Brazil: new president, same problems

With Dilma Rousseff now history and the Olympics having defied predictions of the apocalypse, Brazilians are hoping to finally turn the page on two miserable years of recession and uncertainty.

Unfortunately, it won’t be easy.

The same two problems that brought down Rousseff – a fiscal crisis and a corruption scandal of unprecedented scale – will continue to cause severe headaches for her successor, President Michel Temer. The 75-year-old constitutional lawyer enjoys the goodwill of most of the local and foreign business community, who are glad to see the end of Rousseff and her mismanagement of the budget and industrial policy. Even so, Temer has the narrowest of windows to oversee a return to normalcy – and some events will simply be beyond his control.

If Temer can oversee a turnaround, his approval rating will rise from its current level of just 14%

Working in Temer’s favor, Brazil’s economy has begun to show tentative life amid its longest, deepest slump in 80 years – and possibly ever. Among 10 sectors of the economy profiled by Fundação Getúlio Vargas, a business school and think-tank, seven now appear to be growing or bottoming out. The recovery is led by textiles, shoes and autos, all significant exports, thanks in part to Brazil’s relatively cheap currency and an incipient recovery in investor confidence. According to a weekly survey by the central bank, economists now believe the economy will grow 1.2% in 2017, a modest improvement from their average predictions of a 0.2% expansion as recently as April, Rousseff’s last full month in power.

If the recovery continues, Temer will reap the benefits. Much like North Americans (but unlike, say, Peruvians), recent history suggests that many Brazilians are willing to ignore improprieties and support their leaders as long as the economy is growing. Indeed, most voters were willing to look the other way when the government of then-President Luis Inacio Lula da Silva was caught systemically bribing legislators during the mid-2000s – a period of prosperity. Lula was reelected anyway.

Similarly, if Temer can oversee a turnaround, his approval rating will rise from its current level of just 14%, which is not much higher than Rousseff’s. Because of his lack of charisma, and the magnitude of the tasks before him, Temer may never be truly popular, even if he enjoys massive success. But he could become a respected transitional figure in the mold of Itamar Franco, another vice president who took the country’s helm in the 1990s following an impeachment, and oversaw the end of hyperinflation. In a best-case scenario, Temer could be remembered as the man who ended Brazil’s worst crisis and began the work of opening the Americas’ most closed economy, and even elect his preferred successor in 2018 – and retire with tranquility and influence.

The major threat to this scenario is the so-called Lava Jato investigation of corruption at Petrobras – which, even with Rousseff out, is far from being over.

Upcoming plea bargain testimony by major executives at companies who participated in the Petrobras scheme, Odebrecht and OAS, seem certain to unleash further shockwaves through Brasilia. Media reports have suggested the testimony reads like a Who’s Who of Brazilian politics, citing numerous figures from a variety of parties including Lula, Rousseff and Temer himself. (All three rigorously deny any impropriety.) Through either luck or design, most of this witness testimony was not released prior to Rousseff’s impeachment, but may be made public in coming weeks.

The accusations against such a broad gamut of parties and politicians have raised the question of whether anyone linked to the old way of doing business in Brasilia can survive in the long run. Around 60% of Brazil’s federal legislators already face serious charges, including bribery and electoral fraud. Meanwhile, federal Judge Sergio Moro, who is overseeing the Lava Jato probe, enjoys extraordinary support from Brazilians who see the purge of corruption as the only silver lining of the past two years – and a necessary step to build Brazil’s 31-year-old democracy. His probe is unlikely to start winding down until 2017.

The major threat is the so-called Lava Jato investigation of corruption at Petrobras – which, even with Rousseff out, is far from being over

This leads to Temer’s central dilemma. His need to maintain support in a paranoid Congress, and guarantee governability under unpredictable conditions, may, perversely, undermine the one thing that can save him: an economic recovery. Business leaders and economists are growing impatient with Temer’s inability to close a deficit that exceeded 10 percent of gross domestic product in 2015. Many warn the incipient economic recovery will stall without clearer signs that deficit will soon narrow. But Temer has so far been hesitant to implement strong, immediate austerity measures for fear of alienating his legislative base. For example, earlier this month, his government abandoned its effort to cap state workers’ salaries for two years.

It’s possible that, post-impeachment, we will see a new, more decisive Temer, more willing to offend allies for the sake of long-term gain. But without strong action, and perhaps a little luck, Rousseff may enjoy the ultimate revenge – Temer may end up wishing she had never left.

Brian Winter is the editor-in-chief of Americas Quarterly, a magazine about politics, business and culture in Latin America.