With Dilma Rousseff narrowly winning a second term as president of Brazil, IRIBA research director Ed Amann looks at the four big issues her administration must grapple with over the next four years:
“Dilma Rousseff” by João de Bourbon (CC BY-NC-SA 2.0)
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Consensus for reform
The achievement of consensus inside and outside Congress to push through difficult reforms was a hallmark of the successful real stabilisation plan in the 1990s. Yet, it is proving harder to build such a consensus today, certainly among the political elite. The case of long-delayed (and much-needed) fiscal reform is a telling example. During the 1990s, a sense of crisis proved sufficient to galvanise politicians and society at large behind economic stabilisation. The current absence of crisis makes such a trick harder, but not impossible, to pull off today.
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Effective macroeconomic management
The counter-inflationary framework developed during the 1990s and early 2000s remains in place and is unlikely to be seriously amended. Although effective at restraining prices to single digits (inflation is forecast to end the year at 6.3%), the high interest rates check economic growth. This has consequences for the speed at which poverty can be tackled and represents a real challenge in the short to medium term.
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Targetted social policies
The most high-profile aspect of Brazil’s successful attempt to drive down poverty has been targetted social policies, among them the Bolsa Família. Many on the left and centre grounds of Brazilian politics would like to see their scope extended, with more emphasis given to improving access to quality education and public health services. The objective is to endow poorer groups with the skills they need to break intergenerational cycles of deprivation. Whether such ambitions can be soon realised is open to doubt. In the absence of meaningful fiscal reform, and with faltering growth, the financial scope for expansion is very limited.
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The external environment
Future prospects for inclusive growth partly lie outside Brazil’s control. The state of the global economy will have a critical influence on the speed at which the domestic economy grows. The unwinding of quantitative easing and softening commodity prices will make it harder for Brazil to export and draw in investment. This will dampen growth prospects and further limit the fiscal space for spending on social programmes.
It is clear that the Rousseff administration faces serious challenges if it is to build on the accomplishments of recent years. However, Brazil is assuredly not in crisis. The popular clamour for progressive reform and social justice is also louder than ever. Opportunities for positive change exist, but it will take determination and persistence to seize them.
Read more on the key elements of the Brazilian development model.
