Can Dilma Rousseff Recover?

Mac Margolis on the Brazilian president’s struggle to win back the vote.

For Brazilian president Dilma Rousseff, these ought to be days of glory. Long the chronic underachiever of the developing world, her country has now claimed its place on the global stage. Pope Francis spent a week in Rio de Janeiro last month, drawing millions to the streets. Next year, Brazil will host soccer's World Cup, and in 2016, the summer Olympics.

A land once slighted for its dysfunctional economy and epic inequality is now hailed as stable, stylish, and reliably democratic, its poverty-busting social programs admired and copied in Africa and parts of Asia.

But instead of enjoying a victory lap, the 66-year-old Rousseff is treading lightly, avoiding the spotlight, and consulting with spin doctors. Although the massive protests over the summer that sent a million Brazilians to the streets have ebbed, the funk over everything from corruption to shabby public services remains. From governors to members of the national congress, elected officials across the country now think twice about showing their faces in public. No one understands that better than Rousseff.

Blessed a few months ago with rock-star billings, the Cinderella candidate who rode a wave of prosperity into the Palácio do Planalto in 2011 saw her approval ratings nose dive to 30 percent in July, during the height of the protests. Heading a nation where soccer is religion, Rousseff was roundly booed at the opening match of the Confederations Cup. Wisely, she skipped the final at Rio's newly refurbished Maracanã stadium, a preferred target of the street protests. "The bubble of enchantment has burst," says political analyst Fernando Schüler, director of Ibmec, a leading Brazilian business school.

Hastening her decline has been a downturn in Brazil's economic fortunes. Brazil's bull run that saw gross domestic product expand 7.5 percent in 2010 has fallen flat. This year the Latin American juggernaut will be lucky to expand by 2 percent. Inflation is topping 6 percent, thanks to loose money in Brasilia and now a spiking US dollar. (The Brazilian real is down a world-beating 21 percent against the greenback since May). Tax breaks to selected manufacturers like automakers, and dollops of consumer credit, have jammed the malls and snarled traffic. In Rio and São Paulo, while the population grew by 8 percent over the last decade, the fleet of automobiles increased 75 percent. "It's little wonder why public transportation was the trigger for the protests," says Schüler.

How Rousseff's fall from grace will play into Brazil's predatory political scene is now an open question. With elections looming next year, speculation is mounting over Rousseff's prospects for a second term. Coalition leaders in the 12-party governing alliance have threatened to defect, while discontents in the ruling Worker's Party are openly debating dumping Dilma for a more competitive candidate. As rumors swirl, naturally all eyes turn to Luiz Inácio Lula da Silva.

With elections 15 months off, that may be premature. But the nod to Lula is no surprise. The former peasant's son-turned-steelworker, who rose from the shop floor to the marble halls of Brasilia, spent eight charmed years in office. On his watch, thanks to a hawkish monetary policy leavened by generous social perks, Brazil ably navigated the global financial crash. A political Houdini, he emerged practically unscathed from a massive votes-for-money scandal that toppled senior officials and finally saw some of his closest confidants convicted by the Supreme Court last year.

Barred by the constitution from seeking a third consecutive term, which he might have won in a heartbeat, Lula did the next best thing. He groomed a successor. The fact that he elected Rousseff, a political neophyte and career technocrat—with all the charm of a "light post," the opposition snickered—only increased his cachet as a Brazilian rainmaker. "From post to post, we are going to light up Brazil!" he parried.

Lula's return makes for a compelling storyline. After all, foes and allies alike thought of Rousseff as a caretaker, merely warming the seat for Lula to come roaring back in 2014. Instead of streaming to Brasilia, business executives, who remember fondly the period of soft loans and low inflation under Lula, have begun to call directly on the former president instead.

Lula has repeatedly denied any intentions to return. But Rousseff herself has done little to discourage the whispers. Blindsided by the popular revolt that swept Brazil in June, her first gesture was to fly to Sao Paulo for a closed-door meeting with the city mayor—and Lula. The same day, São Paulo announced a rollback in bus fares, and Rousseff returned to Brasilia, presumably with cue cards for a national address that followed. "If Rousseff continues to fall, Lula is the natural candidate to take her place," says Bolviar Lamounier, a political scientist aligned with the opposition social democratic party.

But writing off Rousseff may be premature. Pope Francis's sweep through Brazil, which mobilized millions of young Catholics, helped soothe political tensions and deflect the fury of the streets. The massive marches of June and early July have given way to pocket protests by vandals, who have drawn widespread reproach, or by special interests, such as physicians and teachers, who have failed to capture national sympathy.

Much of the anger that remains has been turned on local officials. The current bête noire is Rio governor Sergio Cabral, whose bid to stoke civic pride through lavish spending on sports arenas and showpiece public works for the 2016 Olympics has become a public relations debacle instead. Oddly, while the protestors lash out against public spending on stadiums, they also railed against a cost-saving plan to privatize Maracanã football stadium. "It's one of the paradoxes of Latin America that people defend a state that no longer works," says Schüler.

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In a continent-sized country where every rebel has a cause, diffuse and localized protests may work to Rousseff's favor. Though famed as a micromanager and a champion of state-stewarded capitalism, she governs a country where power is diffuse.

The 1988 constitutional reform preserved the strong presidential system, but also put checks and balances on steroids. Most schools and hospitals are run by cities and states. Governors control both the police and, along with mayors, public transportation. That makes every politician fair game for discontents. Tellingly, Rio's governor scored a lowly 25 percent approval rating in July, the worst in Brazil, just below that of São Paulo governor and opposition leader, Geraldo Alckimin, with 26 percent.

It doesn’t hurt her that her political adversaries, led by the Party of Social Democracy (psdb), are deeply splintered, prone to bickering, and chronically insecure about their own convictions. “Brazil has no effective opposition,” says Schüler. “The social democrats lost three elections trying to downplay the privatizations they implemented when in power.”

Meantime, Rousseff has begun to regain lost ground, her popularity rising to 36 percent in early August. She still leads the polls for 2014 election, well ahead of the psdb, her strongest party rivals. "Rousseff fell sharply but from a commanding height. She is still the favorite," says Christopher Garman, a Latin America expert with the Eurasia Group. "Unless something drastic happens, Lula will not run."