How Manufactured Economic Crisis in Brazil Paved Way for a Soft Coup


An anti-coup march in São Paulo. Source: Paulo Pinto/ AGPT

It is increasingly apparent that the Brazilian economy was deliberately destabilized to lay the groundwork for the 2016 soft coup that removed former President Dilma Rousseff from office. This does not represent anything new for Latin America; creating the conditions for a successful coup typically takes several years and economic destabilization is normally part of package. U.S. President Richard Nixon’s directive to the CIA to “make the economy scream” in Chile order to “prevent (left-wing President Salvador) Allende from coming to power or to unseat him in the lead-up to the 1973 coup, buttressed by actions such as  U.S. telecommunications company ITT’s international boycott of the nation’s main export product, copper, is one well documented example. In Venezuela today, we see similar destabilizing activities, such as business elite hoarding, causing food scarcity as the U.S.-supported opposition remains fixated on ousting the government. Receiving less attention has been Brazil, where this same type of political meddling and destabilization came in the guise of U.S.-trained judiciary and federal police anti-corruption investigations that froze key sectors of the Brazilian economy and exacerbated a recession, which caused Rousseff’s popularity to plummet, paving the way for her removal from office for the infraction known as fiscal pedaling – a common accounting trick and a non-impeachable offence that she was later exonerated from.

In 2014, the Washington, D.C., think tank, Center for Economic and Policy Research, produced a report on the Brazilian economy. Its conclusion was that although there was a slowdown underway due primarily to Finance Minister Guido Mantega’s miscalculation of the SELIC Rate (the Brazilian Central Bank’s primary tool for monetary policy), the fundamentals of the Brazilian economy were essentially solid. At the time, it had $364 billion in foreign reserves and $250 billion in outstanding loans to the U.S. government. CEPR predicted a slight recession that would end shortly. What happened?

During the presidency of the Workers’ Party’s (PT) Luiz Inacio “Lula” da Silva, the Brazilian government performed a balancing act, countering adherence to Fernando Henrique Cardoso administration’s neoliberal macroeconomic policy tripod of Central Bank independence, free capital movements, and floating exchange rates, and tight fiscal policies, with policies based on the tenets of trade unionist/Keynesian developmentalism. Developmentalist measures included government interventions to bolster industrial production and internal consumption and, most significantly, a strong minimum wage, which rose from R$240/month when Lula first took office in January 2003 to R$880/month when Rousseff was ousted in 2016 – a change in the real monthly minimum wage from $56 to $277.

As Brazilian urban planner Erminia Maricato said in a recent interview, Lula bet his political capital on a strong national business class that had started to weaken during the 1990s. He did this through supporting key national industries: the parastatal petroleum and shipbuilding industries, the construction industry, and agribusiness. All of these sectors were either paralyzed or suffered severe setbacks through U.S.-supported Brazilian judicial and federal police actions during the lead-up to and aftermath of last year’s soft coup.

Receiving less attention has been Brazil, where this same type of political meddling and destabilization came in the guise of U.S.-trained judiciary and federal police anti-corruption investigations that froze key sectors of the Brazilian economy and exacerbated a recession, which caused Rousseff’s popularity to plummet, paving the way for her removal from office …

In 2013, the Brazilian petroleum giant Petrobras, which has mixed public-private ownership, was one of the world’s richest companies. In a traditional developmentalist policy move, the Brazilian government earmarked in 2013 around $60 billion in Petrobras profits for the public health and education systems over the following 10 years. Brazil was the world’s ninth largest petroleum producer, but it had recently discovered and begun to exploit huge offshore petroleum reserves, which were predicted to catapult the nation into one of the world’s biggest petro-nations. Offshore oil drilling is expensive, but since the commodity averaged over $100 per barrel in 2013, the future for Petrobras and the Brazilian health and education systems looked bright. Then Edward Snowden revealed that the NSA was spying on Petrobras. A few months later, Saudi Arabia began dumping oil and crashed the world market.

At the time, writers for publications like Foreign Policy speculated that this was a strategy to destabilize Iran or Russia, but its effects on Venezuela and Brazil were tremendous. As billions of dollars began to disappear from Petrobras, a conservative federal police and judiciary – which had been working on cooperative activities with the U.S. State Department since at least 2009 – opened corruption investigations that, beyond merely arresting selected culprits in a bribery scheme that started in the 1970s, literally paralyzed key company activities, resulting in tens of thousands of layoffs and an estimated disappearance of around $29 billion from the economy, a large part of which came out of the pockets of Brazilian Petrobras shareholders.

