The ship is sitting just below the water line
It’s been a while since I referred to the Brazilian Titanic sitting dead in the water. It continues to ship water as the economy worsens at an accelerating rate. Total confusion reigns on deck and on the bridge as the crew engages in a bar fight over who is in charge. No oneis at the wheel that remains firmly lashed in place. The ship has suffered serious structural damage that will require major repair work and if water reaches the “engine room” the ship will have to be towed.
Yesterday, the PT’s largest partner in the coalition decided to “jump ship”. A “mutiny” is underway and the PT’s grasp on the wheel has been challenged. “Captain” Dilma may be removed from command and her “navigator” Lula could be tossed in the brig.
That’s probably enough metaphor for now.
In the real world of Brazilian politics, the PT is now in a life-threatening situation. Dilma’s impeachment charges have been written up and will be submitted to the Lower Chamber for approval before being submitted to the Senate. She and Lula are desperately scrambling around to find substitutes for the plethora of PMDB appointments in the administration (estimated at close to 600 second and third tier management appointments) in order to control the voting of the remaining parties to the coalition.
If possible, the administration would like to defeat the motion to impeach in the Lower Chamber where a 2/3 vote is required to move the motion to the Senate. Most analysts suggest that the PT will not be able to marshal the 1/3-plus-one vote count to stifle the motion so it will most likely ascend to the Senate.
Whether or not the President of the Senate, Renan Calheiros, also of the PMDB but reportedly sympathetic to Dilma, would seek to nullify the motion in the Senate is an unknown. Calheiros has differed with Vice-President Temer (also PMDB and the mentor of the “mutiny”) on the position the party should take but because Temer is also titular president of the party, he might find it expedient to support the motion rather than seek to support Dilma.
The headline of the lead editorial in yesterday’s Estado de São Paulo is “Public Spirit and Courage” is a bit misleading. There is nothing “public spirited” or “courageous” in the PMDB’s decision to break with the PT. If the destiny of Brazil as a nation were the issue, the PMDB would not have acquiesced so readily to the PT over the past 13 and most especially over the past 5 years.
The PMDB endured numerous humiliations at the hands of the PT in exchange for patronage and some cabinet posts for its membership. However, the government is no longer in a position to use that lever to maintain its authority and ascendency over the PMDB. It is no longer usefulto maintain the relationship and, in fact, could prove detrimental in this year’s municipal elections.
The PMDB is most noted for its “grass roots” support in Brazil's municipalities and its association with the PT could actually cost it votes in this year’s elections.
At issue in this case is a decisive battle between the “traditional” and the “neo” kleptocrats. The latter want to avoid losing theur grasp on power, the former want to encroach on that power and seize it entirely.
This is little more than the clash of the two mutually exclusive models I have discussed numerous times before. It’s a battle for control and there is nothing “public spirited” or noble about it. Only one model can survive. As I noted in previous blog posts, no matter who wins, the winner will be a kleptocrat.
The PT’s heavy-handed methods essentially gave the advantage to the PMDB that has always been a bit more subtle about the way it confiscated the rents of the Brazilian economy. It also was also of somewhat more acceptable parentage.
Some background
When the military took over in 1964 it abolished Brazil’s political parties and imposed a two-party system composed of the National Renovation Alliance (ARENA) and the Brazilian Democratic Movement (MDB). The MDB was essentially a token opposition party to maintain the façade of democracy under the military dictatorship. ARENA called the shots.
As public enthusiasm for the military gradually eroded as a result of ideological splits within the military, the MDB gained public support. When the military announced that it would eventually step down and return power to the civilians, the MDB and ARENA were dissolved and in 1979, the PMDB was formed from the MDB and with some of those who had been associated with ARENA.
The formation of the PMDB was followed in 1980 by the foundation of the PT, the Workers’ Party that emerged from the obscurity imposed on the left during the military regimes. The PT arose from the Labor Movement under Lula and was composed of an eclectic collection of leftists of every major stripe from liberation theologians, labor unions, radical left-wing student organizations, communists, socialists, and even former guerrilla groups such as MR-8, et al. who had all been thrown into the same mixing bowl by the military.
The PMDB was a motley collection of liberals, some left-leaning academics, pragmatic and numerous opportunistic politicians, and some outright political oligarchs. Included among its members was Fernando Henrique Cardoso, a prominent intellectual, who had served as a Senator from the State of São Paulo on the MDB ticket in 1982. In 1986, serving as a Senator again for the PMDB, he joined with a group of like-minded members of the legislature who were concerned for the “rightward” drift of the PMDB as well as its political “opportunism”, to form the PSDB – a social democratic party of idealists, intellectuals, and reform-minded politicians.
