What is really going on in Brazil.
By: Leandro Ruschel
Tags: Dilma Rousseff, Crisis, Brazil

The international community is becoming aware of a deep crisis developing in Brazil: a political, social and economical crisis.

In the last few days, the president of Brazil, who is currently facing an impeachment process, turned to international media to give “her side of the story,” but she is deliberately lying. She and her party are in fact, the ones responsible for the crisis.

That’s why I decided to write this article. People everywhere must know what is really going on in Brazil right now. Brazil is a very complex country and is difficult for most people of other cultures to understand us, especially if you come from an Anglo-Saxon background.

First, a little introduction.

My cockpit at the office in Miami.

I’ve been living in the US for two years now. I’m a Brazilian entrepreneur who came to the US looking for business opportunities and safety. The crime rate in Brazil grew exponentially in the last two decades. Just to give an example: myself, my family, my friends and coworkers all suffered at least one episode of violence in the last years. The most common one is to be robbed at gunpoint while walking in the streets, driving to work or back home, having dinner in a restaurant, and even when you’re at places considered safe, like hospitals.

Violence in Brazil is routine. Last year, we had more than 60 thousand homicides. The United States, with its 50% larger population, had 13 thousand homicides.

Number of homicides in Brazil.

The rise in almost every type of crime in the last 20 years is evidence that the major factor for violence is not poverty, because Brazil had an increase in per capita GDP. The problem is the absence of the Rule of Law.

Brazil has a very expensive and inefficient Justice System. Different from Anglo-Saxon culture, our Latin roots and socialist culture take the responsibilities from the individual and put them in the “society.” So, if someone gets caught committing a crime, it’s not really their fault, it’s society who “failed” them. A criminal have unlimited chances to appeal, making it really difficult to put someone in jail. And even when someone is convicted, the penalties are soft.

If you have a clean record and commit homicide, you can stay out of prison until the end of your trial. The justice is really slow and if you have money to afford good attorneys to use all your appeal rights, a conviction could still take more than 10 years. A lot of trials get dismissed because the statute of limitation on the crime expires during this long process.

It’s important to make this introduction so you can understand better what is going on in Brazil right now.

It’s clear that laws are made to protect the elite, specially politicians, judges and other public servants. They have what is called “privileged forum”: they can be indicted only by the Brazilian Attorney General and judged only by the Supreme Court.

In Brazil, we have an expression to describe our political system: “patrimonialism.” It was introduced by Raimundo Faoro in his most famous work “The Owners of Power” written in 1958. In this book, he explains how the political elite uses the government structure for personal gain. Politicians may not be saints anywhere in the world, but the political class in Brazil is especially dirty. The country has a very high tax burden of 36% of the GDP, but the Estate can’t offer much to society due to widespread corruption. The universal health system is in collapse, the infrastructure of the country is a joke, Brazilian students have the worst grades in international tests and the judiciary system is slow and inefficient. It is almost impossible to run a business with a new tax rule created every 3 seconds!

For politicians and high ranking public servants, it’s a different story. They have very high wages and benefits. This creates the rightful feeling among members of society, especially taxpayers, that they are being exploited by the political elite.

It’s important to present this background as an explanation for the rise of PT (Workers Party) and its leader, Lula, who became president in 2003.

Lula organizing strikes in the 70s.

Lula was a charismatic and popular union leader back in the 70s and 80s. He was one of the leaders of the movement against the military government that ruled Brazil since 64. When the transition to democracy started in 88, he was a presidential candidate, but lost by a small margin to Fernando Collor, an adventurous politician who was elected promising to fight corruption, open the economy and end hyperinflation, a major problem fueled by fiscal populism since the 80s.

Lula arrested in 1980. Romeu Tuma Junior, the son of the Officer who arrested Lula revealed in a recent book that he was actually an confidential informant.

Collor used a kamikaze strategy to tackle inflation, freezing everybody’s assets overnight. In the end, his plan didn’t work and he was himself impeached for corruption. PT was the main political force against Collor and organized dozens of protests that led to the end of Collor’s government. At that point, Collor became the embodiment of the patrimonialist system. His family had been for a long time in power in a very poor state in northeast Brazil, where there’s an even worst form of patrimonialism: your vote for a basket of food.

During the campaign against Collor, PT launched a movement called “Ethics in politics”, showing themselves as pure and honest politicians in contrast to the other corrupt parties.

Lula with protesters in 1992. Your can read “Collor Out” in the black T-shirt.

It looked as if Lula and PT would win the next election, but vice-president Itamar Franco, who succeeded Collor after his impeachment, made a very successful transition. He launched an economic plan led by Finance Minister Fernando Henrique Cardoso (FHC), who became an astonishing success, killing hyperinflation, modernizing the financial system, and creating a prosperous wave. PT was the main opposition force against the plan and Lula lost the race against FHC for a large margin.

