Is Dilma Getting Brazil Back on Track?

Nearly six months into her second term, Brazilian president Dilma Rousseff is facing a daunting moment.

Recent years saw the expansion of Brazil’s middle class, as millions of the country’s citizens were lifted out of poverty—dramatically growing the consumer base and boosting the economy. But the economy, which grew nearly 8 percent in 2010, grew just 0.1 percent last year. And further reductions in taxes to prompt consumption won’t cut it anymore—especially not with the looming government deficit.

The international economic environment has weighed heavily on Brazil, too. China, the biggest importer of Brazilian goods, is seeing a major slowdown in consumption. Commodity prices (especially of soybeans, iron ore, and oil) are falling. Other emerging economies like India and Russia are feeling the strain, too, as all tighten their belts.

As these economic challenges developed, Brazilians took to the streets: first to protest increasing bus fares that would disproportionately impact the lower class; then to object to massive spending on last year’s World Cup; and most recently in response to a far-reaching corruption scandal involving state-run oil company Petrobras and implicating officials across the Brazilian government.

So did Dilma get the message?

Apparently, it’s coming through loud and clear.

Though Brazil’s economy is far from healed, Dilma has taken some important steps to help put it back on track.

Perhaps the biggest was her nomination of Joaquim Levy as minister of finance for her second term. In his first six months in that role, Levy has successfully kept Brazil’s investment grade from fluctuating and prevented the further deterioration of the economy.

Dilma’s efforts go beyond her cabinet, too. She’s enacted significant budget cuts, eliminating US$25 billion from discretionary government spending, she’s cut welfare spending, and she’s raised US$9 billion in taxes. The Central Bank has raised interest rates to almost 14 percent to fight climbing inflation, currently hovering just over 8 percent.

Not all of these measures have been met with popular support. But they’re an important (and much needed) step to help get Brazil back on track—and they help to ensure that Dilma won’t be remembered as a president who failed to take action in the face of challenges.

They’re only that, though: a first step. There’s a lot left to do before Dilma can be lauded for her reforms aimed to revitalize Brazil.

Earlier this month, Dilma announced an infrastructure plan to help Brazil solve the issues that limit its export expansion. By focusing on highways, railroads, ports, and airports, the plan could help shift Brazil’s trade balance and stabilize its foreign currency reserves. It’s on the right track—but its implementation is key.

Next in line is reform of Brazil’s confusing and, at times, burdensome tax system. Resolving the ongoing “tax wars” among Brazil’s 26 states would open up opportunities for investment and business cooperation.

Brazil is overdue in developing a meaningful outward-looking trade policy, as well. By embracing a more trade-friendly agenda, Dilma could help to accelerate the country’s much-needed boost in international competitiveness.

And finally, Brazil’s ability to mend ties with the United States would be a strong signal as well—not to mention a powerful opportunity to boost Brazil’s economic performance. And it seems like some degree of increased cooperation may be in store: next week, Dilma travels to Washington to meet with President Obama. Speculation and expectations are high on what that trip will mean for the future of the bilateral relationship—particularly on the commercial side. In short, building a strong and reliable partnership with the White House could be exactly the opportunity Dilma is looking for.

Brazil has seen better times. But the country has seen worse ones, too. Dilma has yet to come through on her promises to revitalize the Brazilian economy, but she’s begun the tough process of reform, even when those reforms spark political backlash at home.

She’s not there yet—far from it. But the steps she’s taken, particularly in the tough political context she’s facing, are a positive signal of Dilma’s willingness to make hard choices when it comes to Brazil’s future.

If she can translate that mentality to next week’s meetings at the White House, Brazil’s future just might be brighter than ever.

Carl Meacham is director of the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2015 by the Center for Strategic and International Studies. All rights reserved.