Brazil’s new crisis

As I remarked in this blog at the beginning of the sequence of events that led to the ouster of President Dilma Rousseff, the supporters of the 2016 coup would be advised to think carefully about what they wished for. As the country sinks deeper into a crisis that now touches all its institutions, this seems truer than ever.

The plea bargaining testimony of executives of the Odebrecht corporation implicated politicians of different political parties, and a number of key figures in the government established by the coup, in acts of personal corruption as well as receipt of illegal campaign funding in return for favours provided to Odebrecht as a business organisation. Even before the details were made public, it was described as the “denunciation of the end of the world” from the point of view of the political establishment in Brasilia, and Odebrecht’s role as a transnational corporation rapidly had repercussions in other countries in which the company bribed its way to securing contracts. But the testimony provided to the federal police under plea-bargaining deals by executives of the JBS meat processing and frozen food conglomerate has taken Brazil’s political crisis to a new level. Details began to be released last Thursday and the full scope of the testimony is now very fully in the public domain following release of official recordings of the official interviews and privately taped conversations with politicians. Although there is new material here against the PT and former presidents Lula and Dilma Rousseff, the headline news concerned the usurping and extremely unpopular president now in office, Michel Temer of the PMDB, and the losing candidate in the 2014 general election, Senator Aécio Neves, who, before this scandal broke, was president of the PSDB. This was because JBS magnate Joesley Batista testified to crimes committed by these two key actors whilst they held their current federal office. This opens them up to immediate investigation and judgement.

Although the Supreme Court did not give immediate approval to Attorney General Rodrigo Janot’s request that Aécio Neves be gaoled, he has been suspended from the Senate and both he and Temer are now under investigation. Although Temer denied all wrong-doing and refused to resign, his fall seems inevitable, although there are different ways in which this could be engineered. The charges against him include putting part of the money that JBS provided for illegal campaign financing for the PMDB into his own pocket, conspiring with Batista to buy the silence of convicted and imprisoned former House leader Eduardo Cunha, and other attempts to obstruct justice in relation to the Lava Jato enquiry. The fact that Temer had a private meeting with Batista which involved the businessman entering his official residence discretely by the garage does not increase the plausibility of the president’s claims that nothing inappropriate was ever discussed between them. There are very few kinds of corruption of which Aécio Neves was not already under investigation, but this time the federal police had video evidence of a bag of JBL cash being delivered to his cousin, and similar evidence exists of money being delivered to “persons of confidence” of Michel Temer. But in addition to the police evidence, JBL’s boss also made personal tape recordings of his conversations with Neves and Temer that are now in the hands of the investigators. The same strategy was used in concert with a plea bargaining deal relating to the Petrobras scandal by former senator and boss of the Transpetro company, Sergio Machado, whose recordings forced the sacking of two of Temer’s original ministers, Romero Jucá and Fabiano Silveira (the latter ironically in charge of “transparency”). Machado also implicated other leading members of Temer’s party, including then Senate leader Renan Calheiros and ex-president José Sarney, both also currently under investigation as explained in an earlier post. The public reaction to the latest revelations has been swift and strong, and Temer’s efforts to claim innocence on the grounds that the recordings were edited is hardly convincing, since at the very least they prove that he took no appropriate action after hearing about criminal acts, and technical experts have testified that there is no interruption of the recording in the section where the issue of Cunha was discussed. Even the street protest movements that supported the impeachment of Dilma Rousseff are now demanding the immediate removal of Michel Temer.

The dirty details, freely available in text, audio and video on the internet at the moment, make for many hours of listening that will be happy or distressing depending on your point of view and political sympathies. But here I want to take a deeper look at what is going on in terms of the continuity of the project that the removal of Dilma Rousseff was intended to make possible, or in other words a coup that has clearly been driven by the interests of the upper echelon of Brazilian capitalism. Plan A was clearly for the Temer government to push through a package of staggering socially regressive “reforms” that would dismantle Brazil’s already limited welfare state, changing the constitution to limit public spending for twenty years in the mother of all austerity packages, to be followed by a major assault on the rights and pay and conditions of workers and a restructuring of the pension system that would mean that most Brazilians would die without receiving much benefit from it (an effect likely to be exacerbated by the effect on mortality rates caused by the return of mass poverty and precarious employment promised by the economic crisis and measures taken to address it, as well as by the new rules on contributions). These measures have proved even more unpopular (once again, even amongst supporters of Rousseff’s impeachment) than the architects of the coup envisaged, but they always knew that they would be unpopular. Yet Temer as an adept fixer should have been able to manage the passage of this legislation through an exceptionally reactionary congress dominated by representatives of business interests and lobbyists wholly beholden to the private sector funders of their election campaigns. Letting Temer take the principal political hit for pushing through these measures was actually advantageous to the PSDB, eager to recapture the presidency in 2018, although somewhat divided amongst themselves as to who their candidate should be.

