Rousseff Bets on Vote to Stem Decline as Brazil Seeks Change

Photographer: Fabio Pozzebom/AFP via Getty Images

With Brazil’s public coffers increasingly stretched amid sluggish growth, Brazilian President Dilma Rousseff has little leeway to boost spending. Close

With Brazil’s public coffers increasingly stretched amid sluggish growth, Brazilian... Read More

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Photographer: Fabio Pozzebom/AFP via Getty Images

With Brazil’s public coffers increasingly stretched amid sluggish growth, Brazilian President Dilma Rousseff has little leeway to boost spending.

President Dilma Rousseff has staked her bid to reverse a plunge in the polls on a plan to bring direct democracy to Brazil. It doesn’t fully address the demands of the biggest street demonstrations in two decades, according to one protest leader, or the top voter concerns in polls.

Rousseff asked Congress today to call a plebiscite consulting voters on how to overhaul the political system, which analysts blame for corruption and disenfranchisement that fueled protests across the country last month. The poll should restrict itself to five areas including public financing of campaigns and the way representatives are elected, Rousseff said in a letter to lawmakers.

“A political reform helps, but I’m not sure it’ll solve the problems that were raised on the street,” Rafael Siqueira, a music professor who met with Rousseff after organizing the first protests in Sao Paulo against a bus fares increase, said in a phone interview.

While the plebiscite proposal enjoyed 68 percent support in a Datafolha poll last week, it doesn’t speak directly to demands for immediate reassurances at a time of economic uncertainty, said Alexandre Barros, head of Early Warning, a political risk consulting firm.

“Nobody on the streets asked for a plebiscite, and having one won’t address underlying economic concerns,” Barros said in a phone interview from Brasilia.

Health Care

The biggest concerns of voters are health care, education and corruption, according to a poll taken June 27-28 by Datafolha. It also found that 54 percent expect inflation, already running above the 6.5 percent upper limit of the government’s target range, to worsen even after the central bank began raising interest rates in April to rein in prices.

The proposal for the plebiscite, which was delivered to Congress by Vice President Michel Temer, has been criticized by the opposition as unnecessary and costly to organize. Senator Eunicio Oliveira, leader in the upper house of the PMDB party, said today that the vast majority of his party, the biggest member of Rousseff’s coalition, will support the initiative.

Rousseff, in her letter to lawmakers, said it was up to the nation’s elected representatives “to provide an adequate response to the voice of the streets” providing new avenues to address popular demands.

Steep Plunge

Rousseff, who only a few weeks ago was favored in polls to win re-election in October 2014 in the first round, now is struggling, said Barros. Among the four likely or potential candidates, she had 29 percent support, according to the Datafolha poll of 4,717 people nationwide taken June 27-28. That’s down from 49 percent at the start of June and 56 percent in March.

Support for her government has plunged by almost half in the past three weeks, to 30 percent, according to Datafolha. That’s the steepest decline from one poll to the next since then-President Fernando Collor froze savings accounts in 1990.

Benefiting the most from the slide is former Environment Minister Marina Silva, who is forming a party that promises to clean up politics. Support for her candidacy rose to 18 percent from 14 percent in early June.

Opposition

Senator Aecio Neves of the opposition PSDB was favored by 15 percent, tied in third place with Supreme Court Chief Justice Joaquim Barbosa, who gained prominence for presiding over a landmark corruption case. The nation’s first black chief justice had the most support in a separate Datafolha poll conducted among protesters, although so far he’s ruled out a presidential run.

“Polls are a photograph of the moment, they must be respected,” Rousseff told reporters yesterday after meeting with her cabinet. Protests “tend to make any leader, politician, or ruler more open to debate.”

In addition to the polls, investors are watching to see whether Rousseff resists pressure for more spending, said Marcelo Salomon, co-head for Latin America economics at Barclays Plc. In a June 21 televised address following demonstrations that drew 1 million people onto the streets, Rousseff pledged to maintain fiscal responsibility amid global financial volatility.

“The faster the government lowers the risk of populism, the better the outcome will be viewed by the markets,” Salomon said in a phone interview from New York.

Market Rout

Since the protests over bus fares erupted a month ago, the Ibovespa index has fallen 17.8 percent in dollar terms, the worst performance among 94 benchmark indexes after stocks in Greece. The extra yield investors demand to own the Brazilian government’s dollar debt compared with U.S. Treasuries has risen 31 basis points to 239, according to JPMorgan Chase & Co.

With Brazil’s public coffers increasingly stretched amid sluggish growth, the 65-year-old Rousseff has little leeway to boost spending. Brazil’s budget surplus before debt payments fell to 1.95 percent of gross domestic product in the 12 months through May from 2.46 percent in January. Boosting the so-called primary surplus to 2.3 percent, as the government has pledged, without resorting to accounting maneuvers as it has in the past would be a positive result in the adverse global and domestic environment, said Salomon.

Brazil needs “at this moment to be very careful with fiscal solidity,” Rousseff said yesterday. She said the government is considering cuts to spending to create room for a more ambitious plan to improve public transportation.

Lula’s Example

Another gauge of Rousseff’s success will be the auction of several highway concessions scheduled for September, interest in which Salomon says may wane after Sao Paulo state last week decided to scrap planned increases in toll roads it operates.

Rousseff’s mentor and predecessor, Luiz Inacio Lula da Silva, also faced a political crisis in his first term. The former trade unionist saw his government’s approval rating plunge to 28 percent in December 2005 after a votes-for-cash scandal involving key aides, only to bounce back, win re-election in 2006, and leave office the most popular president in Brazil’s history.

A career civil servant, Rousseff lacks her mentor’s grassroots support among the nation’s labor unions. She joined the Workers’ Party only on the eve of Lula’s first victory in 2002, and her candidacy initially faced opposition from members of the party.

Work Stoppages

Unions plan to host a nationwide protest with work-stoppages on July 11, demanding a shorter workweek, better pension pay and more spending on health care and education.

“The state is not fulfilling its role and meeting its obligation to provide quality public services,” Vagner Freitas, head of the pro-government union confederation CUT, said at a June 28 seminar in Brasilia.

Rousseff is also presiding over an economy in which growth last year was 0.9 percent, compared with 3.2 percent in 2005, and facing an emerging middle class that after a decade of progress is no longer content with having overcome poverty.

Lula has praised the government’s response to the street protests, and even though polls show him performing better than Rousseff in any election scenario, he’s so far dismissed speculation by allies that he will attempt a return.

“She’s my candidate,” he told Valor Economico newspaper in an interview published yesterday.

Fired Ministers

Rousseff’s approval rating soared in the first year of her presidency as she fired a half-dozen ministers, many of them holdovers from Lula’s administration, amid allegations of wrongdoing.

Still, the house cleaning generated friction with allied parties in Congress, on whom she depends to pass legislation and get elected. One of the targets of the recent demonstrations was what protesters called the government’s tolerance of cost overruns in the construction of 12 stadiums for next year’s soccer World Cup.

“She’s facing an uphill battle,” Jeffrey Lesser, an Emory University historian who specializes in Brazil, said in a phone interview from Sao Paulo. “In addition to a declining economy, she’s in a tug of war with the expectations of large number of people in her party and society at large.”

To contact the reporters on this story: Joshua Goodman in Rio de Janeiro at jgoodman19@bloomberg.net; Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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