Rousseff takes over booming Brazil

When Dilma Rousseff is sworn in on Saturday as Brazil’s next president, she will take the reins of an emerging giant with a booming economy, vast new oil reserves and growing international diplomatic clout.

But for Brazil to remain one of the world’s hot spots, the former Marxist guerrilla must trim a costly state budget, cut red tape and contain a currency rally that is harming industry.

As a trained economist and efficient manager, the first woman to become Brazil’s president has more theoretical than practical know-how. Her biggest challenge will be to sell unpopular measures, such as spending cuts and wage caps, to voters whose lives have improved considerably in the last decade.

More than 20-million people emerged from poverty thanks to economic growth and innovative social welfare policies under President Luiz Inácio Lula da Silva. Salaries are up, unemployment is at a record low, and a growing middle class is buying cars and TVs at a break-neck pace.

Rousseff, who appointed an experienced and respected economic team, will maintain the mostly market-friendly policies that put Brazil on investor radar screens.

When her motorcade passes Brasilia’s modernist government buildings in a convertible 1953 Rolls Royce flanked by female security guards, many Brazilians will be there to salute their outgoing, not their incoming president.

Rousseff owes her October election victory to the backing of her mentor, Lula, who leaves office with a sky-high approval rating of nearly 90%.

Lula’s charisma and popularity were fundamental for the former union leader to master volatile support in Congress and weather a series of corruption scandals, one of which brought him to the brink of impeachment proceedings in 2005.

Rousseff, a wonkish technocrat whose speeches often become bogged down in numbers, will require much skill and backing to deal with often unruly political allies.

“The question is whether she has the courage and support to stand up to vested interest,” said Pedro Simon, Senator for the PMDB party, the largest in Rousseff’s coalition.
“There’s already an army of scoundrels wanting the victory spoiled.”

One of the first tests of her 10-party coalition will be a major tax overhaul she plans to send to Congress early on.

Rousseff will also have to rein in inflationary public spending and cut taxes that are the highest of any major emerging market and are choking business.

The global currency war, which is undermining domestic industries with cheap Chinese imports, will test the closer ties Lula has forged with Beijing and other BRIC countries.

Beyond short-term solutions to the currency issue, such as capital restrictions and tariff barriers, Rousseff faces a long list of challenges. Chief among them: Upgrading decrepit roads and ports, and slashing Brazil’s notorious bureaucracy and double-digit interest rates.

Heavy hand
Lula’s former chief of staff and energy minister will wield a heavy government hand in several sectors of the economy, particularly the oil industry. Developing vast, new offshore oil reserves spells huge opportunities for more wealth and jobs but risks sidelining private capital and technology.

So far, Rousseff has shown little interest in cutting costly pension benefits, relaxing rigid labor laws or reducing the size of the state—all seen as key if Brazil is to keep growing at a rapid pace.

Given the many demands at home, she is likely to take a lower international profile and avoid tackling political hot potatoes like Lula did when he angered Washington with mediation efforts over Iran’s nuclear programme.

Rousseff has signalled she wants to warm ties with the United States and has distanced herself from Iran, harshly criticising Tehran’s human rights record.

Washington will be one of her first foreign destinations, a a close aide said this week, and US Secretary of State Hillary Clinton is among the 31 foreign dignitaries attending the inauguration ceremony.

“With Rousseff, foreign policy will be less ideological, more pragmatic,” said Alcides Costa Vaz, professor of international relations at the University of Brasilia.

“Brazil will continue to strive for a bigger role on the world stage but will be more aware of its limitations.” - Reuters

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