Brazil Unlikely to Tackle Needed Reforms Under Rousseff: Experts

By Rachel Sadon
Latin America Advisor, November 11, 2010

Originally published in the Inter-American Dialogue's daily Latin American Advisor.

Successfully capitalizing on Brazil's vibrant economy and popular support for outgoing President Luiz Inácio Lula da Silva, President-elect Dilma Rousseff is poised to take the helm of South America's largest economy at a time of unprecedented opportunity. However, experts said Wednesday that although Brazil is likely to maintain a positive trajectory of growth, the country is also unlikely to tackle some important policy reforms.

"I think we are likely to see a lot of disappointment in the Dilma administration," said Paulo Vieira da Cunha, a former deputy governor of the Brazilian Central Bank, at a discussion hosted by the Inter-American Dialogue. "A number of things that could be done won't be done and some of the things that will be done, while they will appear good at the short end of the stick, are really very bad if you look at it from a long-term policy perspective," he said.

Vieira da Cunha pointed specifically to the challenges of tax, social security and labor reforms, arguing that the while the government may make some modifications, the administration is unlikely to make needed changes to dramatically simplify the tax regime, improve the social security system and reform labor law. In the short term, the economy is dangerously overheated, monetary policy is overburdened and fiscal policy needs to be adjusted, Vieira da Cunha said. He added that Rousseff is likely to make some adjustments during the first six months of her administration but is unlikely to significantly reign in the country's enormous state spending.

Despite the hurdles that the South American nation faces, the director of the World Bank's Independent Evaluation Unit, Vinod Thomas, said he expects that the country's economic fortunes will not reverse, in part due to advances made in reducing poverty and income inequality.

"While there is a way to go, this is much a better starting point for this administration," said Thomas, who cited the high rate of government expenditure, low investment in infrastructure and climate change as critical areas that may constrain Brazil's growth.
Looking to the long term, both Vieira da Cunha and Thomas were confident that Brazil's star will continue to rise. In fact, Thomas predicted that, while China will continue to dominate in the short term, Brazil will have the edge in the long run.