The development of any country owes a lot to the leadership of the country. This is because the policies put in place by any leader will either lead to growth and development or complete collapse. Development may also occur due to some deliberate action carried out by single agents or by some authority pre-ordered to achieve improvement, to favourable circumstances in both. Development policies and private investment, in all their forms, are examples of such actions. It is no small miracle therefore that Brazil, known in the 1990s for a seemingly irreversible pattern of fiscal insolvency, indebtedness, hyperinflation, high levels of unemployment, violent crime and corruption managed to transform into a politically stable, economically competitive and geopolitically influential country in 2011. This article focuses on the role of Dilma Rousseff in the development of Brazil.
In October 2010, Workers Party (PT) candidate Dilma Rousseff (Dilma) was elected as Brazil’s first female president and was sworn in on the 1st of January 2011 after winning 56% of the vote in a second-round victory over Jose Serra of the Brazilian Social Democracy Party (PSDB) which saw a record of 106.5 million ballots. The second round was necessary since Rousseff had fallen just short of an absolute majority—with 47% of the Vote—in the first-round election held on October 3, 2010. In the first round, she was followed by Serra at 33%, and Marina Silva, a former Lula Administration environment minister that ran for president as the candidate of the Green Party (Partido Verde, PV), at 19% (Meyer, 2014). She had never been elected to public office prior to winning the presidency but was chosen by Luis Inacio Lula da Silva, also known as Lula to run as his successor. Rousseff served as minister of mines and energy from 2003 to 2005 and Lula’s chief of staff from 2005 to 2010, during which time she was in charge of strategic projects such as the government’s housing program, investments in infrastructure, and a new regulatory framework for developing Brazil’s offshore oil reserves. Rousseff is an economist by training. She originally became involved in politics by joining underground leftist groups that fought against the military regime; Rousseff was arrested, tortured, and imprisoned for nearly three years during the authoritarian period.
As president, Dilma surprised both her critics and her supporters, in part because her stance on many topics was difficult to read during the campaign. There had been a broad perception that Dilma was more ideologically to the left than Lula, more committed to state-led capitalism, and less pragmatic in general. President Dilma Rousseff of the centre-left PT was inaugurated to a second four-year term on January 1, 2015. One of Dilma’s first moves after being elected was to reassure Brazilians and the world that she would maintain continuity with Lula, particularly in terms of market friendly macroeconomic policy and property rights. In addition, she has also had to make crucial short-term decisions about how to deal with an overheating economy (Brazil under Rousseff Task Force Report, 2011). Brazil experienced a rapid economic expansion from 2004 to 2010, but growth began to slow in 2011. While Rousseff’s efforts to stimulate domestic consumption and protect domestic industry helped kept unemployment near record lows, economic growth has yet to accelerate, averaging 2% annually during the first three years of her term. She inherited a country that had benefited from 16 years of capable governance under Presidents Fernando Henrique Cardoso (1995-2002) and Luis Inácio Lula da Silva (2003-2010), during whose terms Brazil made significant advances in economic stabilization and social inclusion. Rousseff has faced a series of challenges in office, however, as the Brazilian economy has slowed and citizens have taken to the streets to express a variety of frustrations. While Rousseff has won support from the Brazilian Congress for portions of her policy agenda, she occasionally has been stymied by sectors of her own multiparty coalition.
Rousseff spent the majority of her time in office focused on domestic economic challenges. With a gross domestic product (GDP) of $2.2 trillion, Brazil is the largest economy in Latin America and the seventh-largest economy in the world. The country experienced rapid economic growth from 2004 to 2010, driven by a boom in international demand—particularly from China—for Brazilian commodities such as meat, sugar, soybeans, iron ore, and crude oil. The initial expansion was reinforced by domestic consumption from Brazil’s fast-growing middle class, which now accounts for a majority of the population. As international commodity prices began to fall, however, economic growth slowed (Meyer, 2014). The Rousseff Administration sought to offset the weaker international economic situation by boosting domestic consumption and protecting domestic industry. The Administration has pursued an expansionary fiscal policy, implementing a series of short-term stimulus packages. It has also adopted a new industrial policy, known as Brasil Maior (“Bigger Brazil”), which has included targeted tax cuts and financing through the Brazilian Development Bank (BNDES) for domestic manufacturing, stronger preferences for locally produced goods in government procurement, and restrictions on imports (Meyer, 2014).
In 2011, immediately after Dilma Rousseff’s presidential inauguration, Brazil’s Central Bank boosted the policy interest rate in order to dampen inflationary pressures associated with the healthy economic growth of 7.6% in 2010. Fiscal policy also became tighter. Thus, by the end of the year the policy interest rate had risen to 11.75% and the primary fiscal surplus had reached 3.1% of GDP. But the Brazilian economy still managed to grow by 3.9% in 2011. After the middle of 2011 there was a gradual worsening in the international context for Brazil’s economy due to the Euro crisis. In response, Brazil’s Central Bank tightened up its regulation and supervision of Brazil’s financial sector. And it lowered its policy interest rate to 7.25% by the end of the year. Also, the government implemented a fiscal stimulus package that included increased government spending and subsidies and cuts in taxation. It also planned to boost investment to close to US$500 billion for the period 2011-2014. In addition, it initiated a new industrial policy, the Plano Brasil Maior. But these counter-cyclical measures failed to sustain economic activity and, as a result, the Brazilian economy grew by only 1.8% in 2012. The inflation rate also began to increase by the end of 2012. In response, the Central Bank began to implement tighter monetary policies. Hence, by the end of 2014, the policy interest rate had risen back up to almost 11%. But Brazil’s exchange rate became very volatile during this period, reflecting both the uncertainties over US monetary policy and the deterioration of its own external accounts. By 2014, Brazil’s current account balance as a ratio to GDP had deteriorated to -4.2%. In order to counteract tighter monetary policies, Rousseff’s administration continued to expand public expenditures. But, as a consequence, the government’s primary fiscal balance dropped from +2.4% of GDP in 2012 to -0.6% in 2014 (Filho and Fernando de Paula, 2015).
