President Obama welcomes his Brazilian counterpart Dilma Rousseff to Washington in the wake of bad news back home, wrought by statist policies that have smothered the country’s potential: projected inflation of 9% and a forecast economic recession of about -1.5% this year. Rousseff also is facing a political crisis generating doubts about her ability to govern, mere months into her second four-year term. Her approval rating in a recent poll was at 10%, and her allies in an unruly Congress are bucking her leadership.
Rousseff’s ruling Workers’ Party (PT) is at the center of a kickback scandal involving the state-run oil company Petrobras and other Brazilian multinationals. The investigation has yet to directly implicate Rousseff or her predecessor, Luis Inácio “Lula” da Silva. However, the arrest of the PT’s treasurer along with the recent detention of one of the country’s most powerful corporate executives (head of the construction giant, Odebrecht), suggest that the investigation is aggressive and independent.
Presidential-level engagement has been missing since Lula and his US counterpart, George W. Bush, left office. And it appears that President Obama is seeking to jump-start a dialogue at an awkward time for Rousseff.
My recent paper reviewing conditions in Latin America makes the following key points on Brazil: Read the full report.
Brazil is suffering from economic malaise and a governance crisis that undermines the region’s prospects. This predicament is the legacy of leaders who relied on costly statist policies and protectionism and refused to retool their economy to make it more competitive and attractive to investment.
Even before her narrow victory last October, most Brazilians questioned whether Rousseff’s policies could jump-start economic growth and address the nation’s social and economic challenges. According to a poll taken in March, 62% of those interviewed rated Rousseff’s government as “bad” or “terrible,” while only 13% considered the government “great” or “good.”
Jump-starting economic growth and the productivity of Petrobras will take time and considerable effort. With Brazil’s vast natural resources, a regimen of overdue reforms should eventually get the economy growing again. However, scandal-ridden politics, a fractious Congress, and the president’s plummeting approval ratings may make it difficult for her new team to get traction in a second term.
Nothing is more important to both countries than a healthy private sector–led dialogue, which can shape a practical agenda for jump-starting reforms to make them more globally competitive through cooperation with one another. Both countries (among others in the region) stand to benefit from an industry dialogue on what it will take to develop more productive energy sectors and attract essential capital and technology.
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