Brazil’s Rousseff Threatens to Lose Key Ally

The Brazilian Democratic Movement Party, the largest in the ruling coalition, is reportedly preparing to walk out.

Brazilian president Dilma Rousseff’s main coalition partner is preparing to leave the government and field a presidential candidate of its own for the first time in years, a newspaper reported on Friday.

Valor Econômico, the country’s largest financial daily, said the Brazilian Democratic Movement Party (PMDB) will depart from the ruling coalition in November when it holds its national congress.

Without the PMDB, Rousseff’s Workers’ Party would struggle to find a majority in Congress. It currently rules in coalition with an array of left-wing parties.

Although it lacks a coherent ideology and exists rather to serve the interests of regional bosses and constituencies, the PMDB is the perennial kingmaker in Brazilian politics. Rather than seek the presidency itself, it has backed Social Democratic Party leaders before switching its support to the Workers’ Party in 2002. In return, it has won control of both houses of Congress and the vice presidency.

In recent months, Vice President Michel Temer has led efforts to push austerity legislation through Congress to reduce a 6.7 percent deficit that has put Brazil’s investment grade credit rating at risk.

But his own party has stymied liberal economic reforms that would boost Brazil’s competitiveness and delayed attempts to trim workers’ benefits.

Banks are forecasting economic contraction into 2016, making this the first time Brazil’s economy would shrink in back-to-back years since the Great Depression.

The downturn owes much to Rousseff’s reluctance to liberalize the world’s seventh largest economy in the boom years when her government used the proceeds from rising commodities exports to Asia to finance social spending instead.

Now budget cuts threaten to depress consumer confidence at a time when ordinary Brazilians are also facing higher electricity taxes and rising prices. Inflation has surged to 9.5 percent, up from 6 percent last year when Rousseff was narrowly elected to a second term.

Opinion polls show two in three Brazilians want to see Rousseff impeached because of the downturn and a massive corruption scandal over political kickbacks on contracts with state-controlled enterprises.

Over 600,000 people protested in Brazil’s major cities last week, according to police. In March, 1.7 million took to the streets when graft at the state oil company Petrobras was revealed. More than thirty lawmakers, many from Rousseff’s Workers’ Party, are under investigation for their role in the scandal.