26October

Today is election day in Brazil, when the governing Workers’ Party (known locally as Partido dos Trabalhadores or PT) face off against the Social Democratic Party (Partido da Social Democracia Brasileira, or PSDB). This is an important election, with PT facing its first real electoral challenge since gaining power 12 years ago under Lula da Silva. The government of the current incumbent, President Dilma Rousseff, has been rocked by huge corruption scandals and launched a desperate campaign to cling onto power. Rather than responding to corruption allegations, Rousseff and former president Lula da Silva have responded by resorting to gutter politics and a smear campaign. They’ve been especially vicious against the opposition candidate, Aécio Neves - referring to him as a playboy and drunkard, accusing him of beating women, and made a ridiculous assertion that he is intent on persecuting people of Brazil’s northeast like the Nazis did with the Jews in World War II.

PT came to power in 2002 in a period of great hope for Brazil. They promised all Brazilians a share in their country’s good fortune. The party was lucky enough to inherit a stable and healthy economy, and a plan to pay off the country’s debt - thanks primarily to the Plano Real instituted by former PSDB Finance Minister and then president Fernando Cardoso. The country was looking forward to a prosperous future, with nightmares such as the hyperinflation which dogged Brazil a decade previously appearing well in the past. Like Australia, Brazil is a resource-driven economy - so high iron ore prices, and new oil fields then coming onstream were helping push the economy along. Although they embarked on their promised social programme, PT at least had the good sense to retain and build on the previous government’s economic reforms. There was a period of relative prosperity - with a growing economy, a sense of confidence, and increased world influence as part of the BRICS group of emerging economies.

PT built a strong myth around it leaders. Luiz Inácio Lula da Silva was an inspiring trade unionist who’d risen from being a shoeshine boy in country’s poor northeast to take a commanding position in the country’s trade union movement. Dilma Rousseff was born into a middle-class family, adopting marxism in response to the military coup of 1964. In 1968, at the age of 21, she joined a guerrilla group called the Comando de Libertação Nacional (National Liberation Command). According to the PT myth, this group heroically took up arms against the military dictatorship - whereas in reality they seem only to have been involved in a few bank robberies and the death of several policemen.

Sadly, during PT’s tenure, lack of any true economic or political reform left the country susceptible to the inevitable downturn. It also left Brazilians with some of the world’s highest taxes and questionable public services. Public dissatisfaction was dramatically demonstrated in June 2013 when two million Brazilians took to the streets to vent their frustration. Despite paying high taxes, they had substandard healthcare, poor public transport, wasted expenditure on big events such as the World Cup and Olympics, and politicians granting themselves immunity against corruption charges. Despite the rhetoric of PT, it was also evident that inefficiency and mismanagement were resulting in major social problems such as child prostitution, drugs, and extreme poverty remaining ignored in some areas.

Although PT is credited with increasing the minimum wage and lifting millions out of poverty into the middle-class, we need to remember that Brazil’s “middle-class” is defined as being anyone with a monthly income over $550 (1,100 Brazilian reis) - which still isn’t much. Hence the national outcry when a proposed increase in transport taxes threatened to leave commuters paying an extra $10 per month for their public transport. $10 doesn’t sound like much, but it’s significant when your salary is low in the first place. For many Brazilians, things we take for granted such as owning a car, computer, or smartphone remain a dream since these are ridiculously expensive due to high import duties - often over 100%. Expensive imports leave the market being serviced with low-grade local products such as the Fiat Mille, a locally-manufactured version of the 1980s Fiat Uno with a 1-star Latin NCAP safety rating … which is the typical safety-standard for low-cost Brazilian cars. As such, driving along Brazilian roads can be like visiting an open-air museum. The high-cost of cars also means that many are kept on the road well past their use-by dates, often in a very unsafe state and contributing toward Brazil having one of the world’s highest per capita road tolls.

After the World Cup, largely seen as successful despite the national team’s failure and its questionable value as an investment, the country’s economy has become the major issue. A strong economy is needed to fund development, social programmes and education. But now, after the World Cup visitors have gone home, there are still bills to be paid and the economy is clearly struggling. There was insufficient strength to weather the global downturn and reduced commodity prices. Some large companies collapsed and the country has slipped into recession. According to Rousseff, Brazil’s lack of growth is due entirely to the poor global financial outlook - although this doesn’t explain why other South American economies such as Uruguay, Colombia, Paraguay and Peru have all recorded economic growth two or three times greater than that achieved by Brazil.

