Is Rousseff ready for round two?
The narrow election victory of Dilma Rousseff, Brazil ’s embattled president, led to a decline in the local stock market and currency as investors, who have been betting on a change in leadership in recent months, cashed in their chips.
The Ibovespa, t he local equit y index, dropped as much as 6% before recovering slightly, closing 2.8% lower on 27 October. Brazil’s real weakened more than 2% against the dollar to its lowest level in nine years. While t he currency recovered somewhat on 28 October, Credit Suisse, in a note to clients, warned a further weakening is likely in the short term.
Rousseff, who won with a margin of 3.3 percentage points, the narrowest el e c t i on vi c t or y in Brazil in more than a century, faces major challenges in her second term. These include the need to push critical reforms to regain private-sector confidence, containing i nf l at ion and lifting infrastructure spending through higher domestic savings, Credit Suisse said.
In her second term, Rousseff will have to deal with a “more fragmented Congress, potential repercussions of corruption scandals, weak economic growth momentum and external headwinds, including struggling commodity prices and a stronger US dollar”, it said.
In her victor y speech, Rousseff promised dialogue and political reform, including a change in campaign financing and greater representation for women. However, critics pointed out that similar promises made by her last year, after more than a million Brazilians took to the streets to protest against police brutality, poor service delivery and corruption, came to naught after Congress blocked her attempts at reform.
With an economy i n recession and slowing growth in China, a key destination for Brazil ’s commodities, investors and many Brazilians were hoping for an end to the nearly 12-year reign of the Workers’ Party. The economy is expected to grow by only 0.3% this year and 1.4% in 2015, according to the International Monetary Fund – a far cry from the 7.5% growth achieved in 2010.
In one attempt to placate the markets, the resignation of Brazil’s finance minister Guido Mantega, who is leaving after eight years, was announced. His replacement will send a strong signal to investors on whether Brazil will become more business-friendly.
While Rousseff’s Workers’ Party made significant inroads in relieving poverty by raising the minimum wage, creating jobs and expanding social services like health and education since Lula da Silva was elected president in 2003, Brazil remains the most unequal country in the world. The party also hasn’t been able to clamp down on corruption, with officials obtaining a court interdict to prevent the large-scale distribution of an article before the elections on how it and its allies allegedly benefitted from kickbacks from state-owned oil company Petrobas.
With business confidence at its lowest levels in a decade, weak international and domestic demand and debt ratings close to junk status, Rousseff has much to fix. Most challenging may be to unite the country after a bitterly divisive election campaign, which also saw the death of presidential candidate Eduardo Campos in a plane crash in August. Campos broke from the Workers Party’s governing coalition last year.