By Paulo Sotero of the Woodrow Wilson Center
Low expectation is the best thing going for Dilma Rousseff as she prepares for her first appearance as Brazil’s president at the annual conclave of global business leaders in Davos this week. Her absence from the World Economic Forum over the past three years was explained by officials in Brasília as a political decision, indicative of her low regard for the annual assembly of the masters of globalization. Things have changed.
Government sources now say the president never intended to snub the meeting and recognises that she needs to improve the perceptions of participants about Brazil. Indeed, three successive years of economic growth below 2 per cent, disastrous manipulation of fiscal numbers, persistent inflationary pressure and excessive government intervention have soured investors’ attitudes. Without a change in the inward and state-heavy orientation of the Rousseff government’s economic policies, mediocre prospects are projected in the foreseeable future.
Will the Brazilian leader surprise the audience of sceptics awaiting her in the Alps? A PricewaterhouseCoopers survey of 1,344 executives from 68 countries released on the eve of the WEF is an open invitation for Dilma to do so. Despite Brazil’s disappointing performance in recent years, 12 per cent said they were inclined to invest in the country this year – a drop of 5 per cent compared with 2013 but still the fourth largest proportion among those surveyed, behind only China (33 per cent), the US (30 per cent) and Germany (17 per cent).
Rousseff has given conflicting signals lately on how she sees Brazil’s mounting economic challenges and how she will address them. Recent efforts to improve dialogue with a frustrated business community and the successful privatization through concessions of airports, roads and major infrastructure projects at the end of 2013 suggest she recognises the nature of Brazil’s woes and the need to address them with practical solutions that produce desired results by making investing in Brazil attractive. A statement last November by development minister Fernando Pimentel stressing the need to improve competitiveness, and a call for a free trade agreement with the US by the president of the National Confederation of Industries, underlined the same argument. Such a script would be well received in Davos.
In her New Year message to the country, however, the president said Brazil was suffering mostly from the effects of a “psychological warfare” waged, supposedly, by opposition leaders and market analysts. Most likely, this is empty rhetoric for domestic consumption and, hopefully, will not be repeated.
Davos confronts the Brazilian leader with two challenges. First, she must use the WEF to recognise and address the international business community’s concerns about the direction of her government’s economic policies and refrain from using the Forum to score political points at home.
More difficult for the temperamental Dilma might be to modulate her forceful style and ensure that it does not get in the way of her message. A leader who does not take criticism well, Dilma tends to lecture rather than listen. This will not work with the selective group of 70 or so senior executives she will meet at the “Business Interactive Group on Brazil” in Davos on Friday. Among this group, Brazil’s repeated failure to achieve growth and inflation targets and the serious loss of credibility that resulted from manipulation of fiscal accounting by the finance ministry have left little space for sympathy or good will.
Highlighting the social progress the country has achieved in recent years is unlikely to resonate with this elite group for two reasons. First, the Davos crowd credits the expansion of the Brazilian middle class to the combined effects of policies of economic stabilisation and social inclusion implemented by Rousseff’s immediate predecessors, Fernando Henrique Cardoso (1995-2002) and Luiz Inácio Lula da Silva (2003-2010). Second, the gains and good they have generated could be lost in the “perfect storm” seen as inevitable by former finance minister Antonio Delfim Neto, an occasional adviser to the president, and other experts, if she fails to address the deteriorating fiscal and other distortions currently undermining the country’s economy.
Dilma Rousseff knows all this and is perfectly capable of acting pragmatically. Aides say she will stress her commitment to producing a primary surplus and attribute recent troubles to tax exemptions given to certain industries, which are being phased out.
Regarding inflation, she will say that the central bank has the autonomy needed to tighten monetary policy and increase interest rates, as has been done lately to keep inflation under control.
Rousseff is certainly aware that to ensure her re-election in October she must reassure moderate voters in the centre of the political spectrum who might otherwise be attracted to her challengers’ message of change.
For now, her comfortable position in opinion polls gives her space in Davos to talk about plans for fiscal tightening and economic opening, which would create confidence among investors.
So, do not be surprised if the Brazilian leader goes on a charm offensive in Switzerland before heading to Cuba to attend a regional summit. As one of her advisers admitted last week, in contrast with her attitude over the past three years, this time Rousseff recognises that she needs Davos more than Davos needs her.
Paulo Sotero is director of the Brazil Institute at the Woodrow Wilson International Center for Scholars.
Investing in Brazil: value creation and value destruction, beyondbrics
‘Fragile Five’ falls short as tapering leaves more exposed, FT
Brazil: net debtor to the world, beyondbrics
Challenging year forces Brazil to rethink growth strategies, FT
Brazil: the end of an era as outflows hit 10-year high, beyondbrics
Get alerts on Emerging markets when a new story is published