The three parties, PMDB, PT, and PSDB became the three major parties in Brazil each representing a particular swath of the Brazilian electorate.
The PMDB pretty much represented the Brazilian “silent majority” of middle class and lower middle class voters who mistrusted both politics and politicians, considering both as a necessary evil. Like most such voters everywhere, they wanted most to be left alone to deal with their own affairs and were not politically engaged – it was every kleptocrat’s dream. The PMDB was the party of the “polyester suit” crowd.
The PT had initially cast itself as the representative of the disenfranchised poor and the working class. Founded in 1980 by Lula with his comrades and colleagues from the union movement, its membership was politically active and militant. It was the party of the T-shirt and sandals crowd.
The PSDB split off from the tepid PMDB in 1986 to become a party of politically active mainstream liberals, intellectuals and academics with a few token conservatives thrown in. Its ideology was akin to that of many European Social Democratic parties and advocated economic liberalism albeit with a little (but not too much) kleptocracy thrown in. It drew its membership from the educated middle, upper middle and upper classes. It was the party of the tropical wool-blend suit – off the rack or tailor-made (for the highest echelons).
The three parties constituted a tripod each leg of which attracted the support of smaller, fringe parties that sought to get its members elected or appointed to public sector sinecures in exchange for support in the legislature.
Only the PT, with its contingent of radical left wingnuts, had a project to seize power and hold on to it in perpetuity.
Back to the present
Once in power with the election of Lula in 2002 the PT applied the tactics discussed in my previous blog post on the 27thof March entitled “An impeachment trial is now likely”, to exploit the weaknesses of the political system and engage in populist rhetoric and employ populist policies to secure its hold on power.
Every tactic that I listed in that post was employed to move Brazil in the direction of the “New Economic Framework” that looked and looks remarkably like a “dictatorship of the proletariat”, Latin American style, as practiced in the 50s and 60s by both the political right and the political left “populist caudillos”.
The PT’s plans were initially thwarted by the PSDB’s imposition of the Real Plan that effectively ended Brazil’s long-term chronic inflation that had held kelptocratic government in place ever since colonial times. Simply as a result of the end of inflation, some 40-million Brazilians in the lower economic echelons of society were moved up to the status of a “new middle class”.
No party seriously sought the support of this “new middle class”. Its values were not consistent with, and it would find it difficult to live with, kleptocracy and the systematic confiscation of the fruits of its labor.
Yesterday’s action by the PMDB can thus be considered what might be a decisive battle that ends the War of the Kleptocrats in its favor. However, as I have previously quoted baseball player Yogi Berra: “It ain’t over until its over!”
If we prefer to refer to more modern examples, we can use a video game metaphor: the current situation will be the equivalent of “War of the Kleptocrats” v.2. One winner will emerge. Dilma will be impeached or she will not. If she is imeached, the PT will have no choice but to “go to ground” or simply slip into political oblivion as I have suggested in other posts. If she is not, the economy will suffer further as she continues to pursue the "project".
The cost of the current battle
Dilma’s strategy is now to seek legislative support first in the Lower Chamber and later, if necessary, in the Senate, and finally in the Supreme Court. The odds are against her, but they are not sufficiently heavily weighted in that direction to presume that all is lost for the PT. As I observed in a previous blog, she could still “walk”.
If that happens she returns to office and can be expected to spend to support her “new” patrons in the Congress. She will have to encourage new projects and new spending that will burden an already-burdened budget that will lead to further stagnation of the economy.
If the PMDB emerges victorious (i.e. Temer assumes the presidency) it will be stymied perhaps by those who have joined Dilma and lost and by budget constraints to initiate any effective short-term recovery efforts. Moreover, the PMDB is not necessarily popular amongst voters who know it as just another group of kleptocrats, sympathetic to democracy but not necessarily to transparency. (Interestingly, a PT supporter was quoted in yesterday’s press warning Temer that he was “next in line” because the voters would recognize him as [paraphrasing now] just a better-dressed member of the PT!)
Public dissatisfaction with corruption is the underlying issue. It needs to be understood that eliminating corruption is not possible in any society. Ultimately what is required is that appropriate checks and balances are in place and corruption when discovered is sanctioned. The current wave of plea bargains is not due to a sudden flash of repentance on the part of those caught; it’s the discomfort, humiliation and public approbation that result from having to sit in a prison cell for crimes committed. (None of those guys are “boy scouts”! Their "repentance" is little more than avoiding more pain than necessary.)
