Brazil’s Temer Loosens Budget to Quench Thirst in Lula Country

  • Government takes over Lula dream to bring water to Northeast
  • Temer needs support of region’s leaders to approve key bills

Acting President Michel Temer has been lauded by investors and politicians alike for his focus on fiscal discipline. He is exercising less restraint, however, to expand a project to reroute one of Brazil’s largest rivers in the country’s impoverished Northeast.

After cutting ministries and dismissing thousands of public servants to rein in government spending since taking over in May, Temer is willing to lavish as much as 10 billion reais ($3 billion) to expand a decade-long project to divert the Sao Francisco River, which was spearheaded by his predecessors Luiz Inacio Lula da Silva and Dilma Rousseff.

Temer aides say the project plays into the government’s strategy to improve Temer’s low approval rating in the Northeast region, a bastion of support for the Workers’ Party of Rousseff and Lula. The Northeast is also home to some of Brazil’s most powerful politicians, including Renan Calheiros, the head of Congress and a member of Temer’s Democratic Movement Party.

Temer’s government is trying to strike the balance between tightening the budget and appeasing politicians he needs to approve bills designed to revive investor confidence and shore up fiscal accounts, such as a cap on public spending and unpopular limits on pension payouts. Brazil’s economic recovery -- and Temer’s presidency -- depend on him getting that balance right, according to Paulo Sotero, director of the Brazil Institute at the Woodrow Wilson International Center for Scholars.

For a look at some of Brazil’s fiscal challenges, click here.

The Northeast “is where you get pressure for the budget concessions and deals that make management of economic policy difficult,” Sotero said. “You better do something that is visible, important, valued by people in the Northeast in order to be positively evaluated by people there.”

Old Chico

Temer’s broader revitalization plan entails restoring springs and tributaries of the Sao Francisco River, which runs almost 2,000 miles in the country’s northeast and is known to locals as "Old Chico." The 10-year project will start after his government finishes a separate initiative started by the Lula and Rousseff governments to reroute branches of the river, according to two Temer aides who were briefed on the matter. They asked not to be named because the administration will announce the new project next month.

Newspaper Folha de S. Paulo first reported that the revitalization project would require 6.7 billion reais over the next decade, but one of the aides said the cost would be closer to 10 billion reais.

The original river rerouting initiative Temer inherited from his predecessors is four years behind schedule and twice as expensive as the 4.5 billion reais originally planned, said Helder Barbalho, who is leading the project as Temer’s National Integration Minister. The government has made it a priority, and expects to finish construction this year, he said. Rousseff’s press office didn’t respond to requests for comment on the Sao Francisco river. The press office of the Lula Institute declined to comment.

Engineers are rerouting branches of the river to bring water to 12 million people in the states of Ceara, Rio Grande do Norte, Paraiba and Pernambuco, at the risk of diminishing the flow of the river to the states of Alagoas and Sergipe.

Temer’s broader project serves the dual purpose of ensuring the waterway has enough volume, as well as creating jobs and water resources for the states that will be negatively affected by rerouting, according to the two government officials. This is important from an engineering point of view, but also to ensure the support of politicians such as Renan Filho, the governor of Alagoas and son of Renan Calheiros, Sotero said.

Lula’s Base

Developing Brazil’s poor northeastern states helped Lula cement his political base in the early 2000s. Rerouting the Sao Francisco was one of his most ambitious projects and featured prominently in Rousseff’s first presidential campaign in 2010. Rousseff even visited one of the completed pump stations just days before the Senate voted in May to remove her from office and put her on trial for impeachment.

None of this is lost on Temer, who already managed to improve his approval rating in the Northeast after he increased payments for the popular welfare program known as Bolsa Familia in June, according to results from an internal survey that a government official shared with Bloomberg. Completing and expanding the Sao Francisco project would continue that positive trajectory in the region, the official said.

“This project doesn’t belong to one government, it belongs to Brazil and has been long-awaited for many years,” Minister Barbalho said. “It would be a mistake for the government not to prioritize it.”

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