Probably the biggest driver for change right now is PT’s alleged complicity in large-scale organised corruption. This began with the mensalão scandal in 2005, when an official was found with a suitcase containing over $500,000 in various currencies, earmarked for political payments. Another PT official was then stopped at the airport with $100,000 hidden in his underwear. The enquiries which followed revealed a complex scheme whereby PT was using illegally gotten funds to buy votes from coalition parties and independents to support the passage of their policies through congress. There were some arrests and indictments, but the enquiry dragged on for years and the hubbub eventually died down with little real outcome. However, in the last year, further scandals have come to light involving the former state oil company, Petrobras. Floated in 2010 and beginning as the world’s fourth-largest company by market capitalisation, it has since had a spectacular downfall. The first Petrobras controversy involved 1.25 billion dollars paid for the Pasadena Refinery in Texas (about 20 times its value) which was signed off by Rousseff as head of the company at the time. Soon after, a whistleblower revealed that contract values for many of Petrobras’s new developments were routinely being inflated by 3%, with the extra funds being diverted to PT and their associates. These revelations led to a major investigation by Brazil’s Federal Police, and testimony by witnesses confirming the sordid details. Just days out from the election, the bagman for the operation, Alberto Youssef, stated that the scheme was operating with the full knowledge and support of both Lula da Silva and Dilma Rousseff. Although the testimony made to Brazil’s Federal Police is now a matter of public record, the fact that Brazilian news magazine Veja decided to run with it as their cover story this week triggered an angry reaction from die-hard PT supporters (known in Brazil as PTistas), who stormed the magazine’s offices and threatened staff. The magazine also drew the ire of Rousseff herself - accusing them of “Electoral Terrorism” - even though it’s a valid story and something Brazilians should know about before choosing their next government. Sadly, it doesn’t stop. There are now more revelations from Petrobras including mismanagement, kickbacks and/or government interference triggering construction costs of the Abreu e Lima refinery, projected to cost $2.5bn in 2009, to blow out to over $20bn. This makes it the world’s most expensive refining facility. Another refinery, Comperj, in Rio de Janeiro is on a similar path having reached 3.5 times its originally projected cost. All up, political interference, corruption and mismanagement has cost the company and Brazil tens of billions of dollars. Petrobras now regarded as one of the most indebted companies in the world.

Rousseff’s government has also faced criticism for its poor environmental record. Its former Environmental Minister, Marina da Silva, famously left PT claiming it’s policies were ineffective and being sold out in favour of other interests. She has a respected profile in environmental circles, with a long track-record in environmental programmes, and having worked alongside renowned campaigner Chico Mendes. She started her own environmental party before joining forces with the Brazilian Socialist Party (PSB) and running in the three-way Presidential vote on October 6. Clearly she has no faith in Rousseff’s commitment to the environment, and she has since sided with the PSDB candidate, Aécio Neves, after gaining his commitment to follow a policy of environmental sustainability. Greenpeace Brazil has pointed out that Rousseff’s record creating new conservation areas is considerably less than that of her predecessors. Other criticisms include continued lack of enforcement against illegal Amazon logging resulting in record deforestation, and lack of action on Amazon fishing which still includes the legalised slaughter of Amazon pink river dolphins for use as bait by commercial fishermen.

While the PSDB’s track record isn’t perfect, and they’ve also had their scandals in the past, they do at least represent a viable alternative to a party currently mired in corruption and cronyism. If the party in power commits such blatant acts of corruption and gets re-elected, its sends the tacit message that corruption is okay. This would only serve to encourage more of the same behaviour at national, state and local levels. If anything, Brazil needs to clean up its politics and nepotism. Its still a country where politicians put their friends and family on public payrolls without them ever actually doing any work. Brazil needs to reduce bureaucracy and graft - make it easier for businesses to operate and for Brazilians to lead their lives. A web of rules, unnecessary paperwork, and a culture of it being about who you know makes the country a difficult places to do anything. Corruption and bureaucracy drives up costs, reduce productivity, and reduces the incentive for foreign investors to do business in Brazil - instead choosing alternatives such as Chile and Colombia. In turn, this limits Brazil’s growth and opportunities for its people.

Despite the mounting evidence against them, PT’s looseness with the truth, refusal to answer tough questions, and scare tactics targeted at poorer communities have them still polling at around 50% meaning that the election will be tight and very hard to predict.

Also see: 5 Reasons Why Brazil's President Dilma Rousseff Should Not Be Re-Elected

POST-ELECTION UPDATE:
The election was close, with Rousseff and PT winning by a narrow margin. They had 51.6% of the vote, with Aécio Neves coming in at 48.4%. The country was essentially split in two with the wealthier southern states voting for PSDB, and the poorer northern states sticking with PT. Although Neves has gracefully conceded, there are still deep divisions between the two parties. With things so evenly split it also seems likely that Rousseff will find it exceptionally difficult to govern. Investigations into the Petrobras corruption scandal are set to continue. However, with PT back in power and able to influence the investigation, it’s possible that this will simply be stonewalled for years, dragging on and little tangible action resulting (as occurred with Mensalão investigations). However, there’s a possible alternative scenario where the accumulation of evidence might eventually lead to impeachment proceedings being commenced as occurred with the corruption scandal that dogged the government of Fernando Collor de Mello in the early 1990s. Time will tell. In the interim, there’s a high likelihood that investors will be disappointed with the outcome of today’s election and vote with their feet - taking money out of Brazil as had already started occurring in recent months. Some are now predicting that the value of the Brazilian Real will drop by up to 50 percent in the next 12 months.

Update #2: Two days after the election, PT have announced a priority for media “reforms” in effect gagging negative press and their critics.

Also see: Rousseff re-elected by narrow margin as Brazil's president