Can Michel Temer Revive Brazil?

The impeachment and removal from office of President Dilma Rousseff has proven to be one of the more painful episodes in Brazil’s modern history.  Despite the president’s many failings, the impeachment and removal of a democratically-elected leader is a major test for a country such as Brazil that does not have a long history of democracy.  Moreover, President Rousseff’s ouster has led to a major rift between Brazil and a number of Latin American countries with left-wing governments, countries that, until recently, had close ties with Brazil.  Nevertheless, the removal of President Rousseff could prove to be the best thing that could have happened to Brazil, given the country’s terrible economic situation and its awful record of corruption in recent years.  For President Rousseff’s ouster to be a positive long-term development, Brazil’s new President Michel Temer must take immediate steps to improve his country’s economic competitiveness and to root out corruption from the public and private sector in Brazil.

First, it is important to recognize that former-President Rousseff was one of the most incompetent leaders to be at the helm of any large emerging market in recent years.  Under her leadership, Brazil’s once rapidly-growing economy fell into a deep recession and has shrunk by more than 7% over the past two years alone.  In addition, she did nothing to tackle the massive corruption problem that her government not only inherited, but also was thoroughly involved with.  Her government’s economic mismanagement and its repeated corruption scandals led to a dramatic decline in business, investor and consumer confidence in Brazil and a complete lack of trust in her government’s ability to deal with the considerable threats to Brazil’s economic well-being.  This was evident in the fact that, by the time she was suspended from her position, her approval rating had fallen to just 7%, the lowest approval rating of any leader of a large country in the world in modern times.

Since he first took over the presidency on an interim basis, President Michel Temer has taken steps to deal with some of the leading threats to Brazil that were allowed to worsen under his predecessor.  First and foremost, President Temer has moved to restore business, investor and consumer confidence in Brazil by enacting policies aimed at restoring growth to the Brazilian economy.  Furthermore, he has aggressively pursued foreign investment in Brazil in a bid to diversify his country’s economy so that it is not as exposed to fluctuations in commodity prices as it has been in the past.  While these are laudable steps, Brazil’s new president must still do more to tackle the rampant corruption that is pervasive in both the public and the private sector in Brazil.  Furthermore, President Temer must take steps to increase investment in areas such as infrastructure and education that will boost Brazil’s long-term economic competitiveness.  Without a reduction in corruption and an improvement in the country’s economic competitiveness, Brazil’s economy will struggle to achieve higher rates of long-term economic growth.

Undoubtedly, Brazil and its new president face a difficult challenge in making Brazil an economy that can compete with the likes of China and other more successful emerging markets over the longer-term.  For example, the high commodity prices that fuelled Brazil’s economic surge earlier in this decade are unlikely to return in the near-future, forcing Brazil to generate more growth from non-commodity sectors of the economy.  Moreover, demand levels in many of Brazil’s key export markets are likely to remain relatively weak over the near-term, forcing Brazil to generate more of its growth domestically.  Finally, the fight against corruption in Brazil is certain to be both lengthy and difficult, and eliminating corruption entirely is likely to prove to be next to impossible.  Nevertheless, if President Temer and his government can take some steps to improve Brazil’s economic competitiveness and to reduce corruption, Brazil will be better placed to achieve stronger economic growth when the external environment improves.  Without these steps, Brazil’s struggles will certainly continue.