During that time, Brazil had a one-term-only presidency law, and FHC used his popularity to approve a change in the Constitution to allow two terms, producing the wrath of PT and other opponents. FHC’s second term, however, was marked by the effects of the international financial crisis. Just after his reelection, FHC devalued the Brazilian currency (Real) and imposed unpopular measures. The economy went bad and the government lost much of its popular approval. FHC’s second term was marked by a harsh opposition from PT, who asked for his impeachment several times without success.

Annual inflation in Brazil

In 2002, Lula and PT were in a good position to get to power. The economy was in bad shape, and Lula left behind his Marxist approach, showing himself as a moderate, more mature leader, not a union leader anymore. His campaign launched the “Peace and Love” version of Lula: a well-groomed and well-dressed man promising to be a social democrat.

“Peace and Love” Lula, 2002 campaign banner. The headline is “I want a decent Brazil”.

He won the race by a large margin and was saluted as the first president from the working class. A poor and honest guy who would take care of the suffering simple people of Brazil.

It’s a really nice story, but unfortunately it was a big lie.

Lula was never a hard working guy. He was a really clever, but uneducated guy who liked to give speeches and to be treated as a privileged leader.

Since the beginning of his career, he’s been involved in corruption scandals inside the union and the party. Every party member that ever stood up against him was expelled and the stories were muffled. The party needed to maintain the sanctity of Lula’s image.

PT is a very complex party, with a lot of different lines of thought, but the main philosopher studied and followed by party leaders is Antonio Gramsci, an old communist who defends that the class struggle is a cultural one. He defends a long term strategy to occupy all spaces, inside and outside the government, to reach a communist regime at a very slow pace.

In other words, PT is and always has been a revolutionary party who despises democracy and the rule of the law. They believe in democracy only as a way to get to power. They believe that the ends justify the means. And the end is a totalitarian socialist government.

“Socialism is precisely the religion that must overwhelm Christianity. … In the new order, Socialism will triumph by first capturing the culture via infiltration of schools, universities, churches and the media by transforming the consciousness of society.” Antonio Gramsci

Most of the people and even the media are not aware of that. A great part of the media played the game of protecting Lula and PT from bad news, hiding a lot of scandals from the eyes of society.

After this needed explanation, let’s go back to the beginning of Lula’s presidency.

He maintained his word and didn’t change the economic policy of his predecessor, FHC. He was lucky enough to be in power during the most powerful boom in commodities market in history, which had great impact in Brazil. The increase in revenues helped him do what is known as fiscal populism, increasing all social benefits created by FHC and, and at the same time, using the Brazilian development bank (BNDES) to give abundant and cheap credit to big companies.

Everybody was happy. Lula was a miracle man! The poor and rich were in peace, enjoying the roaring 2000s.

Brazil GDP Per Capita.

But the major problems weren’t being addressed. Public spending was increasing much faster than revenues, political corruption was reaching new heights, education and health systems remained in very bad shape.

But who cares? Poor people were happy with a new house and new car subsidized directly or indirectly by the government, and big construction firms and auto makers had billionare credits to expand!

In 2005, the party almost went under due to a major corruption scandal that broke out. It was called “Mensalão”, or “big allowance”. The government was buying votes in Congress to pass its projects, paying monthly bribes to congressmen. It was really ugly. The core of PT was prosecuted and convicted. A lot of people in Brazil asked to impeach Lula, who again was spared. He insisted he didn’t know anything about the scheme. Nobody believed him for a second, but the good economic situation helped disperse the willing to impeach him.

Politicians and other people convicted in the “Mensalão” scandal, including Workers Party high ranking members.

This episode marked the end of the belief that PT was an honest party. Actually, a lot of people started to perceive PT as even more corrupt than other parties. Or at least, more hypocrite.

After surviving the “Mesalão” scandal, Lula and PT were ready to put in motion the gramscian strategy of hegemony: occupying and controlling all spaces, inside and outside the government.

Inside the government they occupied the majority of the most important executive positions. The same thing happened in the judiciary: today 8 out of 11 justices were appointed by the party. Ideology was more important than professional skill in almost every case.

Outside the government they increased the federal budget for unions and other social movements, such as MST (landless workers’ movement), who was supposed to fight for land to poor farmers, but became a paramilitary arm of the Workers Party (PT). Transferring federal money to unions started in 2008 after a new law approved in the Lula administration, and has surpassed US$ 1 billion dollars since then.

The budget for federal government advertisement (actual propaganda) rose from R$ 1 billion per year in 2002 to more than R$ 3 billion nowadays. This money is used to pay a network of pro-government blogs and to tame the big media, who became less and less critical of the government over time.

