While Some Call Brazil’s 20-Year Freeze, Shock Therapy, Foreign Markets Are Cheering

São Paulo under a full moon - Paulo Pinto/Fotos Públicas Brazilian President Michel Temer is a step closer to cementing his long-term austerity plan for the cash-strapped country as the lower house of Congress approved a constitutional reform that would freeze public spending for the next two decades.

Critics argue that the aggressively neoliberal plan — known as PEC 241, the Portuguese acronym for Proposed Constitutional Amendment — dramatically undermines rights enshrined in the 1988 constitution, written in the early years of Brazil’s transition to democracy following the fall of the military dictatorship in 1985.

Progressive economists often warn that austerity deepens an economic downturn rather than reverses it, by depleting consumers of buying power. Public disinvestment is, in effect, anti-Keynesian, and is akin to turning off the engine of a plane already in free-fall.

With a population of more than 200 million, Brazil’s income and wealth disparities are among the widest in the world, and the country is currently in the midst of its worst economic contraction since the Great Depression.

São Paulo under a full moon - Paulo Pinto/Fotos Públicas

The PEC 241’s 20-year freeze on public spending will almost certainly produce an anemic economy because it will starve a demand economy of the very oxygen it needs — consumer demand — to thrive.

Daniel Bin, professor of public policy at the University of Brasília, said that, if approved, the PEC 241 will further concentrate resources in a few elite hands and signal a halt in public spending despite future increases in the population or social needs.

As a result, he said the plan will have disproportionate impact on nearly a whole generation of the country’s most vulnerable.

“It is not hard to predict how this will hit, with unprecedented violence, the poorest people, who depend on public funded education and health care,” he explained.

The controversial amendment passed with ease in the lower house by a 366 to 111 vote in favor, with two abstentions, after a marathon nine-hour session.

The measure still needs a second vote in the lower house, where it is expected to pass the supermajority threshold in a vote scheduled for October 24. If approved, it will be forwarded to the Senate for final approval.

A recent report by dozens of Brazilian economists, titled “Austerity and Recession: Public Finances and Fiscal Policy in Brazil,” refutes conventional arguments for tightening the purse strings, saying it is the wrong remedy for Brazil’s economy.

The economists dubbed Temer’s policy “permanent austerity” and “shock therapy” and advocated progressive tax reform to shift the fiscal burden to fund programs instead of shrinking the state, as proposed by PEC 241.

The reform has also garnered criticism from Brazil’s top prosecutor. The Attorney General’s office said in a statement that PEC 241 is “unconstitutional,” arguing that the 20 year spending freeze will “limit, weaken and harm the performance of the judiciary and other institutions of the justice system” and should be scrapped.

International markets, however, have cheered the neoliberal advance, championed as a plan to cut back Brazil’s budget deficit. The PEC 241 proposes to cap public expenditure in line with inflation until 2037, raising concerns that the Draconian cuts will result in an unprecedented assault on public education, health care, social programs and criminal investigations into public malfeasance and corruption.

Bin argued that state unfunding will likely pave the way for “deepening commodification” of health care and education and open the door to further privatization.

Critics have also argued that the PEC 241, seen as a move to institutionalize neoliberalism, provides the clearest evidence yet of the motivations behind the August 31 impeachment of former President Dilma Rousseff from office, which resulted in the installation of her vice-president, Temer, for the rest of her term.

Jandira Feghali, a member of Congress with the Communist Party of Brazil, characterized PEC 241 as the “second phase of the coup,” referencing the widespread condemnation of the Senate’s ouster of Rousseff — ostensibly on corruption charges — as a “parliamentary coup.”

“Rousseff’s government was unable … to carry on the pro-finance political-economic model set in 1990s,” Bin explained, pointing to the likely economic motivations behind the parliamentary ouster. “The state apparatus threw the government away.”

In a speech to U.S. corporations last month in New York during his visit for the U.N. General Assembly, Temer explicitly stated that the reason for Rousseff’s removal was not that she committed budgetary crimes as her rivals charged.

Rather, as reported by The Intercept, Temer revealed that Rousseff’s refusal to implement cuts to social programs and roll out a privatization plan as part of a broad neoliberal austerity agenda advocated by Temer and his allies was the real motivation for her ouster.

The financial proposal promoted by Temer’s party — and referenced in his damning New York speech — was outlined in a document titled “Bridge to the Future” in 2015. According to Bin, neoliberal political-economy in Brazil is “definitely not dead.”

Analysts and social movements critical of Temer’s policies have argued that Rousseff’s impeachment was the first step in a multi-faceted “coup” targeting the popular Workers Party — known by it Portuguese acronym the PT — led by the country’s most popular politician, Rousseff’s mentor, and predecessor, Luiz Inacio Lula da Silva.

The center-left party had won the last four presidential elections in Brazil, and more conservative political parties had virtually no chance of winning an electoral mandate to rollback the PT’s popular social programs.

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