The Dark Side of Dilma

Why Brazil's election result is nothing but trouble.

Mario Tama/Getty Images
Mario Tama/Getty Images
Mario Tama/Getty Images

Close elections in corrupt countries stink. Sure, it's great to see a peaceful transfer of power, especially when the numbers are on a knife-edge. But the result that Brazil has just produced in its presidential election -- 51.4 percent for Dilma Rousseff to 48.5 percent for Aécio Neves -- is about as destructive as can be.

One reason is that someone, not always the candidate, usually cries foul. When the incumbent wins by such a slim margin, it's easy to suspect that the result has been fixed. This is particularly true in a country where a 2012 survey found that only 46 percent of people trusted their government. (On the plus side, that number was up 8 percent from 2007, and many wealthier and less corrupt countries scored worse).

To make matters worse, both candidates cited polls showing they were winning shortly before the election. Neves's preferred pollster had him up by 16 percentage points just two weeks ago. How will he explain the disappearance of such a huge lead? He won't have to if people start talking about fraud and malfeasance.

Close elections in corrupt countries stink. Sure, it’s great to see a peaceful transfer of power, especially when the numbers are on a knife-edge. But the result that Brazil has just produced in its presidential election — 51.4 percent for Dilma Rousseff to 48.5 percent for Aécio Neves — is about as destructive as can be.

One reason is that someone, not always the candidate, usually cries foul. When the incumbent wins by such a slim margin, it’s easy to suspect that the result has been fixed. This is particularly true in a country where a 2012 survey found that only 46 percent of people trusted their government. (On the plus side, that number was up 8 percent from 2007, and many wealthier and less corrupt countries scored worse).

To make matters worse, both candidates cited polls showing they were winning shortly before the election. Neves’s preferred pollster had him up by 16 percentage points just two weeks ago. How will he explain the disappearance of such a huge lead? He won’t have to if people start talking about fraud and malfeasance.

Another problem with the result is that half of the country has just been galvanized in opposition to the government. Even before the election, mass protests by people disappointed with the government swept Brazil, accompanied by rioting anarchists and police brutality. Indeed, Brazil is not in a situation where it can simply rest on its laurels, either economically or politically. After enormous progress in the early years of Rousseff’s predecessor and mentor, Luiz Inácio Lula da Silva, growth in living standards since she took over has been anemic. Nor did the first two years of her mandate (later data are as yet unavailable) offer much reduction in income inequality.

To see a larger version of this chart, click here.

In the meantime, according to Freedom House’s worldwide index, there has been no significant improvement in civil rights in Brazil since 2005. In the World Bank’s figures, the quality of governance — things like the people’s voice, the accountability of the government, the rule of law, and control of corruption — has been steady or possibly declined since Rousseff took office. The question is whether, with close to the minimum mandate and little to show for her first term, she will be able to effect any noticeable changes in her second.

Her task is still more difficult because global investors have had such little faith in her in the first place, and such high hopes for Neves. From its peak after the first round of the election, when the poll showing him with a lead of 16 points came out, until the runoff, the Bovespa stock index tumbled by 10 percent — much of it on the day a less partisan poll showed Rousseff with a slim lead. The day after the election, the Bovespa dropped another 6 percent in morning trading before recovering about two-thirds of the loss.

The markets’ reticence is understandable. Though Rousseff has presided over an increase in net inflows of foreign direct investment — such as purchases of Brazilians firms and the opening of local operations by multinationals — Neves promised investors much more.

To see a larger verison of this chart, click here.

His platform was typical of center-right corporatists: reduce inflation, cut waste in government spending, float the currency, and reform the tax system — all with the goal of restoring the economy’s vigor. Essentially, he would have been picking up where Lula’s predecessor (from Neves’s party), Fernando Henrique Cardoso, left off. By contrast, Rousseff couldn’t dump her party’s baggage of popular but ineffective subsidies; nor could she staunch continuing allegations of the internal corruption that also plagued her predecessor.

This is not to denigrate the important part that Lula, and to a lesser degree Rousseff, played in Brazil’s political and economic history. Struggling to move on from the impeachment of its first popularly elected president since the end of military dictatorship, the country reaped a wealth of benefits after Cardoso began to modernize its economic policies; he brought inflation under control and began to open Brazil’s markets to the world. But the center-left governments that followed legitimized his policies by redistributing some of the gains through welfare programs and looser credit.

Half the country did not trust Neves to take the next step forward in Brazil’s modernization, or perhaps felt that Rousseff remained a safer custodian of the people’s wellbeing — even after Marina Silva, the third-place candidate from the left-wing Brazilian Socialist Party, endorsed Neves. Brazil still needs vast improvements in basic services like education and health care, as promised by both candidates, in addition to further reforms of its economic institutions. The question is whether the next four years will be acrimonious and unproductive or constructive and forward-looking.

History suggests the former. As I’ve written here before, parties with a stranglehold on their countries for many years tend to become complacent and even crooked. Rousseff’s Workers Party will complete 16 years in the Palácio do Planalto at the end of her second term. At that point, it’s conceivable and even likely that Lula would come back and run again at the age of 72.

Rousseff will have to earn him that third term. For now, given her record, the odds of Neves running again and winning must be quite high. He’s only 54, and hey — it took Lula four attempts to win the country’s highest office.

Daniel Altman is the owner of North Yard Analytics LLC, a sports data consulting firm, and an adjunct associate professor of economics at New York University’s Stern School of Business. Twitter: @altmandaniel

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