Impeachment in Brazil: Did Dilma Rousseff break the law or not?

It should be a straightforward yes or no question. But determining the validity of the impeachment in Brazil with regard to whether the president actually broke the law when she used accounting tricks to cover up a budget deficit during an election year is anything but.

The events that have led up to the impeachment proceedings against Brazilian president Dilma Rousseff are a bit murky. While the international media has reported in detail on the massive corruption scandal at Petrobras, which has affected dozens of politicians, they have generally glossed over the entirely unrelated charges being leveled against the president. Phrases such as “accounting tricks” are thrown around without much explanation, other than perhaps the comment that the legal basis for the charges against her is rather thin. Indeed, the opposing political factions in Brazil are engaged in a vigorous debate about whether these tricks, which may have helped her eke out victory in an extremely tight presidential election, are actually illegal or not.

As she desperately struggles to defend herself and keep her job, Dilma has repeatedly proclaimed that, “impeachment without a crime is a coup,” stirring up memories of the relatively recent coup that took place in Brazil in the 1960s and led to decades of military dictatorship. She and her Workers’ Party (PT) have painted the impeachment in Brazil as nothing more than an illegitimate attempt to remove her as an act of political revenge by the opposition. They add that she committed no crimes, and if the so-called accounting tricks, known as “pedaladas” in Brazil, were an impeachable offense, then her predecessors Luiz Inacio Lula da Silva (Lula) and Fernando Henrique Cardoso (FHC) should have been impeached as well, since they did the same thing.

Most people would indeed agree that the impeachment of a democratically elected leader who did not commit a crime represents an illegitimate ouster. This begs the question: Did Dilma Rousseff actually break the law or is this just a political witch hunt and/or an illegitimate attempt to remove a democratically elected president from power? 

What exactly are the “pedaladas”?

The pedaladas have often been referred to as accounting tricks, although this belies the seriousness of the charges being leveled against the president. Those calling for impeachment allege that she essentially strong-armed public financial institutions into financing the Federal Government through billions of reais in loans. These were then used to misrepresent the financial conditions of the government during an election year.

The pedaladas relate to the government’s relationship with public financial institutions. For example, the Caixa Economica Federal is a public bank that is contracted by the government to disburse public payments, such as welfare and unemployment benefits. In order to do so, the National Treasury advances the bank an estimate of the funds to be disbursed for each payment. If there is a discrepancy between what is advanced and what is actually requested, the Caixa covers the difference and then informs the Treasury, which must then pay the funds back.

These types of transactions are absolutely legal and within the terms of the contract between the government and the Caixa. The Treasury advances are nothing more than an estimate, so it is to be expected that they would sometimes be wrong. The Caixa has agreed to use its own resources to make up the difference in such cases, and that is fine as long as it is paid back in a timely manner. If Dilma were accused of doing this, then she would be absolutely right in claiming that she did not commit any crimes.

Indeed, this happened several times under Dilma’s predecessors, Lula and FHC, as she has stated.  According to data from the Caixa regarding three types of expenditures (public salaries, unemployment benefits and Bolsa Familia benefits), the Caixa fronted expenses for FHC four times, totaling about 400 million reais. In the case of Lula, it happened three times, totaling about 500 million reais. In these cases, the Caixa was repaid by the government in a timely manner, settling the issue without any problems.

However, what happened in the Dilma presidency was quite different. As argued by Brazilian fact-checkers, she allowed the Caixa to front the costs of these benefits not just a few times, but for the second half of 2013 and the entire year of 2014, when she was fighting in a hotly contested election. As a result, she essentially obtained a loan and was able to artificially boost public spending and make holes in the budget disappear; this arguably allowed her to eke out a victory. Then, the government continued to allow the Caixa to make payments on its behalf well into 2015. In total, payments were missed 19 times, leading to a total financing of upwards of 33 billion reais, roughly 35 times more than under FHC and Lula combined.

When we consider data from the Brazilian Central Bank, which includes not only pedaladas related to the Caixa but also other public institutions, such as Banco do Brasil, the discrepancy increases even more, with the pedaladas equaling about 900 million reais under FHC compared to 60 billion under Dilma. The Central Bank estimates that after 2009, the impact of the pedaladas on the budget deficit rose from somewhere between 0.03-0.11% of GDP to 1% of GDP at the end of Dilma’s first term.

The problem then, it seems, is not just of the scale of the pedaladas but also of their nature and the intent behind them. Previous presidents were engaging in a regular part of doing business, in which smaller amounts were fronted by the Caixa and other institutions and repaid promptly. Dilma, instead, was essentially forcing these institutions to finance her government by covering government obligations with billions of reais of their own funds. This allowed her to misrepresent the financial conditions of her government during an election year. The money that was “borrowed” was diverted to other government expenditures, thereby artificially covering up the budget deficit that these expenditures would have caused, and potentially helping get her elected. Only after she was reelected did it become public knowledge that 2014 would end with a budget deficit.

What does the law say?

Brazilian law is quite clear when it comes to regulating loans taken out by the government: According to Article 36 of the Fiscal Responsibility Law, the provision of credit by public institutions to the central government is prohibited. The government’s defense is to say that the “pedaladas” were not loans, just a regular part of doing business. But given the large amounts of money involved and the long periods of time without repayment, that claim is clearly a stretch. Such a stretch, in fact, that the Caixa has taken legal action against the government over its non-payment. The facts of the situation make the pedaladas look much more like loans from a public financial institution than anything else, which would therefore make them clearly illegal.

