Interest rates were lowered, payroll taxes cut, electricity costs reduced, loans to the private sector from private banks increased, the currency devalued and limited control of capital movements imposed.[*] On the heels of this stimulus, halfway through her presidency, Dilma enjoyed an approval rating of 75 per cent.But, far from picking up, the economy slowed from an already mediocre 2.75 per cent in 2011 to a mere 1 per cent in 2012, and with inflation above 6 per cent, in April 2013 the Central Bank abruptly raised interest rates, undercutting the ‘new economic matrix’ of Guido Mantega, the finance minister.
A spell of austerity, she abruptly explained, was required.
The architect of the new economic matrix was dismissed, and the Chicago-trained head of the asset management division of Brazil’s second largest private bank installed at the finance ministry, with a mandate to curb inflation and restore confidence.
Picked by Lula to succeed him, Dilma Rousseff, the former guerrilla who had become his chief of staff, won the presidency in 2010 with a majority nearly as sweeping as his own.
Four years later, she was re-elected, this time with a much smaller margin of victory, a 3 per cent lead over her opponent, Aécio Neves, the governor of Minas Gerais, in a result marked by greater regional polarisation than ever before, the industrialised south and south-east swinging heavily against her, and the north-east delivering an even larger landslide for her – 72 per cent – than in 2010.
Two months later, the country was swept by a wave of mass protests, triggered by higher bus fares in São Paulo and Rio but quickly escalating into generalised expressions of discontent with the quality of public services and, fanned by the media, of hostility to an incompetent state.
Overnight, the government’s approval ratings halved. In response, it beat a retreat, starting cautionary reductions in public spending and allowing interest rates to rise again.
In the face of a continuous ideological barrage against her in the press, it was enough to give her victory.
Before her second term had even formally begun, Dilma reversed course.
On taking office, Dilma tightened policy against risks of overheating, to the satisfaction of the financial press, in what looked like the kind of reinsurance policy Lula had himself taken out at the start of his first term.
But as growth fell sharply, and world financial skies darkened once more, the government changed course, with a package of measures intended to prime investment for sustained development.
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