Temer’s Victory in Brazil

Last week, Brazil finally made some headway in its struggle to extract itself from the quagmire created by the impeachment of President Dilma Rousseff in May. For months, the interim government of Michel Temer, Rousseff’s vice president, had been at an impasse. The forces in Congress that had ousted Rousseff were divided, so Temer’s team had been unable to push through desperately needed economic reform. Under Rousseff and the populist Worker’s Party (PT), centralizing statist policies pushed unemployment to 12 percent, and public debt soared. Private investment shrank and state revenues dried up, slowing public works. Growth fell three percent in 2015 and is still eroding. As interim president, Temer’s mandate had included arresting the economy’s free-fall.

Although he had been elected on the same ticket as Rousseff, Temer belongs to a different political party, the Brazilian Democratic Movement (PMDB). Their coalition has always been uneasy, based more on pork barrel politics than ideological affinity. In January, Temer wrote to Rousseff that the PMDB was dissatisfied with the government’s economic decision-making and announced that the party would take an “independent” course. The split ended the PT control of the Congress and reduced Rousseff’s government to a partisan minority, which opened her to the later impeachment based on corruption charges.

A breakthrough finally came on July 12 with the election of a new president of the Chamber of Deputies, the lower house of Congress. The post was vacant in the wake of a long-running anticorruption campaign led by Federal Judge Sérgio Moro and federal prosecutors. The investigators accused major contracting firms and politicians from various parties, including the ruling PT and its key partner, the PMDB, of criminal collusion to finance political and personal gain from funds fleeced from public contracts.

One of the principal operators of this scheme was identified as Eduardo Cunha, the PMDB president of the chamber, who was charged with receiving huge bribes in money stolen from Petrobras, Brazil’s state-owned oil company. In May, the Supreme Court ruled unanimously that he would be put on trial, despite his parliamentary immunity. Weeks later, the chamber of deputies ethics committee voted by 48 to 12 to terminate Cunha’s mandate. Thus discredited, Cunha resigned as president, but he retained many supporters in the chamber because of past favors, including rewards to corrupt deputies.

The election of a new president of the chamber became a political test of where the body, with 513 deputies from 27 Brazilian states, would line up on the still-unresolved issue of Rousseff’s and Temer’s future. The three-way contest pitted Rogério Rosso, who ran with the support of Cunha’s old guard; Marcelo Castro, a dissident PMDB deputy who had been Rousseff’s minister of health and who had the backing of the PT; and Rodrigo Maia, Temer’s preferred pick, a federal deputy from Rio de Janeiro who belongs to the centrist Democratic (DEM) party.

In the end, Maia won handily. A coalition of Temer’s loyal PMBD, the DEM, the Social Democrats (PSDB), Socialists (PS), and some centrist parties formed a majority that mustered 285 votes for Maia, who is a five-term deputy with a record of support for economic discipline and market economics. Rosso came in second with 140 votes, and Costa, backed by the PT and some leftist allies, received 70 votes. This shored up Temer’s political standing and underlined the PT’s powerlessness.

The final decision to complete Rousseff’s impeachment will fall on Brazil’s other legislative body, the Senate, where a minimum of 54 votes (out of a total of 81 senators) will be needed to confirm the overwhelming original decision by two-thirds of the Chamber of Deputies to impeach Rousseff. The final vote is expected in August. Most observers consider it nearly certain that the Senate will confirm her removal, and this is more likely now that the chamber elected Maia as president. In that case, Temer would stay on as president until the next presidential elections at the end of 2018.

For this two-year span, Temer has already put together a well-respected economic team led by Henrique Meirelles, an international banker who previously served as president of Brazil’s Central Bank. Meirelles, in turn, has top advisers in Ilan Goldfajn, also a private banker and a pillar of economic orthodoxy, who is now president of the Central Bank, and in the new presidents for the Brazilian Development Bank (BNDES), Petrobras, and other key public institutions. Temer leans heavily on Meirelles and has emphasized the need to reduce the rate of growth of Brazil’s public debt as an essential step toward gaining credibility, which, in turn, will help his government control inflation, reduce interest rates, and revive the consumer economy.

But such a program requires legislative cooperation, including a few constitutional amendments, without which pension payments and health benefits will not be financed. As a result of Maia’s election, it seems more likely that Temer’s economic team will obtain the congressional support it needs for the hard austerity measures that can put Brazil’s public finances in order. Temer and his political allies will have to make progress on the country’s economic problems quickly in order to avoid a backlash in the municipal elections this year and the presidential test in 2018.

Temer, who is 75, has ruled out running in any future presidential election, but he maintains close personal relations with political competitors, such as Senator Aécio Neves of Minas Gerais, who is a possible presidential candidate for the PSDB in 2018. But he also maintains close relations with members of his PMDB, who hold key positions in Congress, such as Renan Calheiros, president of the Senate.

Temer is a constitutional lawyer. He has been a public prosecutor and secretary of public safety in his home state of São Paulo. In his long political career, he was elected three times as president of the chamber of deputies, which honed his political skills. This was on display in his handling of the election of Maia as president of the chamber. Maia is not a member of Temer’s party, but by supporting him, Temer built a new majority coalition. Temer’s primary objective is to reduce intraparty friction in Congress and to win broad support for his economic reform legislation. Maia said that his main goal is the “pacification” of the chamber, including cooperation with the PT minority. This is the opposite of the confrontational style of Rousseff’s presidency.