You might have heard this story before
A newly-elected president entered his new office for the first time and found 3 sealed envelopes on his desk. On each envelope was written a message. On the first was the instruction: “To be opened on the occasion of you first major crisis”, the second and third envelopes had the same message for the second and third major crises, respectively. Skeptical but interested he put the three envelopes into a drawer. A few months into office the president had a major crisis and remembered the letters. He opened the first one to find the instruction: “To resolve this crisis, blame your predecessor. Good luck!” and was signed only, “A friend”. He did as instructed and it worked. Some time later he had a second major crisis. He opened the second envelope to find the instruction: “Blame the opposition. Good luck!” and was signed as before. It worked. Roughly a year later he had a third major crisis and now convinced of the wisdom of his anonymous friend, he opened the third envelope. He found the following instruction: “This is your third major crisis. Take out three sheets of paper and three envelopes. Sorry!” and signed as before.
Temer’s Challenge
Temer’s situation is rather similar. Having to modify his proposals could be his first major crisis. He has now come up against the threat of opposition to his four principal proposals: 1) To impose a limit on federal expenses; 2) To change the calculation method on retirement benefits; 3) To change the rules for pre-salt oil exploration to remove the requirement that Petrobrás have 30% of alloperations; 4) To establish rules of governance in the pension funds of state-owned companies.
As expected, the PT’s representatives in the Senate and in the Lower Chamber oppose all of the proposals. Proposals 1, 2, and 3 have run into snags as legislators want to “discuss” the proposals further.
Proposal 1 affects the two largest items in the federal budget: education and health. Both are considered political “plums” because they are subject to “earmarked” expenses that are required by law. The “earmarking” is a problem because allocations are not based on the performance of projects or personnel in their respective sectors. There are no performance demands on those in charge of the results of their areas of responsibilities so both the Education and Health ministries are wonderful places to insert “phantom” employees or total idiots who don’t know how to do anything. Clearly, the probability is high that the two ministries with the largest earmarked budget allocations are bloated with patronage appointments. It’s natural, therefore, that those legislators who negotiated those appointments will want to protect their prerogatives. Consequently, Temer’s dominant strategy in this case would seem to be to allow for extensive discussion in the legislature while conducting a thorough audit of both ministries to identify any “phantom employees” who don’t even show up to work, “idiots” who are in charge of nothing at all and/or any incidents of bribes, kickbacks, or other such malfeasance. He could then approach the patrons of those employees to threaten to have the information leaked to the press. The strongest pressure to discuss and change some items in this proposal is in the Lower Chamber. This chamber of the legislature is reportedly stillunder the control of suspended former president, Eduardo Cunha. However, Temer would be wise to avoid seeking counsel or assistance in that quarter. Dilma was recently quoted in an interview that Temer was “controlled” by Cunha. In short, Temer is wise in this case to assemble “facts” from independent or loyal sources and then use the information to “leverage” his findings in accordance with whatever modifications are proposed by the legislature or members thereof.
Proposal 2 is the suggestion to change the retirement rules of Brazil’s social security system. Those who most want to modify or oppose the current proposal are the labor unions that are allied to the PT. The proposal is based on the projection of the age distribution of the population over the next few decades when Brazil is likely to have fewer contributors to support a larger number of retirees. Maintenance of the current structure of the system would seriously affect Brazil’s economic growth. Only one party has declared to be in favor of the current proposal. All others want to discuss modifications. There are 48 votes in the Senate and 227 in the Lower Chamber for modification.
Proposal 3 to remove the requirement that Petrobrás have a 30% interest in all pre-salt exploration and drilling projects is totally favored and already approved in the Senate and has been approved there (with the exception of the PT that is against everything) but faces 123 votes in the Lower Chamber in favor of modifications.
Proposal 4 to impose stricter governance rules on public sector pension funds was already approved by the Senate and enjoys the favorable votes of 178 legislators in the Lower Chamber but 90 suggest need for modifications.
The figures suggest that the recommendation of the first letter, i.e. blame the previous administration, is a good one. Temer would be wise to pin as much controversy as possible on the Rousseff administration and the PT. He has only been president for just over two weeks so whatever resistance he encounters from the parties now allied to his administration can still be dealt with in the context of PT policies before he assumed office and the fact that he was excluded from the inner circle of Dilma’s principal allies and advisors. That might be enough to deal with the more recalcitrant members of his coalition. His dominant strategy is to keep them all talking and debating while he goes about negotiating support while he seeks to avoid any modifications that will retard the recovery of the fiscal accounts.
The table below provides the number of votes of each political party allied to the Temer administration and the disposition of each with regard to each proposal
Disposition of Votes per Party | ||||||||||||||
Party | S | LC | #1 | S | LC | #2 | S | LC | #3 | S | LC | #4 | S | LC |
PMDB | 19 | 66 | M | F | M | M | F | F | F | F | ||||
PSDB | 11 | 51 | M | M | M | M | F | F | ||||||
PT | 10 | 58 | O | O | O | O | O | O | O | O | ||||
PP | 6 | 49 | F | M | M | M | F | M | F | M | ||||
PR | 4 | 41 | M | M | M | F | F | M | F | M | ||||
PSD | 4 | 33 | F | M | M | M | F | M | F | F | ||||
DEM | 4 | 28 | F | M | M | M | F | F | F | F | ||||
Others | 23 | 187 | ? | ? | ? | ? | F | ? | ? | |||||
Total | 81 | 513 | ||||||||||||
Where: # = no. of proposal; S = Senate; LC = Lower Chamber; M=modify, O=oppose; F=favoor | ||||||||||||||
As the party that originated proposals 3 & 4 in the Senate, the PSDB did not have to cast its vote.
Temer has negotiating issues in both the Senate and the Lower Chamber on proposals 1 & 2 and negotiations on proposals 3 & 4 in the Lower Chamber only.
Reconciling all of the potentially conflicting interests and/or demands for patronage from the parties to the new coalition will be a formidable task and constitute Temer’s first major challenge. He can ill afford to “lose”.
Analysis:
To deal with the negotiations in the Lower Chamber, Temer is wise to avoid having to deal with Eduardo Cunha. As noted in the text above, Dilma stated in a recent interview that Cunha is the real power behind Temer. He can ill afford to seem to lend support to her claim.
If Cunha should lose his mandate either via the Lava-Jato investigation or the Parliamentary Inquiry regarding a violation of "decorum", Temer's ability to negotiate around Cunha's influence is enhanced.
Moreover, with 35 years in the Congress, Temer has a few friends of his own and as interim President he has considerable power so Dilma may have overestimated Cunha's power over Temer. Nevertheless, you can expect Cunha to "make a move on Temer" .
There are signs that the economy has begun to respond favorably to Temer's proposals and this will also serve to strengthen his bargaining power with the Congress. He needs to rely on such improvements and generate public support to get what he needs to create the environment for recovery.
The plea bargains of both Sergio Machado and Pedro Correa (see previous posts) are potential "bombs" that could make Temer's negotiations more difficult and could affect the eventual votes in the Senate that might allow for the return of Dilma Rousseff to the presidency.
Temer's cabinet appointments continue to be challenged to the delight of the PT that continues to claim "moral superiority" and a conspiracy to keep it out of power and thus to carry out its proposed "reforms".
It's an extremely complicated and difficult juggling act.
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