Brazil is Back

The election of Luiz Inácio ‘Lula’ da Silva made for a Red October, and a political comeback for the ages. But, it was a close-run thing, while the second go on the merry-go-round will be far more challenging than the first.

At the fourth time of asking, former trade-union leader Lula was first elected President of Brazil in 2002, and reelected in 2006. Despite initial fears that he may display some of the authoritarian tendencies of Venezuela’s Hugo Chavez, Lula in fact governed successfully from the progressive left, sharing the fruits of economic growth more broadly and lifting 20m Brazilians out of poverty while reducing inflation and government debt. One of his flagship policies, since copied elsewhere, was the conditional cash transfer known as Bolsa Família. This welfare programme channeled cash to poor families on the condition that their children were vaccinated and attended school.

Lula’s hand-picked successor, Dilma Rousseff, sustained his legacy by winning the Presidency in 2010. By the time Brazil hosted the 2014 World Cup, however, the wheels had begun to come off. The end of the commodity boom that had coincided with Lula’s terms in office had ended, while the fallout from the global financial crisis continued to weigh on the economy. Although Rousseff won re-election in October of that year, the World Cup had been marred by protests at perceptions that government had spent money hosting the tournament rather than funding public services.

Rousseff was ultimately ousted via impeachment in 2016, while things went from bad to worse for the Workers’ Party (PT) in 2017 when Lula himself was convicted for corruption and money-laundering in 2017. His imprisonment scotched a planned political comeback in the 2018 election, the selection of a much weaker PT candidate paving the way for the election of far-right Jair Bolsonaro.

Long on the fringes of Brazilian politics, Bolsonaro came to power with the moniker ‘Trump of the tropics’, powered by a coalition of rich landowners, Christian evangelicals and middle-class conservatives. He lived up to his billing, super-charging deforestation in the Amazon, trampling on indigenous rights, and botching Covid crisis management. A former army officer, he nurtured close links with the military, giving rise to fears that he may use the armed forces to retain power in the event he failed to secure reelection. These fears have thus far proved unfounded.

Brazil’s Supreme Court freed Lula in 2019, concluding that his trial and incarceration were unlawful. The Court later held that the judge, Sergio Moro, in the original case was biased against Lula. This is hardly surprising given that Moro later served as Minister for Justice under Bolsonaro. Now free to challenge Bolsonaro in the 2022 election, Lula would prove to be his nemesis, albeit only narrowly prevailing over the incumbent despite polling well-ahead throughout the campaign.

When he is sworn in on New Year’s Day, Lula will preside over a deeply divided country with public finances in a perilous state, lacking a Congressional majority, and facing a global economic slowdown. There will be few ‘easy wins’, while the entrenched Conservative opposition will try to thwart him at every turn.

An early hurdle will be the planned expansion of Bolsa Família. In line with campaign promises, Lula wants to expand the welfare budget by maintaining recently-increased welfare rates and giving extra child benefit to low-income families. Brazil’s budget process is characterised, however, by binding constitutional limits and other rigidities that complicate the introduction of new spending measures. The necessary constitutional change requires a three-fifths majority in both chambers of Congress, in each of which Bolsonaro’s party recently won the most seats. Unlike in 2003 when Lula first came to power, Brazilian politics is highly polarized while right wing parties in Congress are less willing to work with the incoming President.

A further complication is a potential capital strike in financial markets. Even though the Brazilian currency and stock market have been among the strongest performers in the world in 2022, even while Bolsonaro was busy ramping up spending in an attempt to secure re-election, both took a big hit when President-elect Lula announced his proposed welfare changes. High public debt coupled with high and rising interest rates may be a further constraint on Lula’s fiscal agenda.

Troubled waters lie ahead. But, in this interregnum between electoral victory and messy governing reality, we can cautiously rejoice for Brazilian democracy, the strength of its institutions, protection of the Amazon, and better treatment for indigenous peoples. As Lula himself recently told the COP 27 climate summit in Egypt, ‘Brazil is Back’.

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