Author: Forrest Jones
Rousseff must get Brazil's fiscal house in order if given a second mandate.

Brazilian president Dilma Rousseff will be running for a second term in October, and if she can keep her momentum going, there’s a good chance she’ll win. A poll by Brazilian data provider Datafolha in July found that 36% of those surveyed said they’d vote to reelect Rousseff, down from 38% earlier in July but up from 34% in June. In a distant second place, Aécio Neves of the centrist Brazilian Social Democracy Party came in at 20%.

In Rousseff’s first term, inflation rates have been high, coming in two percentage points over the country’s 4.5% target. Although not out of hand, rising consumer prices have irked the nation and eroded confidence. They helped fuel social unrest preceding the World Cup.

Economists point out that, if reelected, Rousseff must push through fiscal reforms to get the economy on sound footing again. “Brazil is facing a structural weakness that has to do with lack of reforms in the past decade,” says Alfredo Coutino, chief Latin America economist at Moody’s Analytics. “This absence of structural changes has weakened the fundamental sources of growth: investment, productivity and technological progress. It is why prolonged policy stimuli have been ineffective to lift the economy from the low performance shown after the postrecession rebound. Therefore, what Brazil needs is to reform the economy, the institutions and the economic policy.”

The Central Bank of Brazil has taken steps to curb inflation, but fiscal policy hasn’t followed suit—a development that, some analysts believe, is hindering recovery by creating a cocktail of rising interest rates, lower taxes and ramped-up spending on social programs. “While monetary policy is fighting inflation and trying to reduce the risk of imbalances, fiscal policy has been expansionary and widening the fiscal imbalance. A better fiscal synchronization is still a pending issue to resolve in Brazil,” Coutino says.

This imbalance will be a key challenge, should Rousseff get a second term. It remains to be seen whether voters think she is ready for Round Two.