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Rousseff Is in Deep Trouble in Brazil

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Remember when Brazil was an emerging success story? Former President Luiz Inácio Lula da Silva proved that even a so-called leftist could run a market-friendly economic policy that produced big (and long overdue) results. Brazil won the right to host the World Cup and the Olympics. The country of the future had finally arrived. Lula endorsed a successor, former chief of staff Dilma Rousseff, who was easily elected President in 2010.

Then reforms stalled, and things began to slide. The financial crisis took a toll, though strong trade ties with China cushioned the blow. The middle class that emerged under Lula demanded better services, but government was slow to deliver. Two years ago, a clumsy police crackdown on demonstrators angry over a fare increase for public transportation in São Paulo triggered massive nationwide protests.

Now President Rousseff faces gale-force political headwinds. Growth is sluggish, unemployment is high, inflation is higher, wages are lower, and people are angry. A scandal involving the state-owned oil company Petrobras dominates daily headlines. Even former President Lula, still popular, is reportedly under preliminary investigation for influence peddling, and Rousseff can’t afford a rift. Her approval rating has fallen below 20%, and demonstrators assemble regularly to demand her impeachment.

There is a silver lining. Brazil needed a reason to escape its lethargy, and now it has one. While the Petrobras investigations threaten to grind government to a halt, they also provide an opportunity to clean house. Rousseff will salvage what she can, enacting plans to restore investor confidence by raising more revenue and spending less. That’s important in a country where the public deficit last year was nearly 7% of GDP.

The government must also provide foreigners with favorable terms to attract substantial investment in rich deposits of offshore resources and in basic infrastructure. The Petrobras investigations might make it more difficult for Rousseff to deliver those, but paradoxically, the campaign against corruption will make it easier for her successor.

Brazilians may not have wanted a crisis, but hopefully they’ll soon realize they needed one.

Foreign-affairs columnist Bremmer is the president of Eurasia Group, a political-risk consultancy


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