Aide’s Quitting Casts Doubt on Brazil’s New President

The resignation of the top adviser to President Dilma Rousseff under scandal-clouded circumstances has called into question the strength of her government and her own political judgment just six months after she took over.

The adviser, Antonio Palocci, resigned late Tuesday as chief of staff, ending weeks of growing rancor over suspicions that he illegally enriched himself through consulting contracts while a federal legislator and coordinator of Ms. Rousseff’s presidential campaign. It was the second time Mr. Palocci had been forced from government; he resigned in 2006 amid corruption allegations while serving as finance minister for former President Luiz Inácio Lula da Silva.

There are signs that Ms. Rousseff’s handling of the scandal, which has been perceived as passive and reactive, could hurt her popularity. The episode has already renewed pre-election concerns among critics that she lacks the political experience and skill to rein in Brazil’s congress, which had become increasingly agitated over Mr. Palocci’s suspicious wealth.

Early in her term the president was praised for approaching her job like a no-nonsense chief executive, a stark contrast to Mr. da Silva, a former labor union leader. But when it came time to confront legislators, including in her own party, who questioned how Mr. Palocci had increased his personal income twentyfold from 2006 to 2010, Ms. Rousseff grew hesitant. As the crisis mounted and she failed to take action, she ended up relying heavily on Mr. da Silva, a master negotiator, to try to quell the crisis in congress.

Now Ms. Rousseff will have to rebuild trust with legislators at a time when her government is dealing with the effects of heavy spending by Mr. da Silva’s administration that have contributed to higher inflation. Amid the growing scandal over Mr. Palocci’s finances, the government suffered a defeat last month in its bid to tone down a revision of the Forest Code, a key piece of environmental legislation.

“She will have to rework the relationship with congress and that will be a challenge,” said David Fleischer, a political science professor at Brasilia University. “She herself has to get more involved with negotiating and talking to legislators.”

She will not have Mr. Palocci to help her anymore. Despite the accusations of corruption, Mr. Palocci was respected by investors and considered an anchor of economic stability for the government. “I would be lying if I said I was not sad,” an emotional Ms. Rousseff said Wednesday about Mr. Palocci’s departure.

Her choice to replace him, Gleisi Hoffmann, 45, is a political newcomer with four months of experience in congress and no major government posts on her résumé.

“This is not a strong government anymore,” said Alexandre Barros, managing director of Early Warning Consulting, a political consultancy in Brasilia.

Ms. Hoffmann, considered by some to be a rising star in Ms. Rousseff’s Workers Party, is married to the minister of communications, Paulo Bernardo, who had been considered a favorite to take over for Mr. Palocci. She described her new job as “managerial,” implying the chief of staff post would be a more administrative role. That raised questions about who would be in charge of economic policy, Mr. Barros said.

“This is a turning point for the Dilma government,” said Riordan Roett, director of Latin American Studies at Johns Hopkins University. “If her remake of the government is seen as weak then her legitimacy will be in doubt.”

Moreover, the scandal has laid bare concerns about Ms. Rousseff’s perceived lack of political skills. Earlier in the year she was praised for standing up to labor leaders who had tried unsuccessfully to pressure her into accepting their demands for an increase of the minimum wage.

But after reports in Folha de S. Paulo, a leading Brazilian newspaper, showed how Mr. Palocci’s income had ballooned from 2006 to 2010, while serving in congress, Ms. Rousseff allowed Mr. da Silva to re-enter the scene.

The fallout from the Palocci scandal may be far from over. On Wednesday some opposition legislators vowed to continue to push for investigations into Mr. Palocci’s consulting arrangements and whether they could be traced to Ms. Rousseff’s campaign. As of Wednesday, opposition leaders were less than a handful of votes shy of opening up a senate investigation with wide-ranging powers.

“He is like a huge walking filing cabinet about what happened in campaign finance in 2010,” Mr. Fleischer said.