Western Hemisphere Intelligence Brief

Issue 227: September 16, 2015
Brazil: Walls Close in on President Rousseff
Venezuela: Provoking Crisis with Colombia Ahead of Elections

 

Brazil

The continuing investigation into the Brazilian state oil company’s Petrobras kickback scandal and the broader political and economic crisis developing in the country are increasingly hindering President Dilma Rousseff’s ability to govern and have increased the possibility of impeachment proceedings against her. … Yesterday, Brazil’s Congress met for three hours to debate the grounds for the president’s possible impeachment. … Eduardo Cunha, Speaker of the House and member of the opposition Brazilian Democratic Movement Party (who also is implicated in the corruption investigation), declined to approve the opposition’s case against Rousseff, but called for a deeper review…. Last Friday, the expanding corruption probe got even closer to Rousseff, as the Federal Police asked the Supreme Court for permission to question her predecessor and mentor Luiz Inácio Lula da Silva for his possible involvement in the kickback scheme. … As reported by Brazil’s news magazine Epoca, police say Lula “may have obtained advantages for himself, his party and the government while he was president.” … Brazil’s broader economic plight was also highlighted last week when Standard and Poor’s downgraded the country’s debt rating to “junk status,” explaining, “The negative outlook reflects what we believe is a greater than one-in-three likelihood of a further downgrade due to a further deterioration of Brazil’s fiscal position.”… At the same time, JP Morgan predicts that investors will unload approximately $20 billion in hard currency and government bonds if Moody’s or Fitch also decides to downgrade the country’s rating. … Brazil already is facing its worst recession since the Great Depression of the 1930s, with the economy expected to shrink 3% in 2015 and 2% in 2016. … For the first time since it became a democracy, Brazil will post a primary fiscal deficit; in addition, unemployment has surged to a five-year high with 7.5%; the country’s currency, the real, has been the worst performing emerging-market currency this year; and Ivobepsa (Brazil’s stock exchange) has registered 35 percent in losses this year alone. … Yesterday, in yet another move from the executive to try to contain the situation, the Ministry of Finance announced an emergency $7 billion package of budget cuts. … However, with such measures requiring the approval of a Congress looking to impeach the president, it is unlikely that the cuts will pass.

 

  • Only eight months into her second four-year term, the economic and political crisis surrounding the Rousseff administration may have already reached a tipping point. Due to his corruption allegations, Speaker Cunha has his own political self-interest to consider and doesn’t want to be seen as the architect of Rousseff’s impeachment process for fear of making himself a bigger government target. Thus, he is moving cautiously and deliberately and seeking involvement of the entire chamber, although many observers see yesterday’s congressional meeting as the informal start of the process. While no evidence has been produced publicly to date of any wrongdoing by Rousseff, authorities are investigating whether she illegally diverted money to produce a balanced budget in the heat of the 2014 presidential campaign and whether her reelection campaign illegally benefited from funds diverted from Petrobras. If any of these allegations are found to be true, the opposition will have enough justification to proceed with impeachment. As the likelihood of the president’s impeachment grows, there is some speculation that if the investigation leads to Lula’s detention, Rousseff may choose to resign before the impeachment process begins. Brazil is facing daunting economic challenges that demand a strong executive who can take decisive action. With the swirling political uncertainty surrounding her presidency, Rousseff is clearly hobbled. Until the corruption investigations break one way or another, the country will be facing stiff economic headwinds for the foreseeable future.

 

Venezuela/Colombia

As Venezuela’s government continues to whip up tension on its border with Colombia, almost one-half of Colombians fear the dispute could lead to war, according to a recent Colombian poll. … The crisis began in mid-August when embattled Venezuelan President Nicolás Maduro, claiming a Venezuelan military patrol was shot at by unknown gunmen, ordered the closing of a key border crossing in Táchira state and declared a state of emergency suspending several constitutional rights. … He also ordered the summary deportation of thousands of Colombians living on the Venezuelan side of the border, with many being forced to leave without their possessions, while bulldozers destroyed their homes. … Nearly 20,000 Colombians have been displaced to date. … The Colombia-Venezuela border is the site of rampant smuggling, due to economic distortions in Venezuela, such as gasoline subsidies and other price controls, that make it highly profitable to resell Venezuelan goods in Colombia. … Efforts to resolve the crisis diplomatically in meetings between the respective foreign ministers suffered a set-back over the weekend after Venezuelan military jets reportedly violated Colombian airspace on two separate occasions, in one case passing over a column of Colombian soldiers. … In an interview, a former commander of the Colombian Air Force, Héctor Fabio Velasco, said, “The fact that a plane enters the country, and doesn’t just travel a few meters, but several kilometers is not an error, it is a provocation.” … In response to the incursion, Colombian president Juan Manuel Santos lodged a formal complaint with the Venezuelan government, which summarily denied the incidents. … Members of the international community, human rights organizations and numerous ex-presidents have criticized the Maduro government for precipitating the crisis and have called on him to de-escalate the situation. … The UN High Commissioner for Human Rights said he was “disturbed by the recent collective deportation of more than one thousand Colombians from Venezuela” and urged authorities “to take immediate measures to guarantee family reunification and to prevent further abuse of Colombians.” However, Maduro has remained defiant, closing another border crossing in the northwestern Zulia state just last week, and expanding a state of emergency to four more municipalities while closing the border in Apure state on Tuesday. … In a speech this week he said, “If Venezuela has to face the whole world on its own to defend its right to peace, justice and democracy, then that’s how we will do it.”

 

  • With legislative elections scheduled for December amid desperate economic conditions and rising social discontent, President Maduro is clearly resorting to nationalistic saber-rattling to try and rally support for his government. While many experts are skeptical the border crisis will lead to a military confrontation – Colombian forces are clearly superior to Venezuela’s – the Maduro government’s actions nevertheless are having real-world consequences, upending the lives of thousands and putting regional peace and stability at risk. Moreover, as President Maduro’s desperation grows and his popularity plummets (his approval rate is currently hovering around 24 percent), his dangerous and erratic behavior could inadvertently trigger a conflict. Maduro no doubt is emboldened by the passivity of regional governments, which have consistently shied away from diplomatic confrontation in the name of “non-intervention.” This was manifested again two weeks ago when a Colombian request before the Organization of American States to simply convene a meeting to discuss the crisis failed to win the support of a majority of member states. With an inflation rate estimated to be the highest in the world, and a GDP expected to shrink by another 7% this year, clearly events in Venezuela are on course to get worse before they get better. At this point, the challenge for the United States and other responsible actors is to contain the damage caused by chavismo’s impending collapse.

 

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