We can assess the approximate cost of kleptocracy from the PT’s reaction to the risk of an impeachment trial. ALL consideration of the economy has ceased in order to defend the PT’s plan to hold power in perpetuity even if it means ruling over the rubble.
Industries are shutting down operations (some 4.4 thousand in São Paulo in 2015) and unemployment is growing faster than expected.
However, no matter which way that effort goes – i.e. whether Dilma is impeached or not – there is not enough money available to jump-start the economy. Investors are like wild rabbits caught in the headlights of an on-coming 18-wheel truck. Some 1.1 million industrial jobs have been lost just in the first quarter. Some 9.6 million Brazilian workers are now unemployed, and many are still waiting for their indemnity payments - to include their FGTS contributions, which the government is now using to finance 90% of the Minha Casa – Minha Vidalow-cost subsidized housing program and the credit expansion project announced in January (which thankfully for the FGTS fund, has met with only very minor demand). By mid-year, expectations are that some 13 million will be unemployed. In metropolitan São Paulo the rate is already at 14% vs. the 9.5% rate for Brazil as a whole (or hole!)
The government has submitted a request to the Congress to allow for a larger-than-planned budget deficit for this year (R$96 billion) and we are only finishing the first quarter. The official GDP growth forecast has been revised to a 3.05% decline for the year while the market continues to expect a decline of not less than 4% and perhaps closer to 5%.
Inflation might fall short of the double-digit level of 2015 but that is due largely to the decline of private consumption, so that is not necessarily good news. (Official expectations are for a 7.7% rate by year-end.)
Meanwhile, the Lava-Jato investigation turned up signs of a “department” within Odebrecht (Brazil’s largest construction firm) solelydedicated to handling the payments to members of the Congress (the legality of many of the payments is considered questionable but not yet proven). With the names of 297members of the legislature and 24 political parties and because the members of the legislature enjoy a right to a Supreme Court investigation and trial, the spreadsheets showing the code names, amounts, party affiliations, and projects, etc. that have been submitted to the Supreme Court appear to be a rather sharp increase in that body’s work load! (One can’t help but wonder if that was not a bit of “serves-you-right” medicine prescribed by Sergio Moro to the Supreme Court for the decision to recall the case against Lula back to Brasilia for additional consultation! Facing the possible impeachment trial of a president and having to investigate almost 300 politicians at the same time sounds a bit complicated!)
Finally, the exchange rate seems to be behaving in a rather strange manner. As things worsen in the economy, the stock market shows slight improvement while the dollar shows slight devaluation. In an economy where the currency is continuously losing value (albeit at a decreasing rate) and the fiscal situation shows signs of serious deterioration, one would expect the dollar to be re-valuing against the local currency. One has to wonder if the Central Bank is not selling off dollars to increase local quantity supplied to keep the forex rate from rising. This will create other problems later when it comes time to finance the deficit, especially now that Brazil is now part of the “junk” category of the credit agencies and is likely to experience further reductions of its ratings.
The political cost
On another subject I raised a few days ago: the question of whether Brazil should have a parliamentary system of government instead of a presidential one has hit the press. This is one of the favorite topics of possible presidential candidate José Serra.
The press constantly refers to rendering the titular head of state to the figurehead role attributed to the Queen of England. However, the Queen of England is far from being just a symbol. She is actively involved in matters of state, consults with her prime minister on a regular basis and he pays attention to her observations. She does not just run around kissing babies and cutting ribbons. She takes her role as monarch seriously and I have that from solid sources. Brazil’s past attempts at a “hybrid” parliamentary system have proved disastrous.
My argument is that every system needs the checks and balances appropriate to its form, without which in a parliamentary system you could wind up with a vote of “no confidence” every 6 months such that you might need a revolving door on the prime minister’s office.
It’s also a rather useless debate in the current context of things but one which presidential candidates (most especially Serra) enjoy raising in presidential elections. (Another popular but useless debate that attracts the gadflies is whether Brazil should re-establish a monarchy under the direction of the remnants of the royal family that ran Brazil for 489 years! Yawn!, but good for some comic relief!)
So, here we sit awaiting now the results of the latest battle in the War of the Kleptocrats. The “traditionals” have rallied and the “neos” are on the run.
Have a drink and relax! Paraphrasing Yogi, the game’s not over until it’s over! You've got a lot of scenario material to work with.
I’ll keep you informed as we go!
Jim
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