This week we witnessed a new piece of astonishing political drama in Brazil. The main actor this time was Luiz Inacio Lula da Silva (generally known as Lula), a popular former president of the country, who was chased by prosecutors for allegedly taking bribes in the Petrobras corruption affair (the Lava Jato, or carwash, case) and, separately, for concealing ownership of a beach property. Lula denied wrongdoing but, apparently, was not entirely certain of his case. Over the weekend (after mass demonstrations against the government in Sao Paulo and other cities), he accepted the role of Chief of Staff in the government of his successor and protege, Dilma Rousseff. By doing so, he would be able to stay out of the hands of state law enforcers as ministers have special legal status and only can be indicted by the Supreme Court. As Lula once reportedly said: in Brazil, when a poor man steals he gets in jail, when a rich man steals he becomes minister. Of course, the only reason for Lula to join the government was to contribute his wealth of experience in governing the country, Dilma helpfully explained. However, Lula’s tenure was even shorter than that of David van Rooyen, who was appointed as minister of finance by another president that completely lost sight of reality, Jacob Zuma of South Africa, and was ejected after only 4 days in the job. Judge Sergio Moro, a rather tough cookie that deals with the Lava Jato case, released wire tapes that showed that Lula’s intentions were not entirely altruistic. Subsequently, a federal judge in Brasilia issued an injunction to suspend the appointment of Lula as Chief of Staff.
What is next? Brazilian politics is notoriously unpredictable (we had ruled out that Lula would join the government as this would undermine the credibility of both Lula and Dilma, but just see what happened) but odds are that the impeachment process (a “coup” in Dilma’s parlance) will gather full steam. Eduardo Cunha, speaker of the lower house (and a crook himself), said that a vote will be held within 45 days after the Supreme Court ruled on procedural issues that had delayed the process since December. Cunha’s party, the PMDB, is considering leaving the coalition with Dilma’s PT (vice-president Temer of the PMDB skipped Lula’s inauguration). As Dilma’s support is crumbling, her last days in office may have come, something we had not foreseen only a few months ago (a muddle-through scenario seemed more likely then). A two-thirds majority in both houses of Congress is needed to send her packing. This now may be achievable although, despite all the hard talk, the position of the PMDB remains unclear. And if the government successfully challenges the injunction against Lula’s nomination, a muddle-through scenario is still a possibility.
Financial markets seem to be in love with impeachment, but should they? Maybe with the exception of Marina Silva (not related to Lula), most politicians in Brazil are tainted and self-interested. We are doubtful that a removal of Dilma will automatically improve Brazil’s chance of economic revival as Brazil is run by coalitions and the opposition parties to PT do not necessarily trust each other. Many politicians are susceptible to prosecutors wanting to know where they stashed the cash (is Aécio Neves clean?), which will be a distraction for some time to come. Note that in order to make headway with cutting government expenditures, a supermajority in Congress will be required to overturn laws that enshrine those expenditures (like pensions, inflation-linked minimum wages, etc.). What is needed is a credible team of highly competent professionals (with people like Arminio Fraga) led by a respected, incorruptible and intelligent politician. Please, bring back Fernando Henrique Cardoso!
