Brazil risks toppling as impeachment for President Dilma looks more likely

Brazil – once a model for the developing world – risks implosion, with political scandal and financial mismanagement threatening to fell South America’s economic powerhouse

It was called the “Brazil model,” or simply “the Lula model,” back when this country’s economy was roaring and its president, Luiz Inácio Lula da Silva, was a superstar of the developing world.

By balancing support for big business with big social-welfare programs, the union boss-turned-statesman presided over an era of growth that lifted tens of millions of Brazilians out of poverty. Lula’s presidency cut a new template for a Latin American left that had long insisted class struggle and revolution were the only road to fairness. The coronation came when Brazil was chosen to host the 2016 Summer Olympics, confirming its rise as a global power.

Now Brazil is limping to the Games. Its economy is facing its worst crisis since the 1930s. A Zika virus epidemic rages. And tomorrow, lawmakers will vote on whether to impeach President Dilma Rousseff, Mr Lula’s hand-picked successor. Impeachment appears increasingly likely.

“We are in an extraordinary situation,” said Otaviano Canuto, the top International Monetary Fund official for Brazil, in an interview. “And it is even more extraordinary because the political dynamic overshadows everything else.”

If two-thirds of the lower house votes to remove Ms Rousseff, and a similar measure clears the upper chamber, Ms Rousseff will be suspended. Senators will then have 180 days to conduct hearings, raising the possibility that while the world’s athletes are jumping, diving and racing for Olympic glory, lawmakers will be conducting impeachment proceedings against the president on live television.

President Dilma Rousseff faces an impeachment vote in Congress this weekend (Getty Images)

The plunge that Ms Rousseff and the country have taken has laid bare the frailty of Brazil’s commodity-driven growth. Big parts of the Brazil model, it turns out, were glued together with kickbacks, dirty money and lies.

Ms Rousseff herself is not accused of illegal personal enrichment but of improperly using money from government banks to cover budget gaps. A separate inquiry is examining whether her Workers’ Party benefited from an illegal campaign-finance scheme, which could lead to an annulment of her victory and force new elections.

Ms Rousseff and her supporters, Lula chief among them, have likened the impeachment push to a slow-rolling political “coup,” a loaded term in a country that lived under military rule between 1964 and 1985.

Yet there is little doubt Ms Rousseff would not be facing the mutiny if she were not so politically weak, with an approval rating of 13 per cent. The country is facing a 3.8 per cent economic contraction for the second year in a row. In a telling sign of how investors and business leaders view the president’s economic policies, every step that takes her closer to impeachment seems to bring a rally on Brazil’s stock market.

Luiz Inácio Lula da Silva served as President of Brazil from 2003-2011 (Getty)

“She’s a bad manager, and she’s behaved irresponsibly,” said Eduardo Mufarej, the chief executive of a 5,000-employee company that makes educational materials for private schools.

More than 7.8 million students were enrolled in the private school system in 2014, but since then, nearly a million students have gone back to the public system because their parents can no longer afford tuition, Mufarej said.

Lula grew up poor and never finished high school, but his masterstroke as leader was speaking like a populist while governing as a pragmatist. He put conservative bankers in his cabinet and did not attack business leaders or the United States. It was a marked contrast to Venezuela’s Hugo Chávez, who stood for the more confrontational version of Latin American leftism.

Latin America had been simmering with ideological tensions for decades, and Brazil was no different, with a walled-off elite and a huge underclass living in squalor.

Lula, who was elected in 2002, worked diligently to build political consensus. He dramatically expanded a programme known as Bolsa Família that provided welfare payments to families whose children showed up for classes and vaccinations, and it became the signature social programme of his presidency.

With the economy humming from a global commodity boom and Lula’s government passing the pie around, more than 30 million poor Brazilians found a foothold in a new, aspiring middle class. Lula left office in 2010 with an 87 per cent approval rating, so high that President Obama called him “the most popular politician on Earth,” telling reporters: “I love that guy.”

The riches flowing from Brazil’s mines, oil fields and farms fuelled a consumer spending binge, but they patched over the structural problems that made Brazil a creaky, onerous place to do business.

