Presidential candidate and current Brazilian president Dilma Roussef gives a press conference after a gathering with national olympic sportiest in Rio de Janeiro, Brazil, Tuesday, September 30, 2014. (Bloomberg Photo/ Dado Galdieri)
Presidential candidate and current Brazilian president Dilma Roussef gives a press conference after a gathering with national olympic sportiest in Rio de Janeiro, Brazil, Tuesday, September 30, 2014. (Bloomberg Photo/ Dado Galdieri)

Brazil’s Rousseff must cultivate a global presence

By Time of article published Nov 21, 2014

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BRAZILIAN President Dilma Rousseff’s administration must contend with a rapidly increasing budget gap. The Brazilian government may well run into real limits to its spending in the next couple of years.

Rousseff must focus efforts on eliminating obstacles that interfere with private investment. In order to win sustainable economic development and growth, she needs to find her global voice.

Share on Facebook, Twitter, Reddit, Linked-in and e-mail during late October indicated a slim majority of Brazilians chose to re-elect Rousseff, but it is not clear Brazil has decided how to move forward.

Most Brazilians are frustrated with the country’s sluggish economic growth during Rousseff’s first term. Many of her own supporters want the state to take more aggressive measures to reboot the economy during her second term.

Others, including supporters of her challenger Aécio Neves of the Brazilian Social Democratic Party, want to shrink the size of the state and further liberalise trade and investment policies in order to drive growth through expanding export markets and increases in foreign direct investment.

That at least is the path chosen half a world away by India’s new leader, Narendra Modi. Brazil cannot afford to do any less than India. Still, it is not clear that either policy model can overcome the headwinds Brazil faces from the global economic downturn. But try the country must, in particular with regard to inviting greater productive investment.

Managing the deteriorating conditions of the external sector would challenge any government. What makes this all the harder for Rousseff’s administration is that it must also contend with a rapidly increasing budget gap. It is larger now than at any time since the Workers Party took control of the federal government in 2003.

Rousseff and her policy team must prepare to brace against the perfect storm that could submerge her second term in economic failure. The consequences of that would be monumental: Most important, it would undermine the very social policies that have eliminated hunger and moved millions of Brazilians away from extreme poverty and bury Brasilia in turmoil.

In an effort to preserve the country’s social policies, Brazil’s governing coalition is unlikely to tack toward the deep fiscal consolidation advocated by the International Monetary Fund.

But government expenditures will need to be recalibrated so as to maximise immediate growth and create the conditions for continued public investments in education and infrastructure, as well as the “internationalisation” of Brazilian private firms.

Even so, the government may well run into real limits to its spending in the next couple of years. This makes private investment all the more important.

To weather the storm and neutralise speculative investment, the government this time around will hesitate to re-establish capital controls. It is more likely that Rousseff’s government, in co-ordination with the government banks, especially Brazilian Development Bank (BNDES), will intensify consultations with financial and industry leaders to increase investments and productivity. Brazilian industry must focus investments on greater workforce development and training, productive innovations and moving the industrial sector toward participation in higher valued-added global production chains.

These outcomes are possible during the last half of Rousseff’s second term, but they can only be achieved through dialogue, negotiation and joint planning. The players involved are her economic policy team, the bank BNDES, as well as private sector leaders committed to increasing private sector industrial investment.

Rousseff’s goal for her second term must be to reboot the economy and drive sustainable growth with a fiscally prudent mix of public investments, greater regulatory flexibility and private sector incentives. To achieve that, she must focus efforts on eliminating those obstacles that interfere with private investment as well as the transfer of technology.

This means that she must make Brazil’s opaque taxation and customs systems more transparent and efficient. Properly understood, measures such as this are not pro-capitalism and/or anti-poverty. They are key to strengthening Brazil’s economy.

Thus, Rousseff’s second term administration must drive through reforms that lessen the costs of doing business with an eye on the export prize.

Brazil’s recovery also depends upon the global economy. The president should focus the world’s attention on the pressing need to expand and deepen global demand for Brazilian commodities and industrial goods. Now that the skilled Brazilian diplomat Roberto Azevedo has taken over the reigns of the WTO, Rousseff must harness Brazil’s global political stature to refocus both the developed world and leading emerging economies on the benefits of multilateral trade liberalisation.

Rousseff needs to find her global voice. She will need to sing the praises of deeper global integration that aligns investment with comparative advantages. Her Workers Party’s government programme does not clearly propose greater global leadership for the Brazilian president or more global integration for its economy.

To succeed, Rousseff will need to rewrite the existing script. She has to advance a foreign policy that advances the country’s economic and political interests with a dual focus – Brazil contributing more to the global economy and increasing the returns from it to Brazilians.

Now, she must find ways of globalising policies so that Brazil can harness all of its comparative advantages.

Mark Langevin is director of BrazilWorks, associate researcher at the Centro Universitrio de Brasília, and adjunct associate professor of government and politics at the University of Maryland-University College. This article initially appeared on The Globalist. Follow The Globalist on Twitter: @Globalist

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