Rousseff Summons Governors to Brasilia to Help Avoid Turmoil

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Brazil’s President Dilma Rousseff is intensifying efforts to patch up political relationships as talk of her impeachment gathers strength and she braces for renewed protests in August.

Accompanied by her vice president and select ministers, Rousseff met with governors in Brasilia on Thursday afternoon. She used her opening remarks to ask them to support fiscal-austerity measures that are designed to shrink the budget deficit and rebuild investor confidence in Latin America’s biggest economy.

“I don’t deny the difficulties, but I affirm that all of us here, especially the federal government, will be able to overcome those difficulties,” Rousseff said. “It’s important to always establish partnerships and cooperate to confront problems together.”

Dwindling investments, rising unemployment and quickening inflation have eroded support for the president since she won re-election in October. Emboldened by her government’s record-low 7.7 percent approval rating, many lawmakers from the ruling coalition this month started to rebel against her belt-tightening measures and supported bills to boost spending.

Charm Offensive

“Rousseff is trying to convince governors to help her pressure Congress to cooperate in the second semester,” David Fleischer, a political science professor at the University of Brasilia, said by telephone. “When you have a president with 7 percent approval rating, it’s a very difficult attempt at a positive agenda.”

Thursday’s meeting with the governors is the beginning of Rousseff’s charm offensive to help her fend off further congressional rebellions, a credit downgrade to junk status and even calls for her impeachment. Brazilians are scheduled to stage street protests against the government on Aug. 16.

“Today we had a very special day for democracy,” Rousseff’s chief of staff, Aloizio Mercadante, said at the conclusion of the meeting. “We had governors from every state with the president of the republic, from diverse parties -- the allied base, the opposition -- engaged in dialogue, seeking to create an agenda of cooperation.”

Unifying a state sales tax known as ICMS was at the top of the agenda Thursday, along with a proposal to change the way federal resources are distributed.

Negative Outlook

Standard & Poor’s this week put Brazil on a negative rating outlook, citing a bleak growth forecast and rising political uncertainty in Congress. The move came after Finance Minister Joaquim Levy acknowledged that the government wouldn’t meet its original budget targets for the year.

Even with the economy expected to shrink almost 2 percent this year, stubborn inflation led policy makers to raise Brazil’s benchmark interest rate for a seventh straight meeting on Tuesday.

In this tight fiscal scenario, Fleischer said the government has limited ability to respond to requests brought by 26 governors and one vice-governor, representing all of Brazil’s 27 states. Governors on Thursday said they want additional financing for infrastructure works.

One of the main concerns is how the government will compensate states that lose revenue with the proposed ICMS sales tax changes, Rio de Janeiro Governor Luiz Fernando Pezao told reporters after meeting with Levy Thursday morning. The current proposal would set the ICMS tax at 4 percent for all states, facilitating inter-state commerce.

The government this month created two funds for this purpose, counting on Congress to pass a bill to tax repatriated funds.

Before these proposals are voted on in Congress, governors “have to come to a consensus among ourselves,” Pezao said.

The governors said Thursday they support changes to the ICMS. Yet they want the creation of a constitutional mandate that would guarantee a fund to compensate them for any losses from the tax reform.