Brazil is widely regarded as the first Latin American country to win membership to the club of developed nations, or at least to get its foot in the door. For that, it can thank leadership. In the past two decades, from former President Fernando Henrique Cardoso’s stabilization of the Brazilian currency, the real, to his successor Luiz Inácio Lula da Silva’s expansion of the Brazilian middle class, the South American giant has eschewed capitalist and socialist ideology in favor of what Lula told TIME is “doing things right: allowing the rich to earn money with their investments and allowing the poor to participate in economic growth.”
But the remarkable economic surge that Cardoso and Lula engineered, one that defied even the recent global recession and produced 7.5% growth last year, couldn’t last forever. This week Brazilians heard the most compelling evidence yet that the festa is over: growth flat-lined, if not contracted, in the third quarter of this year. So Brazil, less than a year after Lula left office, may be facing its most important development challenge yet: proving that it can prevent bust from following boom. And in that regard Brazil’s current center-left President, Dilma Rousseff, could turn out to be an even more consequential leader than both of her predecessors.
The stakes are big for Latin America, where Brazil is the largest economy, and for the Americas. But many of the Brazilian analysts I’ve spoken with since the deflating economic growth news was announced on Tuesday, Dec. 6, agree that it’s fortunate that Rousseff is sitting in Brasilia’s Planalto presidential palace now instead of Lula, whom she served as chief of staff. While Lula was the right presidente for the good times, Rousseff may well be the better leader to confront the messiness of this moment.
Rousseff, Brazil’s first female President, was in her youth an urban guerrilla who fought Brazil’s 1964-85 military dictatorship, a steeling experience that helped make her a socially committed politico but also a no-nonsense economist. “She’s a much tougher manager” than Lula was, says Marcelo Zorovich, an international relations professor at the Higher School of Marketing (ESPM) in São Paulo, and a visiting fellow at the University of Miami’s Center for Hemispheric Policy. “She’s very forceful on these macro-economic issues, better equipped, more detail-oriented.” Says Paulo Vieira da Cunha, head of emerging markets research at the New York investment firm Tandem Global Partners, “She is a much more sophisticated policy-maker.”
At the same time, da Cunha warns that Rousseff still has to demonstrate she can see Brazil through its sudden downturn. The Brazilian economy was overheated, due in large part to the Lula-era consumer explosion, and Rousseff’s administration earlier this year had taken firmer if less popular credit-tightening measures to keep inflation, Brazil’s historic nemesis, at bay. But this past summer’s euro crisis enervated Brazil’s industrial and consumer vigor, leaving Rousseff with the classic macroeconomic dilemma of reviving growth (expected to drop to 3% this year) without stoking inflation, which she had hoped to bring below 5% next year. Rousseff recently cut taxes and lowered interest rates as a stimulus gesture, but analysts like da Cunha fear she and her economic team aren’t doing enough to rein in inflation.
Others see the samba slump as a chance for Rousseff to leverage her popularity –she currently enjoys a 71% approval rating – and pursue the kind of structural changes that Lula was either unable or unwilling to tackle during his eight-year presidency. Joe Leahy of the Financial Times, for example, writes this week that while “there are signs of alarm in the government at the speed of the slowdown, some believe it could be the opportunity Brazil has been waiting for to address the issue of the country’s sky-high real interest rates” if not also long overdue “reforms to labour laws, pensions, education and taxation.”
Leahy’s point is a good one. Brazilians, who call their President simply “Dilma,” supposedly elected Rousseff because, though she lacked Lula’s charisma, she represented a continuation of her boss. I think that’s an incomplete reading of her real appeal. Brazilians, particularly those sensible enough to know that the boom of the 2000s had to return to earth, see more than a caretaker in Rousseff’s more wonkish and understated style; they sense a more substantive, longer-term approach to Brazil’s development quest.
One good example is the nation’s notorious corruption, an issue that Lula backers and detractors both say he too often sidestepped, but which Rousseff has at least announced as a priority battle for her government. In fact, that government since last summer has seen seven cabinet members resign – including her Labor Minister last weekend – under corruption clouds (though they deny the accusations). “A lot of us feared it might kill her politically, but it’s making her more popular,” one high-ranking government official told me when I was in Brasília recently. And many hope that indicates Rousseff can achieve reform success in the kind of critical areas Leahy notes.
Still, as Zorovich says, “This will as a result test Rousseff’s political as well as economic skills, especially as she deals with an often fractured ruling coalition in Congress. But so far she’s sending the important messages.” The hard part has yet to come for Rousseff. But if few inside and outside Brazil seem to be panicking after Tuesday’s news, it’s most likely because they’re confident, at least for now, that Dilma is doing things right.