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Protests in Brazil: Impact Analysis

Protests in Brazil: Impact Analysis

Protests in Brazil: Impact Analysis

Background

Over the past two weeks, Brazil?s main cities have been the scene of considerable demonstrations that were widely reported by the media around the world. These protests were first sparked by discontent over the recent increase of bus fares in S?o Paulo and Rio, and gradually escalated into a general display of dissatisfaction with Brazil?s high cost of living and the low quality of public services, particularly in view of the large (and rising) investments in the World Cup, that demonstrators perceive to be a waste of money.

The scale of the protests has steadily grown over the last two weeks, spreading progressively from S?o Paulo to most of Brazil?s capitals. In the largest demonstration to date (and in fact since 1992), around one million people were reported to have taken to the streets in 20 Brazilian capitals on Thursday 20th June, almost four times the size of the demonstrations that took place on just four days earlier.

This has been an overwhelmingly peaceful democratic exercise that is, in many ways, a testament to Brazil?s progress towards democratic and institutional maturity (it is worth remembering that democracy in Brazil is less than 30 years old). It has also captured a wide-spread desire for change, receiving support from the majority of the media, and many politicians and celebrities.

It is unfortunate, however, that the relatively limited actions of a small minority of vandals have grabbed the headlines. Violence has in fact been restricted to Rio and Brasilia in the most recent protests. After initial concerns last week, demonstrations in S?o Paulo have since become very safe and peaceful, as have those in Belo Horizonte. It is difficult to predict, however, how this may evolve.

Political significance

With the benefit of hindsight, it is little surprise that the protests have crystallized over the last few weeks. The staging of the Confederations Cup has reminded the country of the rising costs of the World Cup, and have provided protesters with a world stage for their demands to be met. They also come at a very sensitive political time, just one year before major political elections, including those for the Presidency, State Governors, and federal and state legislators. Added to rising inflation, a weakening Real and an overall economic situation that has been steadily deteriorating for the past two years, the relatively low increase in bus fares seems to have been just the straw that broke the camel?s back.

Many political analysts were nonetheless taken aback by the scale and speed at which the protests formed and spread, and have found it difficult to determine what exactly their significance is. Their main, generally accepted, characteristics are the following:

  • While the demonstrations were initiated by a activist group called ?Movimento Passe Livre? (MPL), which has long advocated for free bus fares, the growth of the demonstrations has since been largely spontaneous
  • The movement is apolitical and does not have any clear leadership, nor has it articulated any coherent or clear demands. Rather it is a diffuse movement revealing deep-seated discontent around a number of issues: high cost of living, poor public services, lack of investment in education and health, corruption and a growing sense of insecurity
  • Attempts by political parties and institutions to either co-opt or even open dialogue with the protestors has been fruitless to date given their lack of clear leadership. There is no doubt that the demonstrations have been political in nature, but have not been led by any established parties, quite the contrary
  • Due to this lack of coherence, and its disapproval of the violent outbreaks that accompanied the demonstrations, the MPL has in fact decided to stop organizing demonstrations until further notice
  • Vandalism and police violence has occurred, but is limited, and has been widely condemned by all stakeholders

The demonstrations have become a significant issue for President Dilma?s administration, which was already facing growing discontent from its backbenchers, and a loss of support from its main political allies, notably that of the PMDB and PSB parties, that have started to position themselves ahead of next year?s elections. This was most apparent in the government?s difficulties in getting flagship legislation through Congress, most recently the important law liberalizing private investment in ports infrastructure which was only barely ratified at great political cost. Dilma?s own approval rating, while still high at around 55%, has been in steady decline over the last couple of years due to her inability to improve the country?s economic situation.