Various flies in the ointment impeded the smooth execution of this plan. Massive public opposition to the reforms undermined the initial success of a massive mainstream media campaign and judicial state of exception in undermining the electoral possibilities of the PT. Recent surveys of voting intentions provided growing evidence that ex-president Lula was re-emerging as a national saviour, potentially capable of winning the 2018 elections in the first round.  Despite earlier political bias, in the longer term the Lava Jato investigation did begin to implicate the opposition politicians aligned with the coup regime to a growing degree, and attempts to stop this happening failed to prosper, not least because those responsible undermined themselves by their personal venality as well as by lack of deftness in tackling the problem, as illustrated by the cases of Romero Jucá and Bahian PMDB strongman Geddel Vieira Lima (whose name has come up again in the JBS testimony), although the desire of some of their interlocutors to cover their own backs by secretly recording indiscrete conversations did not help. Media pressure on the PT has continued remorsely but became increasingly incapable of distracting public attention from the broader systemic nature of the sins identified in PT ranks. The Lava Jato strategy of plea bargaining to reduce sentences for those found guilty of corruption was sometimes manipulated in apparent attempts to protect non-petistas, but by the time of the Odebrecht testimonies it had become clear that whilst people might be coerced into fingering Lula despite signs of initial reluctance with promises of lighter sentences, it was very difficult in practice to prevent them from fingering others as well. A further problem for the coup is that the escalating scandals involving Temer’s ministers and political allies occurred in a climate of growing unemployment and economic gloom. Whatever share of the responsibility for the increasingly catastrophic state of Rio de Janeiro post-Olympics might be, the deeper malaise soon started producing an “anti-political” reaction in which all politicians tended to be tarred with the same brush, abstentionism rose, and even candidates who stood for a mainstream political party, such as the PSDB’s João Doria in São Paulo, sought to present themselves as something other than a professional politician.

It is significant that one of the main props of the original coup, the Globo media empire, has made the running in diffusing the JBS material through its newspaper and electronic media channels. O Globo newspaper has called for Temer’s resignation and the Aécio Neves and Temer cases have received priority in presentation over the parts of the JBS testimonies that provide more bad news for the PT and ex-president Dilma as well as Lula, in the form of fresh testimony about the alleged role of former finance minister Guido Mantega in deposition of caixa dos money in offshore bank accounts (accusations the petista former presidents vigorously deny). It is, in fact, important to think about the role of the PT governments and the state development bank BNDES in the rise of JBS, which began its ascent under the PSDB government of Fernando Henrique Cardoso but internationalised (initially by acquiring a major Argentinian company) during the PT years.  In launching his new bid for the presidency this year, Lula placed great emphasis on the role of BNDES and the need to roll back the increasing penetration of foreign capital and sale of national assets that the coup agenda favours (justifying its economic measures in terms of making the country more attractive to foreign investors). Some of the other charges that have been made against the ex-president also relate to his efforts to further the interests of Brazilian companies, including Odebrecht, overseas (allegedly in return for illicit payments from the beneficiaries). Using public investment to boost the capacity of national private enterprise to operate at home and abroad is not, of course, itself a motive for criticism, and might be considered a political duty. But the questions being raised about this all gravitate around the ‘crony capitalist’ nature of Brazilian business and the nature of the relations between politicians and business in the Brazilian context. Yet although all that might be considered a useful ‘smoking gun’ from the point of view of blocking a return to power by the PT, this has not been the main focus of Globo‘s reporting over the past few days.

