Brazil: President Lula’s Coattails

President Lula and his choice to succeed him, Dilma Rousseff

President Lula and his choice to succeed him, Dilma Rousseff. Source: O Globo


How long are they?  His coattails, that is.  He’s at 84% approval, largely due to the perception that Brazil is doing better than most in this global financial crisis, and it is.  His pick for his successor is his chief of staff, Dilma Rousseff, a stalwart in the PT (Lula’s leftist Workers Party), who could become Brazil’s first female president in the 2010 elections.  Yet in the polls, she is well behind the colorless Jose Serra, governor of Brazil’s largest state and co-founder of the PSDB (Brazil’s Social Democratic Party), who lost to Lula in 2002.  Aecio Neves, grandson of a former president and also a PSDB governor, bests Dilma as well in opinion polls.  One scenario is that Neves switches parties to run against Serra.

Political analysts point out that there is little room for ideology in Brazilian politics these days.  Since the Real Plan (the great achievement of the last PSDB president, Fernando Henrique Cardoso), which tamed hyperinflation, everyone in Brazil agrees on macro policies that keep inflation low.  Hyperinflation was the great scam against the poor, Lula’s key constituency, the only ones who could not index.  This is what is meant by “little room for ideology.”

But there is room for ideology, ideology about such questions as whether to maintain substantial government intervention in the economy or to expand the market economy.  Yet political fragmentation hinders ideological groupings, and the country’s recent strong economic performance (up until the fourth quarter of 2008) masks its nagging weaknesses.

As I have pointed out in previous blogs, Brazil’s 1988 Constitution, coming on the heels of many years of military rule, has resulted in political fragmentation and gridlock, allowing a multitude of personality-based parties and requiring hard-to-assemble majorities to pass reforms.  Again, I’ll plug Barry Ames’s work, The Deadlock of Democracy in Brazil, for a discussion of Brazil’s unwieldy political system.  Political reform that would reduce the number of parties in Congress, diminish party switching, strengthen party leaders over state governors, and lower the threshold to pass reform would be well worth the trouble, but remains unlikely.

With such political reform, perhaps we would see the coalescing of political groupings on the right and left.  The leftist PT could merge with the PMDB (the Democratic Movement Party), which currently sits in Lula’s government and holds the leadership of Congress.  The PMDB, once the official opposition to military rule, has become a massive non-ideological party, representing a nation-wide system of patronage.  The center-right PSDB could merge with the Democrats (formerly the PFL, heir to the party of the military government, variously described as liberal in the European sense and an adherent to Christian Democracy).  However, this merger could take time, as these two parties, given their history, make strange bedfellows.  Due to a lack of leadership talent, neither the PFL nor the PMDB has been able to field a viable presidential candidate in recent elections.  There is some speculation that Aecio Neves could become the PMDB’s presidential candidate in a stop-Serra movement that could include President Lula, if he abandons Dilma should her campaign falter.

Lula’s charisma enabled the PT to supplant the PSDB in its preferred position on the center-left.  The PSDB was envisioned by its founders, including Cardoso and Serra, as a traditional Social Democratic party, seeking mixed solutions (market and government) to the plight of the poor.  Yet under Cardoso, the PSDB became so involved in macro stabilization, it has since been identified with the right.  The PT, for a time opposed to market economics, cleverly adopted the PSDB’s macro framework, because Lula, to his credit, realized that inflation was the bogeyman of the poor.  Having pushed the PSDB uncomfortably to the right, Lula transformed himself into the “anti-Lula,” and the PT took over where the PSDB left off.  At the same time, the PT lost its ideological edge, and with it, its militants.  Thus, the PT and PSDB currently occupy an overlapping political space; yet these parties have been too competitive in elections to permit cooperation.

Jose Serra, who was Cardoso’s health minister, has been seen as a supporter of government intervention.  In an election between him and Dilma, little voice would be given to the traditional viewpoint of the right – less government, lower taxes and greater participation of the private sector in solutions to society’s problems.  This vibrant debate is alive and well in other countries, notably in the U.S., though in the current economic climate, the hand of the interventionists has been strengthened.  Brazil, flush with success and foreign exchange reserves, currently lacks any charismatic leadership on the pro-business right.

This is due in part to Lula’s success, through government intervention, at combating one of Brazil’s fundamental economic weaknesses and moral dilemmas, that is, its woeful income distribution.  At 57, Brazil’s Gini coefficient (a World Bank index of income distribution – the higher the figure the worse the income distribution) remains one of the worst on the planet and is certainly worse than in other Rising Powers.  Lula’s Bolsa Familia program has provided income support to millions of poor families and promoted health and education.  Government, not business, is seen as the solution to poverty.  Yet with government debt of around 65% of GDP and the global recession set to hurt tax revenues, the Brazilian government has little room to expand spending and must enlist the private sector to promote economic growth.

Lula’s government has failed to improve the business climate and to effectively promote infrastructure investment.  Government spending is dominated by pensions and salaries, so that Brazil’s public investment program is notoriously under-funded.  To address this, the Lula government set up its Growth Acceleration Program (PAC), centered on using public funds to leverage private investment in infrastructure.  Dilma Rousseff runs the PAC.  Last week, Cardoso, in a thinly-veiled effort to support Serra, called the management of the PAC incompetent.  He said that the Lula government does not have the know-how to implement key projects, such as road construction.  Many analysts agree with this assessment.  By contrast, the PSDB is viewed as having the technocrats required to implement complex programs.

It is early.  National elections take place in October 2010.  Don’t count Dilma (or Lula) out.  She may yet ride his coattails into power.  And, the Aecio Neves factor may keep political uncertainty high.  As for Lula, unlike American presidents with two terms under their belts, Brazilian former presidents can run for a third term, just not consecutively.  So, at 69 in 2014, Lula might have a better shot in a rematch against a President Serra (who will be 71), than in 2018 when his ally Dilma would presumably finish her two terms. 


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