Of Spies and Politicking

When Brazilian president Dilma Rousseff took to the stage for her opening speech at the 68th UN General Assembly in New York last Wednesday (25th), she took the opportunity to deliver a sharp criticism of the spying programs carried out by the US government. Earlier in September, new revelations from the Edward Snowden leaks had revealed that the National Security Agency (NSA) had spied directly on Rousseff’s office. A week later, new leaks further revealed that Petrobrás – Brazil’s state-owned oil giant – was also targeted.

President Rousseff was right to criticize what amounted to an unacceptable violation of national sovereignty. As President, it is her first and foremost duty to defend the country’s sovereignty and territorial integrity against foreign invasions – which, in the digital age, includes cyberspying and other breaches of privacy against its citizens.

Unfortunately, Rousseff went much further than words. Just a few days after her speech, she cancelled her long-awaited state visit to Washington, which was scheduled for early October. This would have been Rousseff’s first official state visit to President Obama, where she would have been accompanied by a large committee composed of senior cabinet ministers as well as important Brazilian businessmen.

The visit may have been of little importance to the United States, but its significance to Brazil cannot be overstated. In the past two years, Brazil’s once booming economy has flagged, growing a measly 0.9% in 2012. At the same time, the governing Workers’ Party and their decade-long policy of growing the economy by boosting domestic consumption while doing little to nothing in the way of investment and boosting productivity has taken its toll; Inflationary pressures boil even in the face of the stagnant economy. It wasn’t until official inflation hit the Central Bank’s target range ceiling of 6.5% (the actual inflation target is 4.5%, with a margin of two percentage points on each end) that the interest rate was raised from its all-time low level at 7.5% earlier this year, reaching 9% by September and expected to climb further before the year’s end, putting another heavy toll on the prospects of economic recovery. To make matters worse, the massive demonstrations that paralyzed the country’s major cities in June further shook the economy, as foreign and domestic investments were put on hold in the face of such uncertainty. This follows sharply declining investment levels after the government took disastrous actions in the way of arbitrarily lowering profit margins and renegotiating contracts in the banking and electricity sectors in 2012.

Given this scenario, Rousseff’s planned US visit was a golden opportunity to promote Brazil abroad and attempt to regain investors’ confidence that the macroeconomic strength established during the Fernando Henrique Cardoso presidency during the late 1990s would not be squandered. Instead, President Rousseff threw away sound leadership in favour of domestic politicking. Her personal approval rating had dropped from an envious over 60% in May to 30% by late June, following the demonstrations. More recently, the Latin American and Asian cover of The Economist asks the question “Has Brazil Blown It?”, with regards to an earlier cover from 2009 in which it praised the country’s strong economy in the face of recession in the developed world and predicted more growth in the years to come. In this scenario, Rousseff’s “defence” of the country against American spying was the perfect diversion from her recent woes.

Other countries, such as Mexico and France, reportedly were also targeted by the NSA’s spying programs. But whereas these two countries had little interest in engaging in unnecessary confrontation with the US (the former due to its massive economic dependence on the northern neighbour; the latter due to the shared interest in promoting a Western intervention in Syria), President Rousseff seems to have seized what she saw as a golden opportunity to reclaim her lost popularity. Already her personal approval rating has risen by eight percentage points, and new opinion polls place her far ahead of all other contenders for the upcoming presidential election in a year’s time.

Engaging with an external enemy in the face of domestic troubles is an age-old strategy in politics, which President Rousseff has played very well. Given that unemployment remains near an all-time low (having recently dropped from 5.6% to 5.3%), she may very well be awarded a second term in office when Brazilian voters go to the polls next year. But her recent actions have only served to further exacerbate the very problems that have already caused the country’s massive economic slowdown since she took office in 2011. Inflationary pressures keep rising, which will force the Central Bank to continue raising interest rates. Higher interest rates will turn anemic growth into virtual stagnation. Whether employment levels will be affected is not a matter of if, but a matter of when. Whether it will be Rousseff or an unlucky successor who will have to pick up the pieces remains to be seen.