Is Dilma’s Ship Sinking?

Over the years, Brazil has used its time in front of the UN General Assembly to mark its position in the international arena on how to address global challenges. But this year, with the country mired in an exhausting political and economic crisis, Brazil’s president, Dilma Rousseff used the UN stage to send a positive message back home.

In her opening speech, Dilma spoke confidently about the fiscal austerity measures recently announced by her administration. But her confidence in the government’s fiscal plan to pull the country out of recession is not shared by everyone—especially at home.

After a series of missteps that culminated in Brazil’s downgrade by Standard & Poor’s last month, Dilma’s administration presented a plan to counteract the country’s disastrous budgetary deficit. The fiscal package emerged as an emergency plan to restore the country’s fiscal credibility and avoid a further deterioration of the economy by guaranteeing a primary surplus in next year’s budget.

But though the need to make fiscal adjustments is recognized across the country, the means by which such adjustments should be promoted remains deeply controversial.

Dilma’s fiscal austerity policies only scratch the surface of the problems currently plaguing the country. Far from ensuring economic stability, the new package doesn’t address Brazil’s real challenges and may ultimately have very little impact on the economy in the long term. The proposed spending cuts and tax hikes, as they were designed, could even be counterproductive, contributing to a further deceleration of the economy.

And the package faces widespread resistance across the political spectrum, including within Dilma’s own Worker’s Party (PT). Social discontent over the package is high and rising.

Even beyond the controversial measures, the plan itself is far from guaranteed—15 of the 16 presented measures require congressional approval—and considering the current level of polarization, it is safe to say that won’t come easily.

If this package is then disapproved—which seems increasingly likely—the effects could prove disastrous, casting more doubts on the country’s already weakened credibility. Brazil would probably face another credit-rating agency downgrade, and Joaquim Levy’s days as finance minister could be numbered.

This would put the government still more distant from finding a solution for Brazil’s pressing economic woes, which go far beyond the country’s huge fiscal deficit. High inflation, currency devaluation, rising unemployment, and a deepening recession all characterize the alarming scenario that is threatening to undermine the economic and social progress achieved by the country in the past decade.

And ultimately, the political and economic components of the crisis are intricately connected: Brazil is trapped in a vicious cycle, with the political instability feeding the economic crisis, and vice versa. If Dilma’s latest efforts to resolve the political gridlock by making concessions to the rival Brazilian Democratic Movement Party (PMDB) come from the correct assumption that the party will play a key role in determining her future, this move will most likely only add to the political fragmentation that is plaguing the country.

All in all, there is not an easy or magical solution for Brazil’s problems. Putting the country back on track will demand a lot of hard work and impose sacrifices that should be tackled collectively. In addition to emergency and contingency measures that must be implemented in the short term, the government must develop a set of proposals to address the country’s more profound and structural challenges, putting the country back on the path toward sustainable growth. To endure the hard times that are inevitably coming, people must be able to see a light at the end of the tunnel. And so far, the government has demonstrated that it has neither the will nor the capacity to carry out the substantive reforms the country requires.

There is no doubt, though, that Brazil needs a fiscal package—and that it needs it now. But it has to be something well thought-out and consistent, accompanied by measures that ensure a gradual return to growth. Otherwise, the remedy might end up being worse than the disease.

More than ever, Brazil needs strong leadership and a unified voice to find its way out of this crisis. But Dilma has proven unable to exhibit the same confidence and firmness at home that she displayed in front of the United Nations. With the sea rising all around her, Dilma has few options left. Too bad: without an adept captain, it looks like Brazil’s ship is sinking.

Carl Meacham is director of the Americas Program at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the authors.

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