Brazil’s life after Lula

The new president will have to grapple with a slowing
economy and unpaid bills.

Jordan Timm 0

Dilma Rouseff, Brazil’s president-elect. (Photo: Song Weiwei/Xinhua Press/Corbis)

“The last time there was a series of competitive devaluations … it ended in World War II,” Brazil’s president-elect Dilma Rousseff said before her maiden appearance at the G20. At a joint press conference with outgoing president Luiz In??cio Lula da Silva, Rousseff — still fresh from her Oct. 31 electoral victory — reiterated the Lula administration’s line that Asian central banks’ suppression of the value of their currencies was causing an “international currency war.”

Continuity seems to be most of what Rousseff — Lula’s handpicked successor — is offering. Lula leaves office on Dec. 31, his legacy as a transformative figure in Brazilian history all but assured thanks to massive social programs like the Bolsa Familia that have lifted millions out of poverty, the securing of the 2014 FIFA World Cup and the 2016 Olympics, and a rapidly growing economy that’s expected to become the world’s fifth largest in the next six years and pay for it all. But as Brazil seeks to keep its economic momentum going, and begins to define its ambitions on the global stage in measure with its new-found clout, some question whether the 62-year-old Rousseff will be able to handle what’s heading her way.

“She doesn’t have Lula’s charisma. She doesn’t have his connection,” says University of British Columbia political science professor Maxwell Cameron. “There’s a trust and faith between Lula and the masses that is undisputable. It’s not clear that she’ll be as successful at navigating the complexities of Brazilian politics.”

And though she’s vowed to continue Lula’s policies, other aspects of the country’s heavy government spending may soon need addressing in unpopular ways if those policies are to be sustainable. “Their social security system is clearly bloated, and they’ve got a heavy-duty bureaucracy that needs to be cut,” says BMO Capital Markets’s global foreign-currency and public-policy strategist Andrew Busch. While Brazil’s real GDP growth rate is expected to be 7.5% this year, the International Monetary Fund expects that to drop nearer to 4% for 2011. At the same time, consumer prices will rise about 5%. “Their tax receipts are going to be down, so they’re going to be challenged rather quickly,” Busch says. “Their numbers aren’t so bad, but to continue those policies without enacting a relatively strong fiscal austerity program is going to cause problems.”

And though the country has become a friendlier arena for foreign business, it’s still a complicated and expensive one, thanks to an abundance of regulation and legal employment protections, and a Byzantine tax system. Ray Castelli, CEO of Weatherhaven, a Vancouver-based portable shelter manufacturer with a Brazilian operation, says that a strong tariff wall makes it hard for foreign industries to penetrate the country. “It’s going to have to become a two-way street. If they want free access to foreign markets, I think there’s an expectation that they’re going to have to reciprocate.”

Meanwhile, the rumblings about currency wars — the real has risen nearly 40% against the U.S. dollar since last January — may represent just the first stirrings of a Brazil that’s newly imposing on the geopolitical stage. The question is whether its new president has the capacity to harness its economic might and deliver results for her country. Lula stood shoulder-to-shoulder with her at the pre-G20 presser as they vowed to fight together for Brazilian interests. “They’ll have to face two of us this time!” he announced. But soon enough, Rousseff will have to stand alone.

Leave a comment

Your email address will not be published. Required fields are marked *