October 27, 2014 / 5:28 PM / in 3 years

Rousseff's rough victory augurs more divisive era in Brazil

SAO PAULO (Reuters) - The turning point in President Dilma Rousseff’s re-election campaign came on the evening of Sept. 1, after a disastrous presidential debate at which she confessed to the audience that she was “nervous” and stumbled over several words.

Brazil's President and Workers' Party (PT) presidential candidate Dilma Rousseff celebrates during a news conference after disclosure of the election results, in Brasilia October 26, 2014. REUTERS/Ueslei Marcelino

A poll released that day showed she would lose by 10 percentage points in a runoff against environmentalist Marina Silva, with the election’s first round barely a month away.

Silva, meanwhile, was hammering Rousseff on two of her biggest weaknesses - Brazil’s stagnant economy, and her perceived inability to admit mistakes.

“The way things were going, we believed we were going to lose,” one of Rousseff’s top aides told Reuters, speaking on condition of anonymity. “So that night, we decided to make a change.”

Their decision: To unleash a barrage of scathing TV ads and other attacks against Silva, the likes of which Brazil had arguably never seen before.

One ad, aired days later, showed bankers in suits laughing as food vanished from the plates of a working-class family - a dramatization of what would supposedly happen if Silva’s proposal for central bank autonomy became law.

The negative tactics worked - and how.

Rousseff’s attacks wounded Silva so badly that her support melted away and she came third in the first round of voting, missing out on a runoff spot.

So Rousseff’s team then turned to her second-round opponent pro-business Senator Aecio Neves, and the same tactics helped the president to a narrow win on Sunday that gives her leftist Workers’ Party another four years in charge.

Rousseff won 51.6 percent of the vote, against 48.4 percent for Neves. She owed her victory to strong support from poorer voters, some of whom considered a change but ultimately heeded her repeated warnings that Neves “would take Brazil back to the past” and endanger cherished social welfare programs.

Yet many believe Rousseff’s tough tactics will carry a cost.

By contributing to the end of a relatively collegial era in Brazilian politics, Rousseff will have to deal with a more bitterly divided Congress and electorate. That in turn will make it harder for her to manage an economy facing deep structural problems and a possible recession in 2015.

Her plans for a “political reform” that would ban corporate campaign donations, which she described in her victory speech on Sunday as a top priority, appear to be in danger.

It will also be harder to win back the confidence of bankers and business leaders, who themselves were dragged through the mud in the course of Rousseff’s attacks on Silva and then Neves.

Perhaps most forebodingly, Neves’ energized Brazilian Social Democracy Party (PSDB) is likely to urge a full investigation of recent graft allegations at the state-run oil company known as Petrobras, which could cause legal problems for some of Rousseff’s closest allies.

The coarsening tone has caught the eyes of investors, prompting bank Brown Brothers Harriman to warn clients last week that Brazil has joined countries like the United States, Thailand and Turkey as “a full member of the club of political polarization.”

“It’s going to be a very difficult year,” said David Fleischer, a political analyst in Brasilia.

He said Rousseff came out of the election with a reputation as “the enemy of the private sector.” A more fragmented Congress will likely resist her plans for political reform and may not even consent to hold a nationwide referendum on the proposal, as Rousseff has urged, Fleischer said.

CONSENSUS FRAYS

For nearly two decades, Brazil enjoyed a certain degree of political consensus, thanks largely to the positive glow from a long economic boom that lifted some 40 million people out of poverty during the late 1990s and 2000s.

The Workers’ Party and PSDB, which governed from 1995 to 2002, embraced broadly the same center-left mix of robust welfare programs and market-friendly policies - so much so that some party leaders joked in private that under different circumstances, they would be coalition partners.

But that began to change after Rousseff took office in 2011. Her more interventionist approach to economic policy, plus a slowdown in demand for Brazil’s commodities and continued fallout from the global financial crisis, has caused the economy to average less than 2 percent growth on her watch.

When more than a million Brazilians took to the streets in June 2013 to protest rising inflation and poor services ranging from public transport to health care, it was not only a sign of a new, more divisive political era but also a tougher re-election battle ahead for Rousseff.

A career civil servant who remains uncomfortable with the darker side of politics in Brasilia, Rousseff initially resisted entreaties to go negative. The Aug. 13 death in a plane crash of Eduardo Campos, then the third-place candidate, created an atmosphere of mourning around the campaign.

Campos was then replaced by Silva, who soared into first place in polls, buoyed in part by sympathy for the tragedy. Silva’s almost saintly image as a defender of the Amazon made Rousseff even more wary of going on the offensive.

But that all changed after Sept. 1.

Some of the most effective attacks implied that Silva would, if elected, cut back the so-called “Bolsa Familia” program that pays a small monthly stipend to about one in four Brazilians.

Silva tried to defend herself, arguing that anyone who suffered hunger as she did growing up would never curtail “Bolsa Familia.”

Nevertheless, the percentage of voters who said they would “never” vote for Silva soared from 11 percent in mid-August to 25 percent on the eve of the Oct. 5 first round of voting. She tumbled into third place.

The top Rousseff aide argued that the attacks on Silva, and then Neves, were no worse than those seen during President Barack Obama’s 2012 re-election campaign in the United States.

“Come on, Obama had to prove he wasn’t a Muslim from Africa,” the aide said. “Nothing like that happened here.”

But Walter Feldman, Silva’s campaign manager, lamented that the Workers’ Party had used “class warfare” to ensure victory.

”It worked, but it’s terrible for our democracy,“ Feldman told Reuters by telephone on Monday. ”What we saw was the return of an old socialist vision that Brazil hadn’t seen since the 1960s ... where the adversary is the enemy.

“Right now, it looks like a country divided by hatred, rancor and fear.”

‘ELECTORAL TERRORISM’

Neves also went negative during the runoff, calling Rousseff a “liar” and accusing her of “electoral terrorism” - which some saw as a reference to her time in the late 1960s and early 70s as a leftist militant who was jailed and tortured by Brazil’s military dictatorship.

The election was split along lines of class and geography, with wealthier voters supporting Neves and Rousseff riding an advantage of roughly 20 percentage points among poorer income groups to victory.

Control of Congress will also be divided among a larger number of parties than during Rousseff’s first term, which bodes poorly for the passage of any potential reforms, such as a simplification of what the World Bank has called the world’s most complex tax code.

Citigroup said in a note on Monday that the electoral result looked like “a recipe for legislative obstruction, so that just when Brazil is drifting and in need of leadership, it gets paralysis instead.”

On Monday morning, some Brazilian newspapers printed maps showing the country split into two nearly contiguous blocks of red and blue states that supported Rousseff and Neves, respectively - reminiscent of recent split election results in the United States, although the countries’ demographics differ.

The divisiveness remains relative. Unlike polarized neighboring countries like Venezuela, Brazil’s robust democracy has no recent history of political violence.

Voting was overwhelmingly peaceful on Sunday, and most economists believe the economy’s longer-term outlook is mildly positive. Some believe Rousseff might move to reassure business leaders by cleaning up government finances and taking a less interventionist role in the economy.

Rousseff spoke of “union and peace” on Sunday night. Ideli Salvatti, one of her top ministers, said the government would seek to start “a national reconciliation process, given how tight the result was.”

But on Monday, in a sign of divisive times ahead, some in the PSDB were more focused on the number of times Rousseff congratulated or otherwise mentioned Neves by name in her victory speech: Zero.

Additional reporting by Maria Carolina Marcello in Brasilia; Editing by Todd Benson and Kieran Murray

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