The construction industry is one of the world’s most corrupt, and Brazil is no exception. Brazilian construction industry corruption was exacerbated during the military dictatorship when the World Bank and Inter-American Development Bank poured billions of dollars into the country for expensive mega-projects and provided little or no oversight to verify if they were ever completed. There are dozens of examples, but one of the most dramatic is the Rio das Flores Dam in the impoverished northeastern state of Maranhão. The dam was built in the early 1980s, but the government never built the hydroelectric generating plant that was financed as part of the project. Nearly no maintenance was ever done, and a burst in 2009, killed 44 people and caused around $500 million in damage to the Pindare river valley.

When U.S.-trained federal judge and prosecutor Sergio Moro targeted construction industry corruption as part of Operation Car Wash in 2015, he did not merely arrest construction industry directors responsible for bribing politicians and and order companies to pay fines. In an unusual move, he also forced the nation’s biggest construction companies to paralyze their projects, causing 500,000 job losses in 2015 alone. The BBC estimates that Operation Car Wash caused a 2.5 percent drop in Brazil’s GDP in 2015, and the country is still reeling from the effects of the operation, with some economists estimating that the investigation tripled the dimensions of the Brazilian recession.

During the 13 years of PT governance, Brazilian meat processor JBS became the world’s largest meat packing company, in part due to subsidized loans from the Brazilian National Social and Development Bank (BNDES). Despite having relationships with all political parties, JBS’s public image was closely associated with the PT, in part because of a libelous social media campaign led by the Koch brothers-supported group Movimento Brasil Livre and its allies in the PSDB party, which erroneously claimed that Lula’s son was a secret partner. In March, international media reported that a federal police operation revealed that JBS was doctoring tainted meat with acid and mixing cardboard with its chicken. A few days later, information came out that the chicken in question was actually only wrapped in cardboard and that ascorbic acid is a common beef additive. The international press ignored this information and JBS lost over $5 billion over the following two months, laying off thousands of workers.

An anti-Temer march in São Paulo. Source: Rovena Rosa/Agência Brasil

It is important to note that when corporate corruption investigations occur in the developed North, cases are handled in a different manner. When the subprime mortgage crisis broke, the U.S. government gave $700 billion in loans to corrupt banks it deemed “too big to fail.” As political economist Antonio Corrêa de Lacerda recently said about the massive corruption cases in Germany involving Volkswagen and Siemens, “the CEOs were punished and the companies paid a fine but they continued operating.” In Brazil, it’s a different story. “What we are seeing in Brazil is destruction of valuable assets, which are Brazilian companies that have an important role, not merely for stockholders, but for the country in terms of tax revenue, jobs, and income for the population,” said Corrêa.

After three years of economic sabotage, the stage was set for the international press to proclaim the “worst crisis in Brazilian history.” The claim is ridiculous because although nearly 6 million people dropped below the extreme poverty line since illegitimate President Michel Temer took over, 20 million rose out of it during the PT years. Furthermore, as bad as it may look now, the 2015-2017 recession pales in the cost of human suffering in comparison to the Fernando Collor years, with the period’s quadruple-digit inflation, lack of universal access to public education, and terrible famine that caused growth stunting in a generation of northeastern children.

Coupled with the “worst crisis in Brazilian history,” the international media proclaimed “the failure of socialism” in Brazil. This is even more absurd. Although Lula and Rousseff made modest gains towards creating a social democratic welfare state, they maintained the macroeconomic neoliberal policy tripod of their predecessors. International journalists – many of whom do not appear to know what Developmentalism is – are now passing judgement on the PT’s economic management, cherry picking data and ignoring the effects of the Operation Car Wash investigation on the economy. One story, widely circulating on social media, cites a new study that claims that the inequality reduction of the PT years, widely praised by international organizations such as the United Nations, did not actually happen. As veteran economic reporter Paulo Henrique Amorim noted, the study cited is based on income tax records, which leaves out the 85 percent of the Brazilian workforce – those that earn under roughly $730/month – who are exempt from paying income tax.

Brazil is one of the world’s wealthiest nations, both from a natural resources and a foreign reserves standpoint. While it is true that it is suffering a recession, this clearly has at least as much to do with economic sabotage caused by the U.S.-supported Brazilian judiciary and federal police as it does with underpaid journalists vaguely conceptualized claims about the failure of the PT government’s economic policies.

Brian Mier is a writer, geographer, and development professional who has lived in Brazil for 22 years.

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