China’s New Vassal
How the War in Ukraine Turned Moscow Into Beijing’s Junior Partner
As Brazil’s Workers’ Party (PT) assembled to celebrate ten years in power in February, President Dilma Rousseff took the opportunity to announce that she would seek a second four-year term in office. At her side was Luiz Inácio Lula da Silva, Rousseff’s predecessor and political mentor, who endorsed her candidacy and described it as the best way to carry on with the PT’s progressive political project. “The opposition can put up whomever they want,” proclaimed the former-mechanic-turned- popular-politician, “but we are going to re-elect Dilma in 2014.”
Lula could have chosen to run for president himself -- and, prior to his endorsement of Rousseff, there had been speculation that he would. But Lula, ever the shrewd political strategist, decided that the best way to achieve his goal of winning electoral hegemony for the PT would be to back Rousseff. In doing so, Lula solidified his role as campaign manager and PT champion as the party tries to fulfill its long-term agenda of transforming Brazil into a more equitable society with ample safety nets for the needy while also making its economy the fifth largest in the world within a decade.
How well has the party done so far? When Rousseff took over the presidency in 2011, she said her priority would be to “end misery” in Brazil. Her tool for doing so would be increasing public stipends for those living on incomes of less than $35 per month. The stipends, part of the Bolsa Família program (which costs about $4 billion per year), go to poor families that keep their children in school and take them for regular health checkups.
By all accounts, Bolsa Família, which reaches about 16 million families, has succeeded in improving nutrition for children, increasing vaccination rates among infants, and providing a minimum income for Brazil’s poorest. The feel-good program has few detractors, which might be why, on the eve of launching her candidacy, Rousseff announced that the government had discovered another 700,000 families that needed support. She promised to register them for the payments. Naturally, she assumes that doing so will make them more likely to vote for her.
At the same time, Rousseff has cut prices for electricity and eliminated taxes on basic foods. She has also pumped up consumer spending by reducing interest rates on loans at the powerful public banks, which forced private banks to follow suit.
Although Rousseff’s economic policies have been very popular, they are also problematic. What Brazil really needs is a more productive and internationally competitive economy with better paying jobs -- not just coffer-draining social initiatives. Brazil produces gargantuan amounts of high-grade iron ore. But because of stifling taxes and complex bureaucratic regulations at home, domestic steel mills simply cannot compete with competitors overseas. So each year, the country ships millions of tons of iron ore to China, Japan, and South Korea for processing. But many steel producs, like railroad tracks, are then imported back from China. Whenever the government tries to address productivity problems, labor unions, a major PT constituent, go on strike.
Brazil’s public oil sector, too, is bogged down by inefficiency. When Petrobras raised more than $120 billion in 2009 as part of what, at the time, was the largest public share offering in history, many expected a golden age to follow. But since then, oil production has flatlined, and Petrobras shares are now worth only 60 percent of the amount raised by the public offering -- a great disappointment to private investors. In 2012, the company even lost money for the first time in a decade. The lackluster performance is usually blamed on the company’s inability to extract oil discovered in deep offshore fields, as well as on political manipulation of oil prices that deprived Petrobras with revenue it could have invested in production.
Together, Rousseff’s social and economic policies have resulted in an increasingly negative balance sheet, inflation, and growing foreign trade deficits. In 2012, Brazil’s GDP grew by less than one percent, far behind the growth rates of other Latin American countries and the other BRICs. The public, which has enjoyed the consumer boom and is traveling abroad in record numbers, does not seem to care. But a majority of independent analysts are sharply critical of Rousseff´s economic management. At first, Rousseff shrugged off the criticism. In a rather curt rebuttal to critics of her economic management in February, she said they were just “conservatives who don’t understand.”
In recent days, though, it has become clear that Rousseff and her economic team are aware that poor economic results could be a stumbling block with voters if employment rates decline and inflation rises. Right after launching her candidacy, Rousseff sent her economic team on a roadshow to New York, London, and Tokyo to present potential investors with an ambitious portfolio of projects worth $235 billion. In addition, her government renewed efforts to pull in Chinese investment for infrastructure projects, especially a system of inland waterways that would reduce the cost of bringing Brazil’s massive output of agricultural products to the coast for export.
Of course, the huge investments in highways, railroads, ports, and electric power plants are also expected to give momentum to the PT’s election campaign.
The opposition is ready to fight back. Rousseff’s main contender in the election is Aécio Neves, the presidential candidate from the Brazilian Social Democracy Party (PSDB). Neves, now a senator, used to be governor of the state of Minas Gerais, Brazil’s second-largest electoral district. He still has a powerful base there, as well as the active backing of Fernando Henrique Cardoso, who was president from 1995 to 2003. The PSDB team includes a powerful group of economic analysts that were responsible for ending inflation under Cardoso. Accordingly, Neves plans to make inflation and economic management his main points of attack.
Two other candidates are also waiting in the wings. Eduardo Campos, the governor of Pernambuco from the Brazilian Socialist Party (PSB), is a charismatic leader who has pull in Brazil’s northeast. The PSB controls two cabinet posts in Rousseff’s government, but Campos has his own ambitions. Another candidate is Marina Silva, an environmental activist from Amazonia, who won 20 million votes in 2010 as the presidential candidate of the Green Party. She has butted heads with Rousseff over electric dams and highways in the Amazon region.
For the next 18 months, the battle between all these figures will dominate Brazilian public life. Political pundits believe that the Rousseff ticket, with Lula mounting a nationwide campaign to drum up support and coalition partners, is the favorite. But to triumph, Rousseff will have to use the rest of her term to right Brazil’s flagging economy. In this multiparty democracy, where 16 parties are represented in Congress and the state governments, new alliances are constantly struck and dissolved. The only way to prevail is to give the public and partner parties an economic agenda worth fighting for.