March 4 (Reuters) - Just past the mid-point in her first term, Brazilian President Dilma Rousseff faces several difficult economic and political decisions that will define the rest of her presidency:
Rousseff has acknowledged the need to overhaul Brazil’s tax system, which is considered by the World Bank to be the world’s most complex. But she has so far opted for targeted tax cuts - in part because she doesn’t think she can push a broader reform through Congress and its 24 squabbling political parties.
Could she reconsider in 2013? Any early signs of another weak economic performance this year could lead Rousseff to become more aggressive on the tax front. Alternatively, she could stick with piecemeal changes, such as the current proposal to cut the ICMS tax on inter-state commerce and the planned change to simplify the so-called PIS/Cofins taxes that companies pay on sales receipts.
As the economy continues to struggle, some analysts say Rousseff’s policymaking team has contributed to the problem with unclear and occasionally contradictory messages about inflation and other issues. The Eurasia Group, a political risk consultancy, said this month that Finance Minister Guido Mantega was “likely” to depart in an upcoming cabinet shuffle as Rousseff tries to improve her government’s credibility with investors.
Rousseff has so far failed to advance on negotiations that could open up Brazil’s overwhelmingly closed economy. Despite its reputation as an exporter of commodities such as soy and orange juice, trade accounts for less of Brazil’s output than any other major economy in the Western Hemisphere.
There is little evidence to suggest that Rousseff could embrace a more trade-friendly agenda, especially since Brazil’s manufacturers are struggling to be competitive. But there is no shortage of interest from the European Union, the United States and some other South American countries, and Rousseff could change her stance if the right offer comes along.
Brazil’s mining code is outdated for a major minerals exporting nation. Six months after Rousseff took office, Mining and Energy Minister Edison Lobão said the code would be updated But two years later Congress is still waiting. Will Rousseff shake up Brazil’s mining framework before the end of her term?
It seems she will. Mining royalties are at rates well below the rest of the world. The current code sets down concession rules that are too lenient on extractors and need stiffening for Brazil to reap the full benefit of its immense resources, the government argues.
Mining executives think the code does not need fixing. They say Brazilian taxes are very high and raising royalties might push Brazil out of the market. They fear greater state control could cause more harm than good, which is what some believe happened when Brazil reformed its oil code.
Should Rousseff keep Vice President Michel Temer as her running-mate for her 2014 re-election bid? He is from the PMDB, Brazil’s largest political party, which controls both chambers of Congress and is her biggest ally in the 17-party government coalition. Or should she try to enlist Pernambuco Governor Eduardo Campos for the ticket? His PSB party is the fastest up-and-coming political force and he seems to be toying with a presidential bid of his own in 2014, which could complicate matters for Rousseff. No easy choice, but she still has a year to ponder her decision. (Editing by Kieran Murray and Tim Dobbyn)