Global Independent Analytics
Natalia Rezende
Natalia Rezende

Location: Brazil

Specialization: Politics, International relations

The political components of fiscal crisis in Brazil

According to Machiavelli, the prince can govern a state “o per fortuna o per virtù”. However, the equation between fortuna and virtú considered by Machiavelli becomes complex in multiparty political regimes.

In multiparty democracies, presidents and prime ministers have to make strategic choices between different coalition management possibilities, including political and budgetary transfers, in order to keep a majority coalition in the legislative.

The efficiency and the relative success of the Executive in multiparty systems are related to the disciplined majority coalition in the Legislative Branch. Therefore, it depends, both, on the Executive’s choices (virtú) and on the contingent politico-institutional environment (fortuna). 

The literature argues that both fragmentation and ideological polarization tend to generate lower cohesion and more instability in political systems. Its analysis is based on the number of relevant parties (effective number of parties) and on the measure of ideological polarization, which focuses on the ideological distance among parties - the divergence of political agendas.

In the Brazilian political system, there are 35 political parties registered in TSE (the electoral higher court), 28 parties seated in the House of Representatives, and the effective number of parties is 13.[1] The Brazilian House of Representatives became the most fragmented in the world, and only about half of the parties have sufficient electoral weight in Congress.[2] 

In this fragmented environment, the Executive strategy must be very well calculated and even so, the risk of making mistakes is quite high. Therefore, the government is facing serious challenges in forging a coherent and disciplined coalition, and governability is always affected in some way.

On the other hand, there are some tools that presidents can use for minimizing the  relative costs of  policies that drift away from the presidential preferences. So, according to the strategy adopted, the costs born with the coalition could be higher or lower for the Executive branch. As we know from Decision Theory, the optimal decision maximizes expected utility of policy outcomes and minimizes payoffs.

The Brazilian political scientists Pereira and Bertholini argue that it is expected that the larger the number of parties in the governing coalition, the more ideologically heterogeneous they are, and the least the power shared among coalition partners - the more expensive it will be to govern a multiparty government, which in turn will make it harder for the Executive branch to achieve fiscal balance. In multiparty presidential regimes it is required that presidents strategically manage their governing coalitions. This means building coalitions with the smallest possible number of parties, with the largest degree of ideological cohesion between them, and with proportional power sharing which takes into account the political weight of partners in Congress.

In Brazil, we already have 39 ministerial cabinets belonging to ten different allies. In addition, the Executive nominates thousands of politically-appointed positions in the Federal bureaucracy, and negotiates over budget amendments for its allies in the Legislative. These are some of the relative costs of the coalition that have a direct  impact on  maintaining the fiscal balance , thus resulting in higher budget deficits. 

According to Roubini and Sachs (1981), the size of budget deficits is related to political as well as economic aspects of governance. Their analysis shows that there is a link between the size of the budget deficit and the political structure of governments in the industrialized countries in Europe. The large deficits observed in the 80’s are the result of political weaknesses, such as the dispersion of political power across many coalition partners.  They write (Roubini; Sachs, 1981:4):  

Weak and divided governments (as evidence by the expected tenure in office, and by the number of political parties that share power in the government coalition) have been less effective in reducing the budget deficit than have stable and majority-party government.

Deficit reduction requires political consensus between the governing coalition members. The authors note that such consensus is harder to achieve in multi-party governments and that the failure to reach a consensus on budget cutting can help to explain why countries with multi-party coalition governments have experienced particularly large increases in the debt-GNP ratio.

In the case of Brazil, the fragmented Congress and the continuous increase in the number of political parties with different agendas and beliefs have been creating an unstable and “unfortunate” environment. This contingency, combined with the lack of virtú by President Rousseff (PT) in forming a coherent coalition – as she is building coalitions with a big number of parties, with the largest degree of ideological heterogeneity, and with non-proportional power sharing – results in the fact that the budget approved in Congress is higher than the one originally put forth by the Executive and therefore the resulting policy menu drifts away from the Executive’s preferences.

Thus, the budget gets out of control and the government faces increasing difficulties in implementing fiscal adjustments, which does not mean that the government is complying with its policy agenda even when it pays a high price for legislative support. This development not only produces high costs but also obstruct the address of popular demands and investments on public policies, because part of the budget remains spent on holding the Federal structure together.

The political crisis – absence of fortuna and virtú of the President - occasioned fiscal instability and difficulties for the government to adjust the budget. In addition, corruption scandals, and clientelistic policies – the exchange of public goods and services for political support – as well policies stemming from patronage between the government and certain companies (such as the consortium of firms for public works projects), also impacted the current Brazilian fiscal crisis.

 


[1] The effective number of parties consists to count parties and, at the same time, to weight the count by their relative strength - seat share in the Congress. The number parties index to the size of the largest parties, who exercise influence in House of Representatives roll call votes.

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