Brazil austerity plan gets frosty reception from all sides

President Dilma Rousseff's latest austerity plan to rescue Brazil's sinking economy faced a frosty reception Tuesday, with Congress raising questions over whether the measures will win approval.

The speaker of the lower house of Congress and one of Rousseff's chief foes, Eduardo Cunha, dismissed the measures as "pseudo cuts" and predicted they would not easily pass.

On the other side, the leaders of Rousseff's Workers' Party-led governing coalition, whom she met with Tuesday, "all, without exception, told her that there will be great difficulties in voting for the plan," said Rogerio Rosso, head of the PSD party.

With the economy officially in recession, the government presented the country's initial deficit-budget plan two weeks ago.

But, following the downgrading the world's seventh-biggest economy to junk status last week by rating agency Standard & Poor's, the finance minister unveiled plans on Monday for tax hikes and billions of dollars in spending cuts.
Those cuts would slash public housing and health, freeze public sector salaries and eliminate 10 of 39 ministries.

Regardless of whether they make sense on a balance sheet, the austerity measures risk disappointing Rousseff's Workers' Party base, after her popularity has already reached single digits.

Leftist activist groups like the MTST, which had protested against previous austerity measures, said the latest cuts "harm the rights of workers by cutting social investment."

Centrist and right-wing opposition parties are also upset, citing the package's reinstatement of an unpopular tax on banking transactions.

- All against the plan -

The lack of cohesion illustrates one of the main problems that investors see in Brazil: not just economic difficulties but Rousseff's sheer inability to govern.
Andre Cesar, an independent political analyst in Brasilia, said "there's a real risk of failure, and if that happens it will be a terrible signal to the markets."

Adding to the economic crisis and political gridlock is the spillover of the giant Petrobras corruption scandal, in which top executives, sitting politicians and other powerful figures from both sides of the political aisle have been indicted.

To top off the sense of growing dysfunction, some in Congress are pushing for impeachment proceedings against Rousseff, which she has likened to "coup plotting."

"The government is paying attention to all attempts to stir up a sort of profound instability in the country," Rousseff said Tuesday. "We will do everything to prevent these non-democratic procedures from multiplying."

The markets, waiting to find out whether other rating agencies will follow Standard & Poor's lead, are jittery.

On Monday, the stock market reacted positively to the austerity plan, but by Tuesday pessimism was back.

"After an initially positive reaction to the announcement, the market saw that many of the proposals would depend on passing in Congress, where there is no guarantee they will be approved," said analyst Ignacio Crespo at Guide Investimentos.

"There are many doubts. Why were these measures only announced now? We don't understand why these things haven't already been done long ago."