President Dilma Rousseff Igo Estrela/Stringer/Getty Images

How to Save Brazil

While President Dilma Rousseff's potential impeachment throws Brazil's politics into disarray, the country's economy is facing its worst recession in 80 years. To get Brazil back on track, urgent action is needed to revive the economy, rebuild business confidence, and restore public trust in government.

SÃO PAULO – Brazil’s political crisis appears to be coming to a head. Now that the lower house of the National Congress has voted in favor of President Dilma Rousseff’s impeachment for violating fiscal rules, the Senate’s 81 members will vote in the coming days on whether to try her. If 42 agree, she will be suspended for up to 180 days, during which time Vice President Michel Temer will assume the presidency. If the Senate does not produce a two-thirds vote for conviction during that period, Rousseff will return to the presidency. But the most likely outcome, it seems, will be for Temer to carry out the final two years of Rousseff’s term.

Whatever happens next, Brazil is not out of the woods. Its economic situation is dire – a direct result of populist policies initiated by Rousseff’s predecessor, President Luiz Inácio Lula da Silva, and which she maintained. In the early 2000s, flush with cash thanks to a commodity boom, Lula’s government began to distribute subsidized credit to consumers and businesses, hold down energy prices artificially, and expand government spending at more than double the rate of GDP growth. The result was mounting public debt, which has now reached 70% of GDP, and a widening deficit, which has now reached nearly 11% of GDP.

Rather than acknowledge the problem and revise policies accordingly, Rousseff allegedly resorted to dodgy accounting tricks to enable her government ostensibly to meet its primary-surplus target without cutting social transfers, even as commodity prices collapsed. This enabled her to win reelection in 2014 – and it is propelling her toward impeachment today. (The massive corruption scandal engulfing Petrobras, the state-owned oil company, which Rousseff used to head, has not helped her case.)

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