The suspicion must be that Globo and other corporate interests behind the coup have reached the conclusion that the Temer solution and his alliance with PSDB figures under fire has ceased to be viable, and are now placing their hopes on replacing him with an indirectly elected successor. Assuming the president sticks to his guns on not resigning voluntarily and continues to maintain his innocence of all charges, he could be removed by impeachment, a motion for which has already been tabled, although that would take some time even assuming a congressional majority in favour could be created, which remains far from certain despite the defection of some of his erstwhile parliamentary allies since the JBS scandal broke. Another possibility lies in the fact that the Higher Electoral Tribunal should soon be reaching a conclusion on the charges of electoral crimes, including the use of money diverted from Petrobras, in Dilma’s 2014 election campaign, which it has already determined must also apply to Temer, as vice-presidential candidate running on a unified ticket. It is somewhat ironic in the light of future revelations about his own conduct that the initial recourse to the TSE should have been made by Aécio Neves as sore loser, and that Aécio’s running mate was Aloysio Nunes, Temer’s current Minister of Foreign Relations, who replaced José Serra, also of the PSDB and twice unsuccessful presidential candidate, as foreign secretary. Both Nunes and Serra are facing investigation for corruption also. The advantage of removing Temer for electoral malfeasance from the golpista point of view would, of course, be that it would also damage Dilma, who, in contrast to Temer, might wish to continue her political career in the 2018 elections. But removal of Temer by the TSE might also make new direct elections more possible, since the 2014 result would be declared invalid, whereas unless the Congress enacts a Constitutional Amendment that would allow an earlier direct election, removing Temer now by impeachment (or persuading him to resign) would normally result in the indirect election of a successor by the congress, offering further possibilities for manipulation.

The public image of the congress is as tarnished as that of Temer and the serving ministers who face investigation as a result of Lava Jato. But it would be possible to choose a president by indirect election who has not been elected by popular mandate but who could be presented as “above politics” or “not a politician”. The current president of the Supreme Court, Cármen Lúcia (originally nominated to the court by Lula), has been mooted as a possible candidate, although she was quick to distance herself from this suggestion. Whoever was chosen by indirect election would only serve as a caretaker until the next scheduled round of direct elections in 2018. The indirect election of a supposedly “neutral” president might improve the possibility of completing the coup’s legislative agenda, in particular the so-called pension reform, which otherwise seems impossible following Temer’s fall from grace and the defection of former allies, although even this congress might hesitate to go any further than it has already gone in this climate of political uncertainty and generalised discrediting of politicians. Furthermore, the JBS testimonies indicated that at least some members of the public prosecutor’s office and judiciary can be suborned, and we already know that some federal police and supreme court members are highly politicised and behave in a directly partisan manner.  The latest, and highly controversial, appointment to the supreme court was Temer’s former justice minister, Alexandre de Moraes, who is affiliated to the PSDB (his successor has been implicated as a source of political protection to JBS in an earlier scandal surrounding the company’s evasion of sanitary regulations by offering regular pay-offs to inspectors). One of the longer serving ministers of the Supreme Court, Gilmar Mendes, has long been accused of political partiality in favour of the PSDB and against the PT. So JBS’s “atomic bomb” has increased public lack of confidence in the country’s institutions in general and not simply in its political class.

This weekend will see an intensification of demonstrations demanding direct elections. This was already established as the public’s preferred outcome even before the JBS revelations intensified demands for Temer to go. Many are no doubt adopting this position in the hope that Lula will be able to contest new elections and win, and the polls indicate that his support comes from many different sectors of Brazilian society rather than the poor of the Northeast region where the PT is strongest. But even if Lula is not prevented from standing by conviction under the Lava Jato process, the result of any election must still be uncertain. The PT was slaughtered in the municipal elections of 2016, and ongoing plea bargaining testimony and federal police operations may diminish Lula’s support again. Alternative left(ish) candidates such as Ciro Gomes do not command the same national recognition, and the former petista  and evangelical, environmentalist Marina Silva, who stood as substitute candidate for the PSB in 2014, seems congenitally incapable of working out where she stands and building a coherent coalition. Elections could just as easily favour the continuation of the policies that the coup was designed to further, if candidates who win by presenting themselves as “non-politicians” and “administrators” in the style of Doria continue to advance market based solutions to social problems and support the idea that radical austerity policies and measures to please “the markets and foreign investors” are the only way forward out of the current economic crisis. The voting intentions data also show some strengthening of the authoritarian far right as represented by Jair Bolsonaro, who is now making an effort to tone down his image as a misogynist fascist, but there are plenty of alternatives on the right somewhat closer to the centre than Bolsonaro. Salvador’s mayor, ACM Neto of the DEM, would be a good example (and has already been speculated about as a possible running mate for Doria). Direct elections do seem essential if government in Brazil is to recover some semblance of legitimacy, but they may not provide a definitive solution to the crisis and the deep social divisions that it has provoked.

