Monday, October 27, 2014

Divided Brasil Awaits Rousseff After Poll Win

ctober 27, 2014 5:24 am

Divided Brazil awaits Rousseff after poll win

The scene on Avenida Paulista, São Paulo’s main thoroughfare, after the second-round runoff of Brazil’s presidential election on Sunday was akin to the 2014 World Cup final celebrations that the country never had.
“Ole, Ole, Ole, Ole, Dilma, Dilma,” chanted militant supporters of Brazil’s incumbent president Dilma Rousseff and her centre-left Workers’ party, or PT, after she won a second term on Sunday against opposition candidate Aécio Neves of the pro-business PSDB.
There were some brusque exchanges with opposition supporters but no violence. “Hey playboy, Lula is our hero,” the crowds chanted, referring to a description by former president Luiz Inácio Lula da Silva of Mr Neves as a spoiled rich kid.
But the celebrations are likely to be shortlived. Brazil has emerged from the closest and most bitterly fought election in a generation to find a nation more divided, an economy on life support and a deepening corruption scandal afflicting its biggest company, state oil group Petrobras.
During the campaign, Ms Rousseff and Mr Lula da Silva swung the PT to the left, using the party’s formidable political marketing machinery to paint their adversaries, Mr Neves and third-placed opposition leader, former environmentalist Marina Silva, as out-of-touch representatives of the rich who would do away with social welfare benefits and jobs. Mr Neves, meanwhile, counter-attacked by alleging that the PT was intent on a “project of power” aimed at keeping it in office indefinitely.
“The heat liberated in this dispute should be transformed into constructive energy for this new moment for Brazil,” Ms Rousseff said in her victory speech.
Ms Rousseff won the election with 51.64 per cent of the valid vote compared with 48.36 per cent for Mr Neves, one of the closest margins in recent memory in a country in which the incumbent president normally wins by a convincing majority.
Abstentions were also high at 21 per cent of votes, indicating a strong protest element in the election. The vote split the nation geographically.
Ms Rousseff swept most of the north and northeast, the regions with the highest number of poor families enrolled in the PT’s social welfare programmes, but lost in the richer south and southeast with the exception of Minas Gerais, the home base of Mr Neves, and Rio de Janeiro.
Analysts said the narrow margin, which comes as the PT also lost seats in the Congress during elections held simultaneously with the presidential vote, would lessen Ms Rousseff’s room for manoeuvre during her second term compared with her first.
In addition, the scandal at Petrobras, in which the ruling coalition is accused of taking kickbacks for contracts, will sap the energy of her government. Suspects in the case allege the involvement of scores of politicians. The PT denies wrongdoing but the case is set to drag on throughout her second term.
“She is going to be politically weak,” said João Augusto de Castro Neves of Eurasia Group.
Ms Rousseff’s first challenge will be to choose a replacement for Guido Mantega, her finance minister. After repeatedly promising growth of 4 per cent a year, Ms Rousseff and Mr Mantega over the past four years have delivered the lowest rates of growth since the early 1990s coupled with persistent inflation.
Their intervention to control fuel and energy prices, the currency and interest rates has alienated markets, which shed their gains last week once it became clear Mr Neves might lose. The most immediate concern is that fiscal stimulus is failing to produce growth while undermining Brazil’s investment-grade credit rating.
“Let us allocate more resources to economic activity in all sectors especially the industrial sector,” Ms Rousseff said in her victory speech. “We want a partnership with all productive and financial sectors.”
Rumoured candidates for finance minister include senior minister Aloizio Mercadante, Nelson Barbosa, former finance secretary, and Luciano Coutinho, head of the BNDES development bank.
“Dilma Rousseff doesn’t have any time to waste,” said Andre Guilherme Pereira Perfeito of Gradual Investimentos. “She really needs right now to make bridges, to make contacts with the market.”
The market’s main fear is that having won re-election, Ms Rousseff will double down on her bet on the command-and-control economic policies of her first term, stepping up credit from state banks to try to counter slowing growth.
But analysts say she will have no choice but to make some adjustments as Brazil’s growing current account deficit weakens its currency, the fiscal deficit widens and inflation threatens to break out beyond the control of the central bank.
“Brazil needs to shift from a consumption-led model of growth to one that is driven by higher rates of investment and saving,” said Neil Shearing of Capital Economics.
The lack of growth will hit the PT where it hurts most by forcing companies to begin lay-offs, thus ending record-low unemployment, the one economic bright spot that helped Ms Rousseff win the election.
“Reality will impose itself at some point, forcing her to make some changes,” Mr Castro Neves of Eurasia Group said. “More of the same won’t do.”