What is clear is that the PT party has now lost the control it has enjoyed in the last 15+ years over the country?s social and activist movements. Lula was first elected in 2003 thanks to the support of an array of trade unions, left-wing support groups and sustainability associations that have long-since disavowed its centrist policies. Lula, Dilma and the PT have also lost the anti-corruption appeal they once enjoyed following a series of high-profile scandals. To a large extent, the party?s leaders are now just as discredited as the rest of the country?s politicians.

The PT?s main national opposition party, the PSDB, has been incapable to capitalize on the PT?s decline, due to in-fighting and the lack of emergence of a strong, charismatic leader. The PSDB has been deafeningly silent, in particular, regarding the protests. Rather, two smaller parties stand to gain most from the current situation.

The PSB, of social democratic convictions, and an ally in the governing administration, has gained momentum in recent years, led by Eduardo Campos, the Governor of the north-eastern state of Pernambuco, who is increasingly distancing himself from the PT. Marina Silva, a surprisingly strong former Presidential candidate that recently created a new party campaigning on a sustainability platform, is also gaining wider appeal thanks to her non-partisan stance.

A key determining factor is which candidate the PMDB, an umbrella party with little to no clear ideology, will decide to back. The PMDB acts as the country?s political power broker in a country that needs to govern by party alliance, and should it decide to drop its support for the PT, then there is a real chance that Dilma will fail in her bid for re-election.

Immediate consequences for policy activity

As in any country, the pre-election period is always one of intense campaigning, grand political statements and little fundamental legislative activity. It seems that due to the protests, we are entering this scenario ahead of time, and expect that only those policy initiatives that are currently being discussed in Congress have any chance to make it into law. Those with the highest profile (and the most controversial), in our view, are:

  • a comprehensive new mobile payments law
  • a controversial political reform bill (PL 4470/12) aiming to reduce broadcast airtime and public funds during elections for new political parties (this may affect support for Eduardo Campos and Marina Silva in particular)
  • the so-called ?immunity bill? (PEC 37), a highly controversial constitutional reform that would render Brazil?s Public Attorneys toothless by stripping them of their investigative powers
  • the petroleum royalties bill (PL 5500/13), which aims to allocate 100% of pre-salt oil revenue to education
  • a law allowing Brazil to import foreign doctors in order to attend the poorer regions of the country

We believe that PEC 37, in particular, could have the potential to spark a new wave of protests if it is voted through Congress, as it has been widely criticized for appearing to be a means to reduce the effectiveness of investigations into political corruption.

Broader implications for companies operating in Brazil

Understandably, there are legitimate concerns that the bottom line of companies operating in Brazil will be affected by the protests. These demonstrations have clearly disrupted supply chains and the ability of workers to get to and from work. Many companies across the country have in fact taken precautionary measures to allow staff to work from home, or leave early ahead of planned protests.

Understandably, there are legitimate concerns that the bottom line of companies operating in Brazil will be affected by the protests. These demonstrations have clearly disrupted supply chains and the ability of workers to get to and from work. Many companies across the country have in fact taken precautionary measures to allow staff to work from home, or leave early ahead of planned protests.

In broader terms, we consider that this wave of protests is in fact a positive development for the general interests of home-grown and multinational companies operating in Brazil. The discontent displayed by demonstrators, while obviously not expressed in a similar manner, is very consistent with the long-held demands of the corporate sector. Notably that of lessening the excruciating weight of the so-called ?Brazil cost?, the main components of which are the excess of red tape, overly burdensome taxes, weak infrastructure, the lack of structural economic reform, and a shortfall in skilled workers due to a lack of training and education. All of these have contributed to the current high inflation rates, and held back investment, entrepreneurship and the improvement of public services. They continue to weigh on the economy as a whole.

Despite the complicated political context, now is an opportune time to drive home that economic reform is ever more pressing and necessary. We expect that decision-makers across the board will now be open to receiving constructive suggestions on how to improve the situation, particularly if the solutions put forward are likely to resonate with their disgruntled electorate.

For further information please contact:

Ian Herbison

Raphaƫl Mazet

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