After the 2005 scandal, everything was really going fine to Lula until 2008, when a major financial crisis hit the markets.

The very favorable conditions that helped Lula create a “happiness for all” environment suddenly ended. The response of his government was to inject money in the system with more credit on the one hand and to cut taxes for big companies on the other.

The result was a great GDP increase in 2010, 7.6% at the cost of fiscal discipline. These were the seeds of the major crisis that Brazil is facing right now.

With this large economic stimulus, Lula was able to maintain his popular approval rates and to elect his candidate to succeed him in the presidency. He handpicked Dilma Rousseff, a technocrat and former communist guerrilla fighter from the 60s. Rousseff wasn’t a very popular candidate in the beginning, but as a journalist said at the time, “with Lula’s success, he could turn a light pole into president.” Lula started using this expression as a joke. Dilma was his light pole, he used to say, just as Fernando Haddad, who became the mayor of São Paulo, the biggest and most important Brazilian city.

Dilma Rousseff, before becoming Lula’s “light pole” and after.

Dilma came into power in 2011 in the midst of the global recovery from the financial crisis of 2008. China, the main buyer of Brazilian goods was inflating again the commodities market, which helped Brazil’s economy. But the good times were about to be over. Dilma didn’t have the same surplus to buy universal acceptance, and on top of that, she was a very bad administrator. She wanted to implement a central planning government, making big changes in regulations in the energy sector and interfering with monetary policy, easing it artificially.

With the fiscal situation worsening, she started using “creative accounting techniques,” as one of her ministers put. In 2013, warning signs started to appear, with a lot of protesters taking to Brazilian streets. People were complaining about a wide range of problems, from public fares to corruption. Now it’s clear that people were reacting to the end of the good times. Like Margaret Thatcher once said, “The problem with socialism is that you eventually run out of other people’s money.”

In 2014, the “other people’s money” ended, but Dilma and PT had an election to face. And for a gramscian party to let others get to power is not an option.

The “creative accounting” of the public accounts became even more creative, to say the least. She simply froze the price of public companies’ goods and services, like gas and electricity, deepening their deficit. Her popularity started to tank.

PT turned to a very good political marketer, who is now in jail, and invested huge sums of money in the reelection campaign. Dilma lied about almost everything, and used the fact that a lot of people came out of poverty in the last decade as one of their accomplishments. They falsely accused the opposition candidate, saying he would cut social programs. It was a really harsh, negative campaign that she won by a small margin: 51,64% against 48,36% for Aécio Neves, her opponent.

The election polarized the country, the wealthier southern states gave a large margin to Aécio and the poorest states of the north gave their votes to Dilma.

Blue states = Aécio Neves, Red states= Dilma Roussef.

A lot of honest and serious people suspect that the elections were rigged. Brazil have an all electronic vote system, controlled by a Venezuelan company called Smartmatic, involved in other frauds around the world. It was impossible to prove that the election was rigged, and even the auditors came to the conclusion that the system itself is impossible to audit! As a result, Brazilian Congress changed the law about electoral electronic systems, making it mandatory that a paper copy of each vote be printed for auditing purposes. Even so, critics say the system is still flawed.

In the middle of the campaign in 2014, another political scandal broke out involving Brazilian’s biggest company, the state-controlled oil producer Petrobras. A Petrobras executive was arrested by a police operation called “Lava-jato”, which means “Car-wash”. The taskforce received that name because a car wash store was being used as front to launder money from bribes.

This part deserves further explanation: Petrobras was a big showcase for the Lula administration and Dilma herself was the chairwoman of the company at that time. In 2007, the company found huge reserves of oil in deep-sea layers camps, and Lula announced it as a new era for the country. The extraction regulations changed and the government increased its power over the company and the entire oil sector.

The company made a huge offer of stocks in 2010 and borrowed billions of dollars to develop the newly discovered reserves.

The “Car-wash” investigation, led by Judge Sergio Moro and his team of prosecutors and investigators, discovered that most of the money Petrobras had raised was diverted in a wide range of frauds. The most common one was cost-inflated projects paid to big contractors. Part of the money returned to corrupt politicians, most of them linked directed to the Worker’s Party (PT) and other parties that form the Congress base of the Rousseff administration.

We are talking about US$ 20 billion stolen in the Petrobras scandal alone. The investigators now know that the same scheme happened in others public controlled companies, like Eletrobras. And in other instances, like BNDES and public pension funds.

Part of the money was used in Ms. Rousseff’s campaign, and diverted for personal gains. Lula himself is among the suspects of several crimes related to this huge scandal. Justice presented hard evidence that he gained apartments and other real estate, more than R$ 50 million in alleged “speech fees” paid by the construction companies involved in the Petrobras scandal.

