Chaos in Brazil likely far from over after cabinet post for former president Lula

In the wake of record demonstrations against her government and charges of money laundering against her ally, Brazilian President Dilma Rousseff could have chosen to distance herself from her former mentor. Instead, she doubled down.

• Millions in Brazil take to the streets for demonstrations
• Brazil's former president questioned in corruption probe
• Lula detention may be last straw for Brazil's current government

Prosecutors are hoping to arrest former president Luiz Inácio Lula de Silva for his alleged involvement in a multi-billion-dollar kickback scandal. The charges have been sent to — but not yet approved by — a federal judge.

But instead of going to jail, the once-immensely popular Lula is headed to a post in Rousseff's cabinet as chief of staff, where he'll be immune from prosecution in almost every court. Under Brazilian law, only the country's supreme court can authorize the investigation, imprisonment and trial of cabinet members.

Shortly after Lula was sworn in on Thursday, a judge issued an injunction against his appointment. The government can appeal to a higher court, but such a move would likely only make tensions worse.

Opponents claim the appointment goes beyond mere loyalty and that Rousseff is only trying to protect herself because they're both implicated in the scandal. Rousseff's supporters claim Lula's appointment is meant to help save the country from the economic and political crisis. But some experts fear this move will only hasten Brazil's downfall — a trajectory that began more than a decade ago.

"The government thought it would be rich now, so it could no longer be constrained by fiscal responsibility, could keep spending without limit, without responsible orientation," says Carlos Pereira, a political analyst with the Getulio Vargas Foundation in Rio de Janeiro. "All those aspects somehow diverted Brazil from the right track. And Brazil started spending much more than it could do, and we got in this wrong direction and the economy became completely unsustainable."

In the early 2000s, it was as though Brazil had won the lottery. Oil and commodity prices were high. The country was flush with cash. So the government spent lavishly and successfully bid for the World Cup and the Olympics. Now oil and commodity prices have plummeted. And so has the Brazilian economy.

"The problem with these lotteries is that they come to an end," says Carol Wise, a professor with the School of International Relations at the University of Southern California who writes extensively on Brazilian politics.

She says the government had a 10-year window to invest in reforms that could have transformed the country into the fully developed nation it aspired to be.

"They did not keep their eye on the prize; they really lost sight of a lot of reforms that now are absolutely essential to the economy growing again. And these are really simple things like starting a business, getting a contract approved through the bureaucracy, transparency, effectiveness of government — all of these sort of basic things for securing investment — investment drives growth, etc.

"And in the case of Brazil, you can see that [they have] even gone backwards on some of these reforms."

More than a million Brazilians lost their jobs last year, some due to the scandal involving the state oil company Petrobras. Many officials and politicians have been swept up in the multi-billion-dollar corruption probe, most notably Lula. Now Petrobras stocks are practically worthless, Wise says, and that has affected the economy of the entire country.

"Brazil lost its only investment-grade rating as a country, and it's trading now on junk-bond markets."

As the Olympics get closer, Wise says the demonstrations will get even bigger. But experts are watching to not just to see how many are marching, but who is marching.

Walking through Sunday's protest in Rio, you'd notice almost immediately that nearly everyone is upper middle class. According to surveys conducted by Datafolha, more than three-quarters of the protesters in Sao Paulo were white, more than three-quarters were university graduates, and most were fairly well off. That demographic has always tended to oppose the left-leaning party that's been in power for the last four elections.

But Brazil's poor see things differently. In the favela of Santa Marta, one of Rio's least-developed slums, some people I spoke with hadn't even heard about the demonstrations.

"I don't have a TV," one woman told me. 
"I don't look for problems around, you know?"

Those facing the largest problems say they're too busy trying to make a living to get involved with the protests. But with Lula's appointment stirring discontent even among loyalists — analysts suggest more than two million Brazilians are expected to lose their jobs this year — that could change.