Posted on November 18, 2014.
AS SHE hobnobs with the other G20 heads of state in Brisbane this weekend, Dilma Rousseff, re-elected last month to a second four-year term as Brazil’s president, will have precious little besides her (narrow) victory to boast about. Every day seems to bring more evidence of just how big a mess she has left herself. Official data released in the past three weeks have shown a bulging budget deficit, falling industrial production and rising poverty. Even the job market, until recently a rare bright spot, with unemployment near historic lows of around 5%, is beginning to falter. This week payroll numbers showed a net loss of 30,000 jobs in October, the worst result for the month since 1999 and well below the average market expectations of a gain of 56,000.
Days before a kerfuffle broke out over a bill sent to Congress that would let Ms Rousseff in effect turn a primary fiscal surplus (before interest payments) of 1.9% of GDP promised in the 2014 budget into a deficit. Since the primary balance showed a hole equal to 0.5% of GDP in the nine months to September (because of a pre-election spending splurge), the government was merely facing up to reality. The opposition leapt on the opportunity to bash Ms Rousseff for fiscal incontinence and obfuscation. Some threatened to contest this budgetary meddling before the Supreme Court.
If that weren’t enough, on November 14th the federal police rounded up dozens of suspects in an ongoing corruption probe into Petrobras, the state-controlled oil giant, in which Ms Rousseff’s left-wing Workers’ Party (PT) and some coalition parties have been implicated. They include a former Petrobras director, as well as executives at several big construction firms with contracts worth 56 billion reais ($21.5 billion) with the company; 720m reais-worth of their assets were frozen.
The dragnet came a day after Petrobras said it would put off its quarterly earnings report, due out the following morning, for a month, citing the investigation. (Last week it emerged that US authorities, too, have sleuths looking into the matter because some Petrobras paper is traded in New York.) The stockmarket duly tanked; its boss, Edemir Pinto, worried openly that the scandal might damage the Brazilian bourse’s reputation. The dollar climbed to a nine-year high against the real.
With headlines like these it is small wonder that analysts, having long since slashed growth forecasts for 2014 to just about nil, are busy chopping next year’s. Arthur Carvalho of Morgan Stanley, a bank, now expects output to shrivel by 0.3% in 2015; a month ago he reckoned it would expand by as much. To preserve its prized investment-grade credit rating, the government will need to squeeze spending to deliver a primary surplus of at least 1% of GDP, he thinks. Add tighter monetary policy (to curb inflation of 6.5%) and flagging business sentiment, he notes, and it is difficult to see where growth would come from.
Among the world’s 20 biggest economies represented in Brisbane just Italy and Argentina have lower economic growth than Brazil this year. Next year only Russia will, according to Morgan Stanley. Many large Brazilian firms that released their quarterly earnings this week, including Vale, a miner, and Gerdau, a steelmaker, said they would miss their investment targets this year as they brace for slumping demand. Business types drone on about uncertainty and erratic policy-making.
The president is even getting an earful from her own camp. This week Gilberto Carvalho, who runs Ms Rousseff’s secretariat (but may also be on the way out), said the administration “did little to advance” social demands, such as land reform or indigenous rights. In a letter of resignation, one of five the president was handed this week, the PT culture minister implored her to pick an economic team “committed to a new agenda of stability and growth for the country”, and to restore “confidence and credibility”.
Neither is helped by Ms Rousseff’s decision not to reveal who will be on that team until after the Brisbane summit—and possibly not until December. Many feel that anyone would be better than Guido Mantega, the outgoing finance minister. But sceptics note that the surfeit of microeconomic meddling and deficit of monetary and fiscal prudence that have characterised the past four years were not of Mr Mantega’s making; they were dictated from the top. If so, even a business-friendlier name would not guarantee genuine change. Given the rough ride ahead, it is unclear why anyone would want the job.