More than 100 people were arrested in the operation, and more than 20 confessed to the crimes on plea bargains. Judge Moro was able to recover more than R$ 2.9 billion from offshore accounts.

Judge Sergio Moro

The problem is that the main revelations from this operation came after the election of Ms. Rousseff. In addition, Dilma was forced to make a lot of cuts in the social programs and to let the currency devalue, creating a two digit inflation in 2015. In other words, everything she promised not to do in campaign.

The TCU, Brazilian’s Federal Court of Accounts, just ruled that she committed fraud in the 2014 fiscal year, and that the “creative accounting” methods were actually against the law. This was the basis of the impeachment trial started last week against her by Congress.

This chart shows the brazilian government borrowing money from public banks to increase social benefits in pre-electorate and electoral year. Brazilian law forbids this practice.

But if you think that’s the full extent of the chaos in Brazil right now, you are mistaken.

In the middle of this crisis, other crimes committed by personnel linked to the president or by the president herself were discovered.

The leader of the government in the Senate, Delcidio Amaral, was arrested last December trying to free a Petrobras executive who was under arrest and negotiating a bargain plea. He was recorded by the son of the executive, saying that Ms. Rousseff had the Justices of Supreme Court in her pocket, and she could use her influence to free his father, who later would fly to Spain, receiving an allowance for the rest of his life.

Delcidio Amaral, Senator, Majority Leader in Senate with Dilma.

After that, the Senator himself negotiated a plea bargain stating that Rousseff knew all about the scheme in Petrobras and she participated in the appointment of a Judge to a higher court, with the mission to free the president of the larger construction firm in Brazil, Marcelo Odebrecht. This judge and Ms. Rousseff deny it all, but in court, the judge really tried to free Mr. Odebrecht. Senator Delcidio also testified that Lula participated in the plan.

“Lula ran the scheme. Dilma knew about everything.” Delcidio do Amaral, Senator and former PT member, in his bargain plea.

And it gets even worst…

As Lula was accused of several crimes by judge Moro, he was subpoenaed to testify and his situation became untenable. He was one step away from being arrested when president Rousseff appointed him as Minister. In Brazil, Ministers and other government officials can be prosecuted only by the Supreme Court.

Lula’s countryside property, Renovated by Odebrecht, one of the construction companies involved in the Petrobras scandal.

Protests erupted all over the country, but Ms. Rousseff continued to deny any wrongdoing with this appointment. On that same day, Judge Moro released a wiretapping with conversations between Lula and other PT members, including Rousseff, proving that the plan was to make Lula a Minister to shield him from justice, giving him executive immunity. The recordings also included some really ugly conversations showing he was using his allies in all places to obstruct justice. The conversations used very offensive and vulgar language that shocked Brazilians.

A Justice from the Supreme Court signed a provisory decision impeding Lula of taking office. The case will be judge by Supreme Court in the next days.

In face of the accusations, Dilma should resign, but she did the exact opposite. She is denying any wrongdoing and is accusing the opposition and judge Moro of trying a coup d’etat. She’s lost public support and can only count on her own party members and the so called “social movements,” the ones that received millions in the last years in benefits. Polls show that 93% of the public disapproves of her administration and 70% supports her impeachment.

03/13/2016 — The biggest protest in Brazilian history. Protesters demanded the Impeachment of the president.

What made the problem even worse is that a lot of politicians from other parties are involved in the scandal, including the Speaker of the House and the President of the Senate.

The impeachment must be voted in the House in the next three weeks and go to the Senate after that. People are worried that the Supreme Court, with 8 Justices appointed by Lula and Dilma will obstruct the process, or that PT will be able to buy enough support in Congress to stay in power.

It’s important that the international community knows exactly what is going on in Brazil, because again Ms. Rousseff is trying to create a fantasy of a coup d’etat to gain support, and using any means to stay in Office.

Brazil needs the support of other countries to proceed with a necessary “spring-cleaning”, and judge Moro is the leader that we need to preserve.

Ms. Rousseff’s impeachment is a necessary step of this process.

Update: on 04/17 brazilian Lower House passed the Impeachment of Dilma Rousseff with the vote o 367 representatives, more than the 2/3 needed. Now the process go to the Senate, where it needs the approval of 1/2 of senators to be opened, what’s is almost certain by now. With this vote, Dilma will step down for no more than 180 days until her judgment take place with a final vote from senate that needs 2/3 of senators to be approved. During this period, Temer, the vice-president will take over. Dilma keep saying that the process represents a coup, despite the overwhelming proofs of wrongdoing.

PS: Revised and edited by my kind friend Lucila Lessard. Thank you very much Lucila.