This is the first in a series of entries looking at what we can expect in 2013. Each weekday, a guest analyst will look at the key challenges facing a selected country – and what next year might hold in store.
By Paulo Sotero, Special to CNN
Editor’s note: Paulo Sotero is director of the Brazil Institute at the Woodrow Wilson International Center for Scholars, in Washington D.C. The views expressed are his own.
In her first two years as Brazil’s first female president, Dilma Rousseff did the improbable. A neophyte in elective politics seen by many as a mere extension of her revered predecessor and mentor, Luiz Inácio Lula da Silva, Rousseff is today more popular at home than her creator. Remarkably, she gained the trust of the Brazilian people while her economic team and policies lost investors’ confidence – GDP growth moved in the opposite direction of her approval rating, shrinking from 7.5 percent in 2010 to 2.7 percent in 2011, and somewhere around 1 percent this year.
Now Rousseff faces the impossible. She has vowed to accelerate growth to 4 percent in the coming year while insisting on the same set of policies that produced the disappointing results of the recent past, made evident by the announcement in late November of a paltry 0.6 percent of GDP expansion in the third quarter, way below government and market expectations. Experts are divided on whether the bad news will make her change course. There is little disagreement, however, that 2013 will be Rousseff’s moment of truth.
There is ample consensus among economists on what she needs to do to prove skeptics wrong a second time. Brazil’s investment ratio to GDP, currently around 19 percent, has to move to the 23 percent to 25 percent range achieved by neighboring countries like Chile, Peru and Colombia, and by Mexico, which are growing at 4.5 percent to 5 percent and proving that an adverse global scenario is no longer a good excuse for poor economic performance.
For investments to pick up, however, the Brazilian leader will have to deliver on her recent promise to be “pragmatic” and act fast to bridge the confidence gap she allowed to develop in her relationship with the private sector. The problem derives from what is perceived as both a style of governing that centralizes the decision making process in the president’s office, a faulty implementation capacity in key offices in Brasilia and a strategy excessively interventionist and dismissive of the interests of key players. This view is widely shared even among those who applaud Rousseff’s plans to lower financial and production costs in the economy and foster reforms and investments in crucial areas of infrastructure, such as ports, airports, highways, railways, mass transit systems in major metropolitan areas and electric power industry, as well as in the development of huge offshore reserves of oil and gas found five years ago.
Skeptics say that Rousseff’s dogmatic attitudes on economic policy and modest appetite for advice from others will prevent her from acting fast enough to restore investors’ confidence. She has, however, a powerful political incentive to do so and preserve the strong position she built in the first half of her administration to run successfully for a second term in October 2014. Her standing as heavily favored candidate for reelection is bound to deteriorate if bad economic news, including growing inflationary pressures, spills over the job market and alters the low unemployment that has underlined her popularity among voters, despite declining growth.
Rousseff knows she will face strong competition from within her own political base if she falters. As The Economist noted, he governor of the state of Pernambuco, Eduardo Campos, a popular 48-year-old president of the Brazilian Socialist Party, and a rising star seen as a potential challenger in 2014, is already making speeches that echo private sector criticism of Rousseff’s treatment of investors. Symptomatically, last week’s call by The Economist for the dismissal of Finance Minister Guido Mantega caused consternation among officials close to Rousseff because it has apparently forced the president to postpone plans to do precisely what the magazine recommended and demonstrate she will do whatever is necessary to deliver on her promise of substantial, stable and sustainable economic growth.
Yet although there are reasons for concern about the Brazilian president’s ability to perform as the “good manager” she was proclaimed to be, her track record of acting decisively on difficult issues and surprise both supporters and opponents cannot be dismissed. The no-nonsense attitude she exhibited in the face of repeated corruption scandals involving the hierarchy of the Workers Party, or PT, has contributed to endearing Rousseff to the Brazilian people – she forced out no less than six ministers she inherited from Lula after they were accused of ethics violations. As senior PT politicians and operatives closely associated with Lula were found guilty and sentenced to jail terms by the federal Supreme Court on various counts of corruption, she ignored calls from her fellow petistas to denounce the trial as a politically motivated vendetta orchestrated by the media and conservative forces. She said in an interview that her role as head of the executive power was to acknowledge and respect the court’s verdict.
Leaving no doubt about her attitude on political corruption, in late November she fired six officials, including the chief of staff of the president’s office in São Paulo, described in media reports as an “intimate friend” of Lula, after a Federal Police investigation implicated board members of regulatory agencies and a senior adviser to the attorney general in a scheme of fabricating and selling auditing reports. Equally noticeable, Rousseff has consistently distanced herself from her party’s calls for “democratization of the media.”
An inward looking president by temperament and necessity, especially when compared to the globe-trotting and charismatic Lula, the Brazilian leader will likely continue to be selective on the foreign policy front and focus her attention particularly on issues related to regional stability and global economic policies that affect Brazilian interests. Converging interests between Brazil and the United States in reviving economic growth, improving infrastructure, education and innovation, as well as the growing expansion of Brazilian and American global companies operating in both countries, is emerging as a powerful driver for a more engaged relationship with the United States during president Barack Obama’s second term.
The desire Rousseff showed to pay a visit to the White House early in 2013, when she called to congratulate Obama for his reelection in November, was seen as an early sign of a more productive dialogue with Washington. This will be particularly so if the Brazilian leader proves the skeptics wrong and does what reason and commonsense recommend to bring investments back and put Brazil back on the track of strong economic growth.