What makes current crisis especially severe is that it reveals the need for truly profound reforms in so many areas simultaneously. Although public indignation is focused principally on politicians, the JBS and Odebrecht stories provide an equally striking demonstration of what is wrong with Brazilian business beyond its cosy relations with politicians across the political spectrum. The kind of rent-seeking crony capitalism that dominates Brazil is just as big a national problem as political corruption. Blaming the workers for low productivity, Brazil’s economic elites are determined to make other Brazilians pay for the crisis and look to national asset stripping and foreign capital for solutions to the country’s economic problems as they see them. The coup agenda offers no national project that could maintain the improvements to the lives of the poor that the PT governments brought. Its raft of socially regressive policies will have adverse effects on the lower middle and working classes and possibly put an end to the country’s indigenous population entirely. There could be no more striking demonstration of what JBS represents than the fact that the company even succeeded in making money out of what should have been simply a moment of disgrace. Knowing the cataclysmic effect that  the publication of their testimony would have on the stock market and value of the Brazilian real, JBS executives ordered large purchases of dollars on the eve of the public disclosure of their wrongdoings, turning in a very nice speculative profit on the basis of insider information. This was apparently not illegal, but it can hardly be described as an outstanding example of ethical business practice.

The historical experience of the “Asian Tigers” suggests that “crony capitalism” heavily supported by the state is not necessarily a total disaster if the state guides the private sector towards strategic paths of investment that will serve the country well in the future. There are certainly many areas in which Brazil is well equipped by its natural resources to cultivate innovative twenty-first century industries, particularly in the biotechnology area, if it continues to invest effectively in higher education. But not simply corruption itself but the effects of investigating corruption have seriously damaged many major companies, and none more seriously than the national oil company Petrobras, whose leading role in the market was not acceptable to the architects of the coup. Many politicians involved in administering the coup regime have direct personal ties with foreign companies as well as national capital that seeks to benefit from further privatisation of public services, social insurance and pensions. There is also an ideological problem in the sheer atavism of the ideologies of some members of the Brazilian oligarchy, which often seem to reflect attitudes to labour transmitted from the era of slavery. What the “rural lobby” in congress had in mind for rural workers before this latest crisis was an astonishing reversion of the rural labour regime to conditions that would be somewhat worse than those that existed under the military dictatorship. Rural workers are subject to different regulatory regimes to industrial and service workers, but the kind of “labour market flexibility” demanded by Brazilian employers is at the extreme end even of the neoliberal spectrum. Yet any attempt to make the workers pay the full cost of the past investment and rent-seeking failings of Brazilian private enterprise will simply allow those failings to be reproduced.

By moving to the social democratic centre-left, accommodating itself to the established way of doing politics and doing business, and accepting the core principles of a neoliberal market society, the PT rapidly became engulfed in systemic contradictions have ended up by overwhelming it and distracted attention from the genuine efforts of PT governments to take modest steps to make Brazil a somewhat less unequal society . Lula may have the charisma to make a new start, and he certainly cannot be accused of lack of a national project. But Lula cannot be the solution to this crisis in and of himself, the PT still has a long way to go before it can reinvent itself and reconnect with its bases, and left of centre Brazil as a whole is deeply divided. As things stand, a populist, plutocratic and market-orientated politics could still be the principal beneficiary of this crisis. That is the option that people who live in favelas and did not cast null or blank votes mostly chose in the metropolitan cities of São Paulo, Rio de Janeiro and Salvador in 2016. Nevertheless, whatever the risks, direct elections now are certainly a preferable option in relation to another political “fix” that could undermine democracy further and lead down a path of increasing authoritarianism.

Let us hope, therefore, that “the people” can have their say, but not be too surprised if what they decide does not produce an immediate resolution of this deepening crisis. If direct elections are conceded, the possibility of Lula’s candidacy being blocked by judicial action adds a further complication to the scenario. But what does seem certain is that refusal of direct elections and resort to further repression will lead the country down a very dark road indeed.