Brazil's No-Win Impeachment Battle

A symbol of a larger problem.

Photographer: EVARISTO SA/AFP/Getty Images

Brazil's legislature has opened impeachment proceedings against the country's president. The charges may or may not be justified, but if ever there were a political culture that deserves to be put on trial, it is Brazil's.

Brazil's voters -- never mind its legislators -- can hardly be blamed for their unhappiness with President Dilma Rousseff. She has overseen a worsening economy and has been embroiled (but so far not implicated) in a long-running corruption scandal involving Petrobras, Brazil's state-run oil company. But she is also merely an illustration of the larger problem: Brazil's unhealthy statist model, which fuels corruption and retards development and growth.

The move toward impeachment came after more grim news about Brazil's economic predicament and the corruption scandals that have made it harder to solve. On Tuesday, the government announced the economy had shrunk by 1.7 percent in the third quarter -- the third decline in a row.

Meanwhile, Brazil's top young financier, the billionaire Andre Esteves, was arrested along with Senator Delcidio Amaral -- the first sitting senator to be arrested since Brazil's return to democracy in the 1980s, and the latest target of the investigation into Petrobras. Amaral's arrest is Exhibit A in how the corruption investigation, which has so far ensnared more than 100 executives and politicians, is paralyzing policy making: He led negotiations in the Senate to pass the fiscal austerity measures that Rousseff had to push through.

Brazil's Highs and Lows

One of the wellsprings of this chronic and widespread malfeasance is the deep relationship between Brazil's state and its economy. The biggest donor in Brazil's 2014 election, for instance, was the meatpacker JBS, which had previously received a $4 billion infusion from Brazil's state development bank. And the still-metastasizing scandal at Petrobras, where a cartel of suppliers bribed officials to win contracts at inflated prices that cost the company $7.6 billion, is just the most glaring example of how both licit and illicit political donations have yielded handsome returns.

Unfortunately, most of the rewards from the state's controlling grip on the economy haven't gone to ordinary Brazilians. Most of the state development bank's loans, for example, have been to big conglomerates that could have raised the money elsewhere. And that financing comes with a hefty public price tag: The bank loans out money to Brazil's richest companies at a much lesser rate than what Brazil's treasury paid to borrow it.

It may be too much to ask Rousseff to abandon the ideology that has underpinned her administration and that of her predecessor, Luiz Inacio Lula da Silva. But getting Brazil's economy out of the ditch will require a hard look at the policies that helped get it there. And keeping it out will require stronger initiatives on corruption and campaign finance reform -- both areas where Rousseff promised progress after her 2014 re-election.

Rousseff probably won't have much time for that now. Even winning support for the painful fiscal adjustments necessary to stop Brazil's slide will have to take a back seat to securing her political survival. It's too soon to say whether she deserves to survive. But regardless of how this convoluted process plays out, the months of political maneuvering will make Brazil's immediate fiscal crisis harder to fix.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.