Brazil’s Rousseff Stays the Course With “Stimulus”

Fears that the president will repeat the mistakes of her predecessors are unfounded.

When Brazil’s president Dilma Rousseff announced an economic stimulus program on Wednesday, observers of the country may have fretted that she was repeating the mistakes of so many Latin American policymakers in sacrificing long-term economic stability to short-term growth. The details of the program suggest that she is staying the course.

The Brazilian government will seek to lure $66 billion in private-sector investment in infrastructure to double the capacity of the nation’s rails and highways, said transportation minister Paulo Sérgio Passos.

There will be favorable loan terms from the state development bank, not simply handouts nor investments financed by printing money. Indeed, Rousseff previously criticized the “monetary tsunami” that Western central banks had unleashed upon the world with their expansionary policies.

Because much of global trade, particularly in basic commodities such as food and fuel, is denominated in American dollars, the currency devaluation that has come as a result of the Federal Reserve’s two rounds of “quantitative easing” has increased the cost of living around the world. Developing countries like Brazil are hit especially hard.

Infrastructure improvements are necessary before Brazil hosts the 2014 soccer World Cup and 2016 Summer Olympics. More importantly, they are needed if Brazil is to benefit to the fullest extent from rising Asian demand for agricultural products.

Asian corn consumption is expected to increase by roughly 25 percent this decade which will be a huge boon to exporters in the Americas, including Argentina, Brazil and the United States which between them constitute almost a third of global corn production.

International beef, pork and soybean trade will likely expand by a similar factor, again benefiting Latin American producers. Brazil currently provides 40 percent of global beef and 15 percent of pork exports and it dominates the sugar market, accounting for 60 percent of the market.

There are potential pitfalls in Rousseff’s stimulus policy. There is the risk of crony capitalism: the state investment bank doling out loans to favored companies. Obtaining environmental permits to construct new roads and expand air- and seaports can take years and involves a process that is prone to corruption. The mix of high taxes, infrastructure woes and red tape even has an unfriendly moniker: the “Brazil cost” of doing business. Rooting it out demands a more comprehensive effort on the part of lawmakers who often owe their seats to the very cronyism that has hindered Brazil’s development for decades.

The Rousseff Administration has taken steps to ease the cost of doing business, including tax breaks for targeted industries, but the economy has been slow to react.

The president’s popularity doesn’t appear affected by the slowdown. A Datafolha poll released on Tuesday found 62 percent of those surveyed describing Rousseff’s government as either “good” or “excellent.” That should give her ample leverage to continue her fight to stamp out graft in the ruling 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.

She still has two years before the end of her first term however and could very well run again. If Rousseff isn’t distracted by disappointing growth numbers nor discouraged by opposition to her political and market reform efforts, Brazil could yet be the land of the future it has so long aspired to be.