Brazil’s Rousseff Poised to Undertake Reform Effort

Although the pace of regulatory reforms has stalled, there is reason to be optimistic about the president’s efforts.

Brazil’s economy is expected to expand some 3 percent this year. Although inflation will likely remain over 5 percent, as long as demand in Asia is rising, the Latin American country’s commodity exports will fuel solid growth. Still, there is work to be done to make Brazil more competitive and its leader, Dilma Rousseff, is poised to do what it takes.

The left-wing president inherited the highest office from her predecessor and mentor Lula da Silva last year whose tenure was marked by high growth rates and an expansion of the Brazilian welfare state.

While Lula championed freer trade abroad, he made little effort to curb corruption and nepotism at home. The pace of regulatory reform slowed during his final years in office and has yet to regain traction under Rousseff’s leadership.

Starting or closing a business remains costly and time consuming while organizing new investment is inhibited by regulations that make it especially difficult for foreign companies to compete. Tariffs and anti-dumping measures are barriers to trade and excessive labor laws stifle employment and expansion. There’s a risk of “Dutch disease” if growth is taken for granted and politicians hesitate to challenge vested interests to improve market conditions.

Rousseff’s energy now appears focused toward stamping out graft in her Workers’ Party. The battle for transparency has cost the president several ministers already and tested her political allies in Congress. If she perseveres, Rousseff risks alienating local machines and left-wing voters who are used to extracting favors from the people they elect to office.

Still, there’s reason for optimism. Writes The Economist, “Many of her appointments would have seemed out of place under Lula.” Rousseff has replaced political appointees with technocrats at the top of government ministries and the state-owned oil company Petrobras.

With the reshuffle behind her, Ms Rousseff will now push on with her program. Though she has had little luck in Congress so far, she has proposed pension reform, rules to stop deforestation and a deal on dividing the proceeds from offshore oil between states and the federal government. And she is haranguing her cabinet on the use of performance targets and the importance of decent public services for voters on moderate incomes.

There will be opposition from coalition parties to a bolder reform effort but with the president’s approval rating hovering near 60 percent and as many as seven centrist and leftist parties represented in her cabinet, Rousseff can afford to ruffle some feathers.