President Dilma Rousseff Comes to Town

June 25, 2015 11:00 AM

President Dilma Rousseff's visit to Washington next week will mark an important turning point in Brazil-US relations. Or will it? After floundering for several years, it is hard to imagine that the currently lukewarm—and at times decidedly distant—relationship between the two largest economies in the Americas will change much on June 30. However, the visit has the potential to unlock a working agenda, provided the Brazilian leader listens to the business community and correctly interprets cues from a US administration focused on reforming global trade as we know it.

President Rousseff comes to the United States at a particularly inauspicious juncture for Brazil. The economy is well on the way to suffering its deepest recession in two decades, inflation has hit 9 percent over the last 12 months with no respite in sight, and unemployment is on the rise. According to a recent poll conducted by Ideia Inteligencia, a Brazilian boutique pollster and opinion surveyor, 78 percent of the population expects labor market deterioration to continue, while 86 percent believe that prices will continue to rise. Although 64 percent do not know who the finance minister is and are ignorant of what "fiscal adjustment" means, 88 percent identify current macroeconomic problems as a by-product of President Rousseff's first term in office. This evidence agrees with the finding that the president's overall approval ratings dropped to 10 percent in June, according to major Brazilian pollster Instituto Datafolha. President Rousseff's weakness at home has posed substantial challenges to passing key measures to strengthen fiscal accounts through an increasingly hostile Congress. Adding insult to injury, the ever-widening net cast by investigations into the corruption scandal at oil company Petrobras has paralyzed several sectors in a cascading effect that helps explain the surprisingly rapid economic deterioration. At a time of plummeting popularity, President Rousseff should use the US visit not only to advance the reform agenda at home—the government recently announced two ambitious plans to overhaul infrastructure and boost exports—but to hear the concerns of the foreign business community.

If pragmatism prevails, next week's visit could deliver more than the usual photo-op and vacuous references to "strategic partnerships" and "special relations." If the president uses this unique opportunity to hear the business community on issues such as the implications of fiscal war between Brazilian states—the widespread practice of creating incentives to divert investment from different regions in a haphazard way—and on the need to take realistic, if modest, steps to reduce import tariffs and scale back local content requirements, a measure of success could be achieved. Moreover, if the Brazilian president is able to clearly understand the implications of the Trans-Pacific Partnership, this might instill a greater sense of urgency to tackle issues such as business visas for US companies and dual taxation.

Although greater urgency is the most that can be expected when President Rousseff comes to town, the mistrust that has mired Brazil-US relations renders it no small feat.

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Monica de Bolle Senior Research Staff

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