseff manipulated the federal budget figures to mask a rising deficit. There were fears that if the public was more aware of the rising debt levels, her chances of being returned to office would have been diminished.
The President was at a cross roads and she made a choice to obscure and falsify documentation to preserve her power. It has been a slippery slope ever since. In better economic times, these missteps might well have been forgotten or largely ignored. Ms. Rousseff instead is presiding over one of the worst recessions, in the history of Brazil.
Brazil is a nation of 206 million people and possesses the largest economy in all of Latin America. The domestic economy is ranked 7th globally. The virtual paralysis in the national government as a result of a massive corruption scandal involving many leading companies and federal authorities, is bringing efforts to help the moribund economy to a standstill. It is also forestalling many new investments as the troubles continue to unfold.
Another blunder was her efforts to rescue her mentor and predecessor former President Lula da Silva. By making him her chief political adviser, she has in reality provided him partial criminal immunity. This galvanized her political opposition to ratchet up their attempts to unseat her, through the process of impeachment.
There are many that claim that the endeavor to protect her mentor was motivated by self interest. Mainly that Silva might instead be granted immunity, if he was willing to share with investigators, the extent of his knowledge in the ever widening corruption scandal.
A congressional impeachment committee finally voted yesterday 38 to 27 to recommend a Senate trial. The entire lower house known in Brazil as the Chamber of Deputies, will now vote on whether to proceed with impeachment. If 342 members out of 513 which is two-thirds of the body, votes to affirm the committee recommendation, a trial will then result.
The actual action that has led to the present difficulties of Ms. Rousseff is the accusation that she used loans from state banks, to fill a budget gap in violation of financial laws of the country. It is important to note that the President continues to insist that she has not done anything wrong.
Ms. Rousseff has defiantly stated that she will not resign and has ever intention of staying in office until the end of her term. She has gone further in claiming the movement to oust her is the equivalent of a political coup d’etat. This assertion has been repeated many times by her supporters in government and in the streets.
The actions in the Chamber of Deputies is strongly influenced by her nemesis House Speaker Eduardo Cunha. Although the committee vote for impeachment was expected, the defeat for the supporters of the President in the committee, was by a wider margin than anticipated. It clearly indicates that advocates for her continuing in office, are dwindling in number legislatively.
If Ms. Rousseff is actually put on trial, she will be obligated to temporarily step down from power for a maximum of 180 days. Vice President Michel Temer would then take the reins of power during this time and would also serve out the remaining of her term, if she is indeed convicted.
A further complication to an orderly transition of power is the Supreme Court ruling earlier this month, that the same charges should be leveled by the Congress against the Vice President. Mr. Temer has denied any wrongdoing at this point, but may end up being impeached as well.
It is important to note that the party of the Vice President known as Brazilian Democratic Movement, has already defected from the ruling coalition and is now supporting impeachment of the President.
To make matters worse, the House Speaker himself is facing charges of corruption. He is accused of accepting the equivalent of $5 million USD (United States Dollar) in bribes from Petrobas, the state oil company. It is common knowledge that he began to actively support impeachment of the President after she had called for his removal by an ethics panel.
The beleaguered Workers Party of the President is finding support in the Congress increasingly tentative. They are also concerned that the majority of Brazilians now support the removal of both Ms. Rousseff and Mr. Temer. Advocates for reform are calling for new elections and it seems that most voters now agree with them.
President Rousseff can delay impeachment proceedings, even if the lower chamber votes for a trial. She is likely to make an appeal to the Supreme Court. The Senate would then have to wait, until the higher court made a ruling before going ahead with a trial. The crucial element in this process is that she will be permitted to stay in office during deliberations of the case.
If the Supreme Court rules against Ms. Rousseff, all that is needed is a simple majority in the 81 member Senate to vote for impeachment and the trial will move forward. She would temporarily have to step down in that event, as earlier explained. At least a two thirds majority will be needed in the Senate to convict her and force the President from office.
Even if the Senate does convict Ms. Rousseff, she still has the right to appeal the ruling to the Supreme Court. It is already clear that she intends to take this action in the event of her actual impeachment. The President is likely to take advantage of every opportunity, to remain in office until the end of her term in 2018.
In order to buy time, the Workers Party is attempting to garner more support in the legislature for the President. However, it is becoming an increasingly uphill battle. The vote in the lower house is now scheduled for next Sunday.
An embarrassing moment came when the Vice President mistakenly sent out a message stating, that he is ready to take over in the event that Ms. Rousseff is impeached. This merely angered the supporters of the President as well as members of her Party.
The last time a Brazilian President was impeached occurred in 1992. At the time Fernando Collor de Mello, resigned just before his conviction by the Senate. He had been accused of corruption and in the face of massive protests against him, the Congress succeeded in impeaching him.
This time along with the ongoing process of impeachment, there is a parallel investigation of many leading government and industry officials. The widespread bribery of important officials by Petrobas and the leading construction firm Odebrecht, is expanding as the investigation continues.
It is causing the Brazilian public to become increasingly disenchanted and angry. As a result, there is progressively more pressure being put on the government, to finally deal with the massive corruption that exists between industry and politicians in general.
The corruption of the past was more acceptable in times of rapid economic growth. The Gross Domestic Product (GDP) of Brazil has been in decline since the end of 2014. The cumulative decline to 2016 is expected to be at least 8.5%. That is nearly twice the rate suffered by the United States during the Great Recession, when the economy contracted by 4.2%.
Unemployment in Brazil has increased from 6.7% in 2014 to 9.5% at the end of 2015. It is moving up even higher this year. Although some of the economic turmoil can be blamed on the near collapse in global commodity prices, in Brazil as much blame can be placed on macroeconomic mismanagement.
In the face of a difficult re-election President Rousseff and her party, increased spending which in turn solidly expanded deficits. Interest rates were also kept low, to maintain cheap credit for business and consumers alike. The budget deficit which had been kept at between 2% and 3% of GDP exploded to 10% in 2015. Inflation at the same time skyrocketed to 10% in 2015, and threatens to move even higher in 2016.
In order to stave off financial collapse, the Brazilian government has been forced to increase interest rates and to reduce some government spending. It has not been no where near enough, to encourage the return of foreign investment. This is not likely to occur until the country returns to a better credit rating, which is now at junk status by most rating agencies.
The ongoing political turmoil is sapping business confidence, which in turn weakens the economy even further. It will also be difficult to rein in much of the present government spending. Most of the expenditures are mandated by the constitution. It generally increases with inflation and increasing tax collections. Cutting entitlements the only real way to return to fiscal sanity, will be unpopular with voters and therefore politically difficult to achieve.
What is now happening in Brazil is a warning to other emerging nations, of what happens with uncontrollable spending, in the face of a declining domestic and global economy. The Brazilian economic miracle was far too dependent on the high price and steady demand of commodities. The slowdown in China and elsewhere is unlikely to change much in 2016, thus forcing Brazil to begin the painful process of economic restructuring as well as fiscal constraint. It will be the only way to return the country back towards growth.