A privatisation plan to build much-needed roads and railways faltered. Productivity remained low since the workforce was badly trained and poorly educated. Companies wasted thousands of hours deciphering a greedy tax system. And all the while, the old way of making deals – lubricated with graft – went unchanged.

Big construction and energy companies grew fat on state contracts and government loans under Lula and Rousseff, and the opportunities for illegal enrichment were numerous. Slush money poured into political campaigns.

The dirt from those years is now being unearthed by a hard-charging team of prosecutors and a tough lower-court federal judge, Sérgio Moro, who is overseeing the investigation of a bribery scheme at national oil company Petrobras. Through wiretaps, raids, arrests and plea deals, the probe has exposed spider webs of corruption throughout Brazil’s elite.

At least 130 people, including company executives, former lawmakers and others in the pay-to-play scheme have been jailed at one point or another. Nearly two-thirds of federal lawmakers are undergoing some form of investigation or legal probe.

Rousseff lacks her predecessor’s back-slapping personal touch, and critics say she has governed rigidly and intervened in the economy with disastrous results. That criticism extends to her 2012 decision to force power companies to slash electricity rates. As the boom years ended, “a combination of mistakes created a crisis of confidence” in her leadership, said Rafael Cortez, a political analyst at the Sao Paulo consulting firm Tendências.

If lawmakers vote to remove her, she would be replaced by Vice President Michel Temer, her former running mate turned political enemy. Known for his flashy suits and slicked-back hair, he has also been named in the Petrobras inquiry and is potentially facing his own impeachment process.

Next in line is lower-house leader Eduardo Cunha, the figure leading the drive to oust Rousseff. He also happens to be under investigation on suspicion of money laundering, corruption and allegedly funneling $5 million in kickbacks into Swiss bank accounts.

In all, federal police think as much as $12 billion was siphoned from Petrobras, once one of the world’s mightiest oil companies.

Much of the affair has come to light through the “Car Wash” investigation, which has reached all the way to Lula. Brazilians were shocked last month to see him taken in for questioning by federal police amid allegations that he received properties and other gifts from former government contractors. Rousseff tried to appoint Lula to her cabinet as chief of staff, a move that would afford him broad legal protections, but a judge blocked the attempt, opening yet another courtroom battle.

With both sides digging political trenches, anger has surged in a famously easygoing country whose unofficial national symbol is a beach sandal.

“I don’t remember another moment in Brazilian history when passions were as visceral as they are now,”said Ricardo Boechat, a popular radio and television commentator. “Not even during the military dictatorship.”

With the expectation of large pro- and anti- demonstrations outside Congress during the impeachment vote, prison labourers were brought into the capital last week to put up a separation barrier between the two sides. The structure was the most poignant symbol yet of Brazilians’ polarisation.

It has become something of a cliché to say that Brazil will inevitably emerge stronger from the corruption investigations and the political bonfire they’ve kindled. Another possibility is that the damage will be so extensive that the country and its politicians will languish in scandal and cynicism for years to come.

No single figure has emerged as a strong, corruption-free alternative to Brazil’s current leaders. Lula would be eligible to run again in 2018 and has all but said he plans to do so, meaning he could soon be back in power – if he does not end up in prison for corruption. He remains popular among Brazilians who remember his presidency as the best years of their lives.

“This whole crisis is about the possibility that Lula will run again in 2018,” said Wagner Santana, the secretary general of the metalworkers union where Lula was president in the late 1970s, before he went on to found the Workers’ Party.

Santana sees the anti-corruption drive as a witch hunt and the impeachment attempt against Ms Rousseff as a naked power grab. But many Brazilians, including quite a few who once cheered Lula, are fed up.

Santana’s office at the union’s shiny headquarters on the industrial outskirts of Sao Paulo looks out on new condominium towers that sprouted during the boom, but also the slums that have grown with the crisis. Between them is a massive Volkswagen plant, the largest in South America, where many of the union’s rank and file are employed.

The plant has the capacity to produce 390,000 cars a year, Santana said. This year it will make fewer than half that number.

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