A million-plus protesters in the streets and a 13 percent approval rating tend to concentrate a politician’s mind. Brazilian President Dilma Rousseff’s proposed anti-corruption legislation will help her contain the damage of a bribery and kickback investigation, but a better
A million-plus protesters in the streets and a 13 percent approval rating tend to concentrate a politician’s mind. Brazilian President Dilma Rousseff’s proposed anti-corruption legislation will help her contain the damage of a bribery and kickback investigation, but a better response would be simply to get out of the way of Brazil’s finance minister, Joaquim Levy.
That’s because Rousseff’s central challenge is not merely the Petrobras scandal, which has implicated scores of politicians and executives at the state-owned oil company. It is also restoring public confidence in her ability to manage Brazil’s economy and budget.
Brazil’s economy is expected to shrink by 0.8 percent this year. Inflation is the highest in more than a decade. Unemployment is expected to reach a four-year high this year. Plunging oil prices, meanwhile, have cut government revenues, election-year promises have raised the fiscal deficit, and public debt has risen above 60 percent of gross domestic product.
Even before the Petrobras scandal began to gush, Rousseff was facing political troubles. Re-elected by a slim 3 percent margin, her coalition’s majority in the lower house is increasingly fractious. Arguing for austerity measures in such a toxic environment wouldn’t be easy for any leader — especially when those measures fly against campaign promises and alienate core supporters.
That’s where Levy comes in. A former economist for the International Monetary Fund with a Ph.D. from the University of Chicago who served as treasury secretary for Rousseff’s predecessor, Levy earned the nickname “Scissorhands” for his cost-cutting ways. In an effort to restore investor confidence and keep credit-rating agencies from dropping Brazil’s debt to junk status, he has proposed a mix of tax increases and budget cuts. It helps that Brazil’s fiscal and monetary policies are now in sync, with the central bank having raised its benchmark rate to 12.75 percent to tame inflation. And many of Levy’s proposed measures can go into effect without congressional approval.
Yet it’s not as if Rousseff has become a committed austerian and abandoned her statist ways, or Brazil’s legislators have given up on spending. One looming vote threatens to extend an adjustment in Brazil’s minimum-wage policies to its already generous pensions, a giveaway that could blow a hole in Levy’s plans to build up a budget surplus.
Rousseff needs to back Levy to the hilt. She could also take the initiative herself. For instance, her administration could make contracts to build and maintain ports, bridges and highways more attractive to private investors — one way to beat the funding shortfall and improve roads that by one measure are worse than those of Bangladesh. And it could lower tariffs and expand trade and economic cooperation with the European Union and the U.S. — as Levy just pledged to do in a meeting with U.S. officials.
Fueled by a commodities boom, Brazil’s proverbial seven years of plenty have ended in a black, oily cloud of venality and corruption. Better laws and enforcement can help make another Petrobras scandal less likely. More disciplined and farsighted fiscal policy can ensure that the scandal’s economic fallout doesn’t erase Brazil’s gains over the last decade.
— Bloomberg View
