How Brazil's President Plans to Get the Country and Herself Out of This Mess

Rousseff: Petrobras Will Take Dramatic Measures

Brazil’s President Dilma Rousseff is battling to regain the trust of voters and global investors alike as the economy sinks and a corruption scandal deepens. On Tuesday she charted what she hopes is a path to recovery.

In an exclusive interview in the presidential palace in Brasilia, Rousseff said the recovery process at the state-run oil giant Petrobras would proceed by publishing a long-delayed audited financial statement by the end of April — and issued a strong denial that she knew about the bribery that has shaken the company she chaired from 2003 to 2010.

“None of us even saw a sign” of corruption, Rousseff, 67, said in her first interview since starting her second term in January. The board of the oil company “was made up of quite qualified entrepreneurs — it wasn’t just me.”

Photographer: Ueslei Marcelino/Reuters

Rousseff is trying to regain her footing after a fall in popularity, triggered by the scandal and a faltering economy, that has dropped her approval rating to its lowest point. She is also facing heightened tensions in her ruling coalition that jeopardize approval of economic austerity measures proposed by her Finance Minister Joaquim Levy.

The stakes are equally high for Brazil’s economy, which is suffering from plummeting business confidence and a benchmark interest rate that is the highest in six years. Since Rousseff took office in January 2011, the real has lost 48 percent, the worst performing amid the 16 most traded currencies. The benchmark Bovespa stock index has fallen 26 percent.

Publishing the audited financial statement by the end of April is part of a process that includes stricter compliance rules designed to regain investor confidence, Rousseff said.

The company delayed in December reporting results for a second time as the board couldn’t reach an agreement on the size of write-downs stemming from graft-related costs. Moody’s Investors Service lowered Petrobras credit rating two levels to junk grade in February.

“I want to ensure that Petrobras goes back to the market,” she said.

Petrobras creditors could request an acceleration of payments on some of its debt if the company doesn’t release an audited financial statement by the end of May.

Public prosecutors are investigating 20 companies, including 16 builders, for participating in a alleged cartel to overcharge the oil company. OAS and Galvao Engenharia SA, Brazilian construction companies, filed for bankruptcy after investigations started.

The president said the builders financial difficulties won’t hold up planned tenders to build and operate infrastructure projects. She said she plans tap Chinese investment for a railway linking Brazil’s Atlantic coast with the Pacific Ocean.

The Supreme Court has also authorized investigations of 49 politicians including Senate chief Renan Calheiros and lower house President Eduardo Cunha in relation to the alleged kickbacks at Petrobras. Former officials at the company turned state’s witness said that hundreds of millions of dollars went to political parties, including Rousseff Workers’ Party. The scandal has eroded the support she needs in Congress to approve austerity measures.

In an about-face from her first mandate, Rousseff has cut loan subsidies, increased taxes, and allowed price increases on items such as fuel and transportation in order to avoid a credit rating downgrade and shrink a budget deficit that more than doubled last year.

Rousseff said that she would do whatever it takes to reach the government’s budget target and that she fully backed Levy, a University of Chicago-trained economist, who has moved into the public spotlight this weekend after a public gaffe on March 24, when he told students in Sao Paulo that the government’s measures weren’t always the easiest or most effective.

“Obviously they are trying to create intrigue around the minister,” Rousseff said. “You can’t always implement measures in the most direct way.”

She said reports on the Levy’s comment “created a storm in a tea cup.” In February Levy said stimulus measures Rousseff adopted during her first term had been a costly “joke.”

“Levy is very important for Brazil today and he stands very firm,” she said.

Levy has personally negotiated with legislators, including Cunha and Calheiros who oppose some government proposals, such as cuts to social security and labor benefits. They helped pass a bill that increases spending on pensions and are pushing for a cut on debt that states owe the government.

“Undoing four years of policies in a few months is a tall order,” said Carlos Tadeu Freitas, former central bank director and chief economist at the National Commerce Federation. “If she can get the bulk of her proposals approved, the outlook will improve in the second half of the year.”

Latin America’s largest economy, which grew at 7.6 percent in 2010, is forecast to contract 0.5 percent this year, its worst performance since 1990, according to the central bank. Inflation will accelerate to 7.9 percent this year and exceed the target range for the first time in 12 years, the bank said on March 26.

Consumer demand that fueled shopping sprees in Miami and was the cornerstone of a decade-long growth model has also eased, with vehicle sales in February plunging 28 percent from a year earlier.

Her approval ratings have plummeted to a record 13 percent, according to a March 16-17 Datafolha poll. If new elections were to be called, Rousseff would lose with 16.6 percent against 55.7 percent for Aecio Neves, the opposition senator who lost the October vote, an MDA poll showed. She won re-election with 51.6 percent of the votes.

Narrowing the budget cap, accelerating infrastructure concessions, and restoring confidence in Petrobras would put Brazil back on the path of growth as early as next year, Rousseff said.

“The giant is standing,” said Rousseff, referring to an old saying that described the nation as a sleeping giant. By the time Rio de Janeiro hosts “the Olympics next year, Brazil will be at another level.”

With assistance from Harry Maurer

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