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CLALS | Brazil: Implications of Dilma's Victory [Full Version]

Brazil: Implications of Dilma's Victory

By Matt Taylor and Eric Hershberg

After the most contentious and closely contested presidential election in the nearly 30 years of contemporary Brazilian democracy, last night Dilma Rousseff of the Workers' Party (PT) was reelected to the presidency by a tight 3.28 percent of the vote. The election was marked by extraordinarily high levels of popular interest, in part because for the first time since 1998, the Social Democratic Party (PSDB), under the candidacy of former governor Aécio Neves, was truly a formidable contender. After a battle marked by a strong desire for change – most evident in incumbent Dilma's campaign slogan, "Governo Novo, Ideias Novas" (New Government, New Ideas) – the big question now is what sort of change will come from the PT's fourth consecutive turn in office.

The answer to this question will be determined in part by electoral dynamics. Dilma lost overwhelmingly in the PT's old stomping grounds of the southeast (by 2-1 margins), but picked up support in Neves's state of Minas Gerais, and thoroughly dominated the northeast (by 3-1 margins in many places), including Pernambuco, which had gone to Marina Silva in the first round. Although it is too early to know for certain, it appears that the lower middle class, known widely as Classe C in Brazil, wavered in its support, but ultimately seems to have thrown its lot to Dilma. It was kept in line by the PT's relentless repetition of the message that it was the only party that could be trusted to keep unemployment low, continue real minimum wage increases, and preserve the social programs implemented since 2002, including the Bolsa Família.

But it was a close call, and the PT emerges from the battle bloody and bruised. The party stalwart, former president Luis Inácio Lula da Silva, was an uneven participant in the campaign, inexplicably absent at critical moments, and losing his cool at others. His behavior drew widespread opprobrium, especially when he compared the opposition to "Nazis" and to King Herod at a particularly contentious moment in the second round. The Rousseff campaign's systematic and cruel deconstruction of Marina Silva in the first round, meanwhile, may have been effective electoral politics, but it buys the resentment of a solid fifth of the electorate for the next four years. Although the PT won some important victories, including taking the Minas Gerais governorship from the PSDB after three terms, it would be hard for any PT strategist to avoid the obvious extrapolation from the party's declining margins of victory: the PT won the presidency by 22.6 percent in 2002, 21.6 percent in 2006, 12.2 percent in 2010, and 3.3 percent in 2014. Meanwhile, the party has been overwhelmingly rejected in the south and southeastern regions of Brazil where it was born;even Rio Grande do Sul, Dilma's home state, plumbed 54 percent for Aécio.

All parties are now looking to 2018. Lula will be 73 years old, and while he is still the rockstar of Brazilian politics, he has been beset by health challenges and is likely to be sullied by the still erupting Petrobras scandal. A newly combative and forceful Aécio will be the clear frontrunner of the opposition, and is likely to use the soapboxes of his Senate seat and presidency of the PSDB to remain in the spotlight. A rising generation of leaders raised on post-authoritarian politics may also sense an opportunity, not least 45 year-old Rio mayor Eduardo Paes (PMDB), who has gained the national spotlight in preparing the 2016 Olympics in that city. The fact that 19 of 27 governorships were won by the PT and its allies may prove to be a mixed blessing, especially because 14 of these were won by coalition parties that may find the call of national office extraordinarily appealing. Even though the Dilma alliance holds 304 seats in the Chamber of Deputies, it is a shaky majority, four seats shy of the total needed to pass constitutional amendments. Further, the PT and its closest allies in the PMDB have seen their congressional support drop: the PT fell from 91 seats (18 percent) in the Chamber of Deputies in 2002 to 70 seats (13.6 percent) now, and the PMDB-PT alliance has fallen from nearly a third of the Chamber in 2010 (31 percent) to just over a quarter now (26 percent). The number of parties in Congress has grown to 28, and the opposition is likely to be far more assertive, not least because the combined issues of the economy, public services and corruption proved during the campaign to be useful wedges to drive between the middle class and the PT.

The economy was moribund for almost the entirety of Dilma's first term, and while unemployment remains at an impressively low 4.9 percent, there is little chance of its remaining at such historic lows. Fairly urgent work is needed to cope with a deteriorating current account, the weak fiscal results, resurgent inflation, and declining personal credit, especially among the politically influential Class C. Further, financial markets have wreaked havoc: Petrobras shares are down nearly forty percent from their pre-election highs in September, and lost a further 16 percent in pre-market trading this morning. Dilma has shown signs that she understands the threat, suggesting that Finance Minister Mantega will be shown the door. But much of this may be a case of too little, too late.

Better management of public services should theoretically be manager Dilma's strong suit, but as the Growth Acceleration Program (PAC) she managed for Lula, and her time at Petrobras illustrated, even an iron-fisted manager like Dilma faces challenges in moving the bureaucracy forward in a positive direction. And many of the social services that fuel public dissatisfaction are provided by a complex mixture of federal, state and local actors, meaning that while as president, Dilma may be blamed by the public, she actually has little hope of driving meaningful change singlehandedly.

Finally, the corruption story is an immediate threat. Throughout the campaign, dribs and drabs of a story of corruption at Petrobras leaked out into the media, often with suspect timing. But if the testimony of foreign exchange dealer Alberto Yousseff, who was given whistleblower protection in exchange for testifying to the police, is to be believed, this is an enormous scandal that may shake the administration to its core. The accusations reach Dilma and Lula, but more credibly still, include the PT party treasurer and as many as fifty national politicians.

In light of this political scenario, it is perhaps not surprising that Dilma's victory speech focused on building consensus, suggesting she would push political reform via plebiscite, promising anti-corruption reforms, and suggesting, after largely downplaying the issue on the campaign trail, that inflation and fiscal balance will be key priorities during her second term. Whether she can actually accomplish these goals on her own timetable is a big question. The markets have been unusually restive, and will not wait for long for her to name a new economic team.The Petrobras scandal has legs of its own. And the press will not long forget the fact that both political reforms and anti-corruption reforms were proposed by Dilma in the wake of the 2013 protests, but were set aside once the worst of the protests had passed. The honeymoon is already over.