Sibling Rivalry in the Brazilian Government: Disorder or Careful Plan?

Written by Armando Castelar.

January 12, 2015

In Brazil, the government has 39 ministries headed by 39 ministers from all types of parties. Thus, it is no surprise to see ministers antagonizing one another, as happened last week between the Ministers of Agriculture and Agrarian Development. Nor is it unusual to see the Minister of Planning take a complete U-turn on his statement about the minimum wage policy, after being publicly rebuked by the president, who in turn was reacting to condemnation by labor unions.

Why would a newly reelected president choose such a heterogeneous cabinet? A popular explanation is the need to secure Congressional support to weather the difficult year ahead. Economic stagnation, high inflation, rising unemployment, and the unfolding of the Petrobras corruption scandal will bite on Ms. Rousseff’s popularity. Support from a broad party coalition will protect her from a reinvigorated opposition, so the argument goes.

 This is a logical argument. In my view, though, it is too narrow. As I see it, ideological antagonism among ministers is a purposeful feature, not an inconvenient side effect, of this amorphous government. By purposefully lacking a clear character or direction, the new government can claim to be all things at once. It wants to be in charge of policy and oppose it at the same time, a trick played with great skill by Lula da Silva in his first government. How better to weaken and disorient the opposition?

In no area is this more evident than regarding economic policy. In her first term, Rousseff antagonized banks, electricity companies and most of the private sector, presenting herself as a modern-day Robin Hood. But her “new economic matrix” policy of fiscal, credit and monetary expansion led to high inflation and low growth.  Holding the course secured her reelection, but generated a pressing need for policy change.

Pragmatically, she now presents herself as a fiscally responsible, business friendly president. Her new Finance minister, Joaquim Levy, is a Chicago trained, former IMF staffer who previously occupied a top position at one of Brazil’s largest banks. It is expected that, by almost completely reversing the economic policies of the previous economic team, the government will regain business confidence, fostering a rise in private investment and sustained growth. This effort to befriend the private sector also explains the appointment of business leaders to lead the ministries of agriculture and industry.

While attracting praise from the business sector, the government risks alienating supporters who secured Rousseff’s narrow win in October. As I will explain in future posts, for the new policies to work, they will have to lead to a lot pain in the short term: real wages will fall, credit will become scarce and easy subsidized credit to favored companies will have to be severely cut down. This will harm the new middle class, civil servants and the companies that received lavish government financing in 2012-14.

The Workers’ Party (PT) does not want to lose these constituencies. How better, then, to keep them than vocally criticizing the policies its appointed ministers are implementing, and simultaneously pursuing some other conflicting policies? Thus, it should not come as a surprise to see the government sending conflicting messages, but also to have organizations traditionally linked to the PT leading street protests against economic policy.

The plan is likely to go along with economic orthodoxy for a year or two, and replace it with renewed fiscal and monetary expansionism when the economy’s health improves sufficiently, in time for the 2018 elections. It helps that the austerity “villains” of the story are associated with the party most capable of mounting a spirited opposition in 2014 and 2018. Meanwhile, the government and the PT will have to manage these policy inconsistencies, cornering the opposition to support unpopular but fiscally responsible initiatives.

Will this strategy work? The optimistic draw a parallel with what happened in Lula’s first government to bet on it. The pessimistic stress Rousseff’s lack of political skills and the much more difficult economic landscape of 2015, compared to that of 2003.  Thus, many analysts sum up the discussion in the doubt of whether Rousseff will support her Finance minister for long enough for his policies to work, or whether she will give in to her interventionist, heterodox personal views on the economy when the pain starts to bite into her popularity.

As I see it, though, this discussion misses the point. An ideologically divided government is the PT’s best strategy to prepare for the next presidential election. So to speak, it makes the party “antifragile”, in Nassim Taleb’s sense of benefiting from opacity and obfuscation, as both business and the traditional PT voters continue to see Lula as the key for a return to good old times, without alienating support from either group.

What impresses me is that the opposition fails to see this. The most likely scenario is that it will continue to bet on Congressional speeches, press interviews, and the hope that a weak economy and the Petrobras scandal will cause the Presidency to fall into its lap. The opposition is playing tennis, lobbing back the balls served up to them, while the PT under Lula is playing chess. 


0 #3 profile 2016-12-16 10:20 Quote
0 #2 luigi4235 2015-03-02 18:42
0 #1 luigi4235 2015-02-14 08:09
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