While these measures have helped keep unemployment near historic lows (5.1% in February 2014), economic growth has yet to recover. The Brazilian economy expanded by an average of about 2% annually from 2011 to 2013, and is forecast to grow by 2.3% in 2014. As a result of lower tax receipts, the Brazilian government has been forced to rely on accounting manoeuvres and extraordinary revenue to meet its primary budget surplus target. Moreover, these economic policies have helped push inflation to the upper edge of the government’s targeted boundary (4.5% with a 2-point tolerance band), weakening citizens’ purchasing power and eroding national competitiveness. In order to keep inflation under control, the Brazilian Central Bank, which previously had reduced interest rates to record lows, was forced to reverse course and adopt a tighter monetary policy (Meyer, 2014).
Many analysts maintain that Brazil’s slower economic growth is the result of structural constraints such as “infrastructure deficiencies, high labour costs and low skill levels, a high tax burden and an onerous tax system, excessive administrative burdens, shallow credit markets, and barriers to international trade”. They argue that the Brazilian government should address these constraints and thereby improve productivity and boost investment, rather than continuing to try to stimulate consumption. It appears as though the Rousseff Administration recognizes these constraints on growth. Among other measures, it has cut taxes and encouraged private investment in the country’s overburdened infrastructure by tendering concessions to build and operate roads, railways, ports, and airports. Significant challenges remain, however, as Brazil is ranked 116th out of 189 countries in the World Banks’s 2014 “Ease of Doing Business” index, and gross domestic investment stands at 18.4% of GDP—well below the 22%-23% of GDP that economists estimate is necessary to sustain higher economic growth (Meyer, 2014). The Brazilian Congress also adopted a measure to dedicate 75% of the funds generated by oil royalties to education and 25% to health care. For its part, the Rousseff Administration has increased expenditures for urban transportation projects, and created a program known as Mais Médicos (“More Doctors”) that has brought nearly 14,000 (mainly Cuban) doctors to Brazil to work in underserved communities (Meyer, 2014).
Facing further economic deceleration and the threat of Brazil losing its investment grade credit rating, President Rousseff began implementing a major shift in economic policy following her re-election. She appointed a new economic team to implement a series of austerity measures designed to stabilize the country’s debt levels, encourage investment, and ultimately boost growth. The fiscal adjustment has included partial budget freezes, reductions in the number and size of government ministries, restrictions on certain pension and unemployment benefits, and reversals of several of the tax cuts granted during her first term. The Rousseff Administration has also allowed fuel and electricity prices to rise. At the same time, the Brazilian Central Bank has steadily raised the benchmark interest rate with the aim of bringing inflation back down to the 4.5% target (Meyer, 2016). Nevertheless, economic conditions in Brazil continued to deteriorate. The economy contracted by an estimated 3.8% in 2015, and the International Monetary Fund (IMF) now expects it to contract by 3.5% in 2016. The labour market has weakened considerably, with the formal economy shedding 1.5 million jobs in 2015. Unemployment reached 9% in August-October 2015, up from 6.6% during the same quarter of 2014, and real median wages fell by 1% during the same time period. Inflation remains high, amounting to 10.7% in 2015, eroding wages and the value of social welfare programs. As a result of delays in the implementation of its fiscal adjustments and weaker-than-forecasted revenue collection, the Rousseff Administration was forced to abandon its 1.1% primary budget surplus target and finished 2015 with a budget deficit before interest payments of 1.9%. Two of the three major credit ratings agencies have downgraded Brazil’s sovereign credit rating to “junk” status, obliging many institutional investors to divest funds from the country (Meyer, 2016).
There were some good signs on the economic front in Brazil during Rousseff rule. Dilma appointed the formal governor of the central bank which was a good sign since he was fiscally responsible. Her administration announced the privatization of important economic and commercial sectors and this proves she will seek other options if needed. Brazil also conquered poverty and income inequality, even if it was at a slow pace. These are good signs that Brazil was on a road to good governance and becoming a developed nation. Politically, Brazil now has a set of institutions that constrain individual choices and ensure greater predictability in policy making. For example, governors are no longer as powerful as they used to be. Since the privatization of state banks governors can no longer borrow money at will. They must instead submit a budget as required by new rules that promote fiscal responsibility. While this society prefers to have a powerful presidency, it insists upon one with limits and restrictions. This is a good sign for a young democracy that is growing sustainably and in a democratic way (Brazil under Rousseff Task Force Report. 2011). In other words, the government of Rousseff did a lot in the development of Brazil though conventionally.
References
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