Kenneth Rapoza – Forbes, 11/05/2014
October 26, 2014 will go down as one of those days where Dilma Rousseff should have been more careful about what she wished for. Dilma, re-elected president of Brazil with around 52% of the popular vote, has the Workers’ Party credibility on the line. More important than politics, the business community is now counting on her for revival. If she fails to resuscitate – and no one thinks she’s the Red Cross – Brazil will be mired in slow growth for most of her second term.
Within the greater Latin American economy, Brazil is the elephant in the room, says Guilherme Loureiro, a UBS economist based in São Paulo. The region’s fortunes will largely be determined by whether its biggest economy can turn its fortunes around. Loureiro thinks it is unlikely that a new Dilma administration will introduce the type of structural reforms needed to boost savings and investment in the economy. Out of the big four emerging markets, Brazil is the worst for private investment. It equals just 17% of GDP. For Loureiro’s team at UBS, the base case scenario for Brazilian growth next year is a paltry 0.6%. In 2016, it’s 1.8%.
Dilma is currently dealing with the worst political climate since the bribery scandals known locally as “mensalão” took place in 2005. Top executives from state owned oil and gas company, Petrobras, are being investigated for fraud. Some whistle blowers are saying Dilma knew about the fraud. This is a political grenade for the Workers’ Party which– as rumor has it — is thinking about putting up Party frontman Luiz Inacio Lula da Silva as its presidential candidate in 2018. He already had 8 years as President prior to Dilma’s election in 2010. A mis-step by Dilma would likely put an end to those plans, even if they were carried out. If Dilma sinks Brazil, Lula won’t be able to sell himself as the clean-up crew.
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