runner Dilma Rousseff will likely take office with an overwhelming majority in Congress that –at least on paper – increases her odds of passing a mix of market-friendly and more interventionist economic policies. Buoyed by President Luiz Inacio Lula da Silva's enormous popularity and a booming economy, ruling party candidate Rousseff is expected to defeat her main opposition rival, Jose Serra, in a landslide on Oct. 3, polls show, even though her lead has narrowed marginally this week. The same “Lula effect” should boost the governing coalition's majority by 5-10 percentage points, giving it about 70-75 percent of the seats in the Senate and 75-80 percent of the seats in the lower house of Congress, experts say based on recent opinion polls. That would give Rousseff, Lula's former chief of staff, enormous leverage to approve plans to simplify the tax code, increase government control over oil and mining and take steps to improve the operating environment for businesses. She would have the 60 percent majority of seats in Congress needed to amend the country's constitution to push through such changes. “Dilma will start her term with the largest congressional support of any elected president,” Ricardo Ribeiro, political analyst of MCM consultancy in Sao Paulo, said in reference to the period after Brazil's 1964-85 military dictatorship. Brazil's parties, however, are notoriously undisciplined and keeping her broad 10-party coalition in line will be a major challenge to Rousseff, who had never run for political office before this year. “She will need very good political operators – she lacks this experience,” said Christopher Garman, Washington-based Latin America analyst with EurasiaGroup consultancy. It's also unlikely that Rousseff, who has campaigned on a message of continuity of Lula's policies, will have the appetite to make sweeping changes to an economy that is set to grow more than 7 percent this year. Brazil's economy is the largest in Latin America and has been one of the fastest growing among the major economies in recent years. Lula is credited by many with adopting policies that have spurred the growth and kept inflation under control. Rousseff's principal challenge will be to manage possible power struggles between her own Workers' Party and its allied parties, all of whom are eager to boost their stake in the next government, said Garman. The coalition often proved too unruly even for Lula, who failed to push through a major tax reform despite his 75 percent-plus approval rating. Rousseff has vowed to try to change Brazil's tax regime, one of the world's most onerous and complex. She said she could seek changes including capital investment and payroll tax breaks, as well as a harmonization of state value-added taxes. The 62-year-old career civil servant could also relaunch bills stuck in Congress to improve Brazil's investment climate. These would speed up antitrust rulings, streamline government procurement and cap public sector pay rises, albeit modestly. A bill that would strengthen government control over the oil industry is more likely to get final approval in Congress with a strong Rousseff victory. But few analysts expect Rousseff to push other reforms that would boost Brazil's competitiveness, including revamping rigid labor regulations or costly pension benefits. A potential downside for equity investors is Rousseff's pledge to continue strengthening state-owned companies in energy, telecommunications and banking. The move could sideline private sector participation there.
