Analysis: Rousseff to take charge of Brazil - but gently
SAO PAULO |
SAO PAULO (Reuters) - Dilma Rousseff faces a tricky balancing act on economic policy when she becomes president of Brazil on Saturday: to show she's in charge, yet avoid scaring off skeptics who worry she'll unduly expand the state's role.
Brazil's economy continues to outperform most of the world, but it also poses a laundry list of challenges that will command Rousseff's immediate attention, from rising inflation to an overvalued exchange rate and fiscal accounts that became badly bloated in 2010.
Rousseff, a trained economist who had never run for elected office until this year, still has to prove to many Wall Street investors and her own countrymen that she has the technical and political skill to address those issues.
Yet if she is perceived as taking too active a role in areas such as monetary policy and the allocation of credit from state-run banks, she risks fueling lingering perceptions that she will govern further to the left than her predecessor, the hugely popular President Luiz Inacio Lula da Silva.
The upshot: She has to look strong. But not too strong.
"It's a fine line," said Oliver Leyland, an equity portfolio manager for Mirae Asset in Sao Paulo.
"She's under pressure to be favorable toward the investment community, and show the heavy hand of government isn't too heavy. Otherwise there's a risk of going backwards right at the point when Brazil really needs a lot of investment for various reasons," Leyland said.
Those reasons vary, from Brazil's large current account deficit to its need to finance major investments in infrastructure as its economy grows and it prepares to host the 2014 World Cup and 2016 Olympic Games.
Rousseff, Lula's former chief of staff, has accumulated a certain degree of investor goodwill by surrounding herself with an economic team of respected technocrats including former Finance Minister Antonio Palocci, an architect of prosperity under Lula's government who will be her chief of staff.
Thanks largely to stable macroeconomic management and a boom in consumer credit, the economy is expected to grow more than 7 percent in 2010, continuing a recent trend that has lifted more than 20 million Brazilians from poverty in the last decade and afforded Brazil a place among the emerging-market elite that also includes Russia, India and China.
Yet the economy will almost certainly cool off in 2011 to a more moderate pace of growth of around 4 to 5 percent. And the hangover from this year's strong growth could take the form of increased defaults on consumer loans or the need to increase interest rates more than expected.
Rousseff "feels like she has been given a very good economic situation, but she knows that there will be challenges ... (and) people will be watching her," a source close to the president-elect told Reuters.
WINNING OVER DOUBTERS
One early test of whether Rousseff can show leadership behind the scenes could come on monetary policy.
Investors widely expect that the central bank will raise interest rates from their current level of 10.75 percent at its next policy meeting on January 18-19, which will be the first for new Central Bank President Alexandre Tombini.
But Finance Minister Guido Mantega, who will continue in his post under Rousseff, has repeatedly said in recent months that core inflation is under control and that upcoming fiscal cuts should reduce the need for interest rate increases.
Those messages have created the perception among some investors that the finance ministry and central bank are not on the same page -- and that Rousseff may need to quietly intervene.
"There's a weird feeling surrounding monetary policy right now," said Andre Guilherme Pereira Perfeito, an economist at Gradual Investimentos in Sao Paulo.
"The relationship (between the finance ministry and central bank) will need to be mediated, and only the president can do that ... But, of course, it has to be subtle, because she also has to avoid the perception that she's influencing monetary policy."
The central bank has no legal autonomy but in practice decides monetary policy without political interference.
Pereira said that successfully navigating such challenges will help Rousseff win over "people who think that she could do stupid things" -- a legacy, he said, of investor mistrust of her and Lula's Workers' Party, which had its origins in leftist dogma and labor union movements in the 1980s.
Lula eventually won over investors by brandishing his market-friendly credentials through tough spending cuts early in his government. Rousseff, under pressure as Brazil looks set to miss its main deficit target in 2010, is expected to repeat that act after Mantega said in November that she had asked for a "heavy hand" to rein in spending.
"I'm optimistic," Pereira said. "The problems she faces are unusual for Brazil in that usually a new president has to deal with a financial crisis. But Brazil is growing. This is good."
(Editing by Todd Benson and W Simon )
- Tweet this
- Share this
- Digg this