Brazil’s Rousseff re-elected by grateful working class, country divided

SAO PAULO — Despite opposition from nearly half of Brazil's voters, leftist President Dilma Rousseff won re-election on Sunday and will have another four years to try to revive growth in a once-booming economy gone stagnant.

The 66-year-old Rousseff, who was a Marxist guerrilla in her youth, overcame growing dissatisfaction with the economy, poor public services and corruption to narrowly clinch a second term for herself and the fourth in a row for her Workers' Party.

After a bitter, unpredictable campaign that pitted poorer Brazilians grateful for government anti-poverty programmes against those exasperated with a stalled economy, Rousseff must now seek to continue flagship social services even as she tweaks economic policies to restore growth.

Most investors are sceptical that Rousseff can turn around the slumping economy after four years of ineffective industrial policies. Futures contracts for Brazil's Bovespa stock index expiring in December fell more than 6 per cent on Monday before the Sao Paulo stock exchange opened, while Brazil's currency slipped 3 per cent to a nearly six-year low.

Still, Rousseff and aides consistently shrug off market pessimism as little more than tantrums by speculators. As her camp celebrated victory late on Sunday, longtime foreign policy adviser Marco Aurelio Garcia told reporters that investors should relax and "take tranquilisers”.

Speaking to a relieved crowd of supporters in Brasilia, the capital, Rousseff acknowledged the close race and the call for change expressed by many voters.

"I know that I am being sent back to the presidency to make the big changes that Brazilian society demands," she said after winning the runoff election with 51.6 per cent support.

Her slim, three-point margin over centrist candidate Aecio Neves came largely thanks to gains against inequality and poverty since the Workers' Party first came to power in 2003.

Using the fruits of a commodity-fuelled economic boom in the last decade, Brazil's government expanded welfare programmes that helped lift more than 40 million people from poverty despite the current economic woes.

The "Brazilian model" has been adopted by centre-left parties across Latin America and Rousseff's victory, however narrow, is a blow for conservatives in the region.

It also means there will be no dramatic improvement in ties with the United States, hit in recent years by trade disputes and US government spying programmes that infuriated Rousseff.

About 40 per cent of Brazil's 200 million people live in households earning less than $700 a month, and it was their overwhelming support that gave Rousseff victory on Sunday.

Now, she pledges to deepen social benefits while working to revive an economy that fell into recession in the first half of this year.

She has already promised to replace her finance minister, part of a pledge to rethink economic policies that she has so far been known to all but manage herself.

"Such a tight result reduces her capacity to radicalise policies," said Alberto Bernal, a Miami-based economist with Bulltick Capital Markets. "Pretty much half of the country is against what she has been doing."

Rousseff's victory came just a year after massive street protests swept Brazil because many advances of the past decade had stalled.

The slowing economy, rising prices and anger over a lack of investment in public services prompted many to ask whether the Workers' Party had exhausted its ability to improve the lives of people in a country still plagued by vast gaps between rich and poor.

Fear of the unknown 

But Neves, a senator and former state governor who enjoys support among the upper-middle and wealthy classes, failed to convince a majority of Brazilians that he had enough new ideas to pull Rousseff from power.

It didn't help that many poor Brazilians associate his centrist Brazilian Social Democracy Party with a less inclusive past, a perception that the Rousseff camp deftly exploited.

"Even if things are getting worse, many voters prefer to stick with what they know than take a risk on the unknown," said Fernando Abrucio, a political science professor at the Getulio Vargas Foundation, a business school in Sao Paulo.

A second Rousseff term will not be easy, especially as a slowing economy strains a government model accustomed to high tax revenues to finance social programmes and subsidised credit for companies and consumers.

Brazil's economy, after growing by as much as 7.5 per cent the year before she took office, is on track to grow less than 1 per cent this year. Prior efforts to gun growth, largely through tax breaks and other subsidies for select industries, have largely fallen flat.

Meanwhile, inflation, long a problem in a country with a history of runaway price increases, is now hovering above the government's tolerance ceiling of 6.5 per cent.

And while unemployment is near record lows, economists don't expect it to remain so for long as plunging investment, slower growth and further uncertainty prompt employers to cut back.

To correct the course, economists say Rousseff must pursue long-pending tax and labour reforms in order to increase productivity and engage further with the global marketplace.

"Without improving efficiency and making Brazil a more productive part of the global economy, the country will just keep muddling along," said Marcio Garcia, an economist at the Pontifical Catholic University in Rio de Janeiro.

Rousseff will also face gridlock in a congress increasingly weary of the ruling party, which lost seats in this election along with its most important ally. Leading lawmakers promise to make hay over a snowballing corruption scandal at the state-run oil company known as Petrobras.

Brazilian media in recent weeks have been abuzz with leaked testimony by a former company executive relating alleged kickbacks by contractors to Workers' Party coffers.

One news magazine reported that another key suspect told prosecutors that Rousseff was aware of the scheme, an accusation that she has vehemently denied.

"She will face resistance on a number of fronts," said Carlos Melo, a political scientist at Insper, a Sao Paulo business school. "This is a victory in spite of all the problems — not an affirmation of a job well done."