There are at least three possible economic and political scenarios for Brazil in the remainder of 2015 and to the end of 2016.
The best case scenario involves slow but progressive economic recovery due to the nature of the business cycle. The economy after shrinking for over a year and a half will hit bottom and there will be recovery. At the same time, President Dilma, Lula and allies find a modicum of political support in Congress and in state and municipal administrations that shore up legitimacy not because Dilma is beloved but because the alternative of impeachment or resignation is much worse. The corruption investigations will proceed on course and reach ever deeper into without touching Lula, Dilma or PSDB cacicques such as FHC, Alckmin, Aecio or Serra. To date, these politicians and power brokers are all “blindados” (protected with “armor”) In this case, Dilma makes it to 2018 and her legacy is that she presided over Brazil’s most extensive house cleaning with prison terms for the wealthy and powerful, just not the most powerful public figures. At the same time, Dilma continues to support to Joaquim Levy over the Manteguista remnants from the previous administration and the economy maintains (barely) its investment grade status and inflation and interest rates while at historic highs for the 21st century remain under a semblance of control.
The worst case involves an institutional crisis where Dilma is either impeached or resigns. The danger here is rupturing respect for the legitimacy of the presidency. Everyone knows at this point that Dilma does not match up to the pre-electoral image of super manager and Lula’s rightful successor as the deliverer of growth, education, infrastructure and security. Obviously, the proof in the pudding shows her failure to deliver on all fronts. Without leadership (Dilma’s weakness), economic stagnation continues. The problem for those who want impeachment is that there is hardly anyone better who can legitimately replace the President. Michel Temer is the VP but he will lack support in Congress and from the population as any changes will be resisted by one sector or another. There is no national salvation plan. Incompetence is not an impeachable offense and the votes of 53 million plus cannot be recast or forgotten. The electoral calendar and the Constitution deserve respect. Brazil survived the lost decade of the 80’s and it can survive the lost eight years of Dilma. Political rupture will almost certainly be accompanied by further economic trauma and Brazil will lose its investment grade rating. Interest rates and inflation could easily double. It is not a pretty picture for a country that should be doing better but as is popular to say today: “It is what it is.” Fatalismo take hold.
The third possibility is to simply muddle through. Impeachment will be on the table but will not have sufficient Congressional or popular support to actually occur. The economy will decline because of the lack of productive investment on the one hand and due to over taxation on the other. Institutions will be shaken but will not fail. Respect for politicians of all stripes will further decline but Brazilians will actively mobilize in the streets and on the web seeking a better resolution in 2018. The corruption investigation may will ultimately result perhaps not in pizza but rather minor hand slaps for the construction companies. The prosecutors will feel frustrated but will nevertheless have set an example for the future and Brazilians will think about cleaning up even if they don’t. The presidential election of 2018 will arrive and once again the same politicians of the past will be up for the vote.
Eventually, Brazil needs to define what kind of society it wants. The general outline for the democratic process is in place. The problem however remains in the organization of the means of production and the distribution of rewards therefrom.
Brazil’s historic and ingrained inequality of opportunity disqualifies liberal capitalism for major sectors of society. State capitalism and its dependency on centralized planning and control have lost support and legitimacy because of all the corruption and waste. Cleaning up the economic model with so many entrenched interests is a challenge and long term project which will also require cleaning out politicians. This probably won’t happen.