Article 38 of this same law addresses advance loans and states that during the final year of a presidential, gubernatorial or mayoral term, such new loans cannot be taken out before previous loans have been repaid. So even if the government had been allowed to accept loans from the state-owned financial institutions in question during 2014, they would only have been able to accept new ones after they paid back any previous outstanding loans, which they did not do.

The Brazilian constitution classifies these types of crimes as not just common crimes, but “crimes of responsibility” against fiscal laws. This is what the impeachment proceedings are ultimately all about, the accusation that the president committed crimes of responsibility.

Political backstabbing

A lot has been made of the fact that the impeachment proceedings are essentially payback by a political rival: House Speaker Eduardo Cunha. Cunha has been caught up in the Car Wash corruption probe, which accuses him of hiding millions in dirty money from Petrobras in Swiss bank accounts. Once the allegations became public, the administration basically threw Cunha under the bus, allowing for the opening of an investigation into breach of decorum by the congressional ethics committee that could potentially have him thrown out of office. In apparent retaliation, he was the one to accept the request for the impeachment of the president over the pedaladas.

Denouncing the illegitimacy of the proceedings is one of the pillars of the government’s defense in the court of public opinion: they have repeatedly stated that in this case, impeachment amounts to an illegitimate quest for political revenge and, ultimately, an attempt at a coup.

Cunha is obviously no saint here (in addition to being implicated in the Car Wash investigation, the name of the Swiss banker who allegedly manages his accounts has also come up in the recent leak of the Panama Papers). He is clearly being motivated politically, not just for payback but also to install a new administration of Vice President Michel Temer, who is from his same political party, the Brazilian Democratic Movement Party (PMDB), and would presumably treat him more favorably as he tries to dodge prosecution.

But his motivation is irrelevant. It does not change the facts of the case – there do indeed appear to be legal grounds for impeachment here. Dilma’s proclamations of persecution end up sounding very cynical: can she really call herself a democratically elected leader when she used illegal maneuvers to potentially skew the electorate in her favor during a close election? Wouldn’t she be the one who is really undermining democracy here?

Fighting for survival

As the vote on whether to continue the impeachment proceedings approaches (there will first be a vote by the congressional impeachment committee – if it grants approval, the proceedings will move on to the full houses of congress), the government is transparently trading government posts and ministries for votes.

This is really demonstrative of the realities of the impeachment in Brazil. The proceedings are clearly not a fair trial based on evaluating the legal aspects of the case. Since impeachment involves a series of congressional votes, it is nothing but a political trading of alliances. Members of congress must now decide whether to keep the current government in power in exchange for preferential treatment later or to abandon a sinking ship and seek to ally themselves with whoever may be in power next. This is why public pressure and protests count so much. At the end of the day, public opinion will have a much greater influence on the results of this proceeding than the actual merits of the case at hand. Currently, two-thirds of Brazilians support impeachment.

Cunha, who is all too aware of this dynamic, wants the congressional vote on impeachment to take place on a Sunday, which would make it easier for protesters to congregate in front of the government buildings in Brasilia and would allow Brazilians outside the capital to watch it on TV. He also wants to call out the names of any members of congress who choose to skip the session (absentees essentially equate to “no” votes) on television, to further ramp up political pressure and create a disincentive for absenteeism.

Meanwhile, those against Dilma’s impeachment are fighting back. Supreme Court justice Marco Aurelio Mello (appointed to the court by his cousin, previously impeached president Fernando Collor de Mello, who resigned in disgrace in the 1990s but is now a Senator again) has now obligated Cunha to hear impeachment proceedings against his fellow PMDB member, Vice President Temer, for the same charges as the president. The logic goes, if Cunha accepted the charges to impeach Dilma, he would have to accept them in the case of Temer as well – as the senior members of the administration responsible for the pedaladas, either both of them are guilty or neither of them are. However, the full Supreme Court must still weigh in on this and Cunha has vowed to appeal.

This move was made to put Cunha in an awkward situation. It helps Dilma because it calls into question the stability of a potential Temer government. Furthermore, if both Temer and Dilma are impeached, then the next person in line to become president would be Cunha himself (albeit only temporarily – he would have to call for new elections). Both Dilma and Temer may be pretty unpopular politicians in Brazil, but no one is quite as reviled as Cunha. The prospect that he could end up in charge may sway Brazilians, who have a long history of pragmatically choosing the least bad option, to conclude that it would be better to just keep Dilma and call the whole impeachment off.

What happens next?

It is unclear whether there will be enough votes for the impeachment to go through; consulting firm Eurasia Group places the chances at 60%. If Dilma is not impeached at this time, however, it may not be the end of the story. Other requests for her impeachment have been filed, this time alleging that she was trying to obstruct justice when she chose to appoint her mentor and predecessor Lula to a government ministry so as to shield him from prosecution.

More serious still, the Supreme Electoral Tribunal is currently evaluating allegations that her reelection campaign illegally received dirty money from Petrobras. If they find evidence of this, it would be grounds to annul her and her Vice President’s victory and call for new elections. Given the lack of support for Dilma, Temer and Cunha, this may be the best possible outcome at this time. Indeed, many are calling for snap elections to be held anyway (this would require an amendment to the constitution).

Who would make a credible presidential candidate in the case of new elections, however, remains a mystery, given that so much of the political establishment has been accused of corruption, including many members of congress, sitting mayors and governors, and leaders of the opposition. There are no widely trusted or admired politicians in Brazil right now, so an unknown variable filling the political void might also be the riskiest outcome of all.