Brazil’s Rousseff Weakened by Fight to Save Palocci

Brazil’s President Dilma Rousseff faces political problems as she fights to prevent her chief of staff and market favorite Antonio Palocci from facing a formal congressional investigation, which could paralyze Congress and embarrass the government.

The opposition accuses Palocci of influence peddling, as he charged millions for consulting services to companies while running Rousseff’s presidential election campaign, and of involvement in illegal financing for that campaign.

As the opposition began to collect signatures for to establish the inquiry commission, members of the governing coalition and Rousseff’s own PT party threatened to sign it.

Senators are reportedly angry at Palocci and Rousseff for not granting personal audiences and for centralizing decision making, instead of permitting legislators fiefs and autonomy.

Last week Rousseff not only gave a public defense of Palocci, who agreed to meet privately with senators, but also called in former President Lula to speak to disgruntled legislators.

Although several senators emerged from the closed door meeting with Palocci expressing confidence he was innocent of all accusations, local pundits have cited Rousseff’s need to call in Lula to soothe her base as a sign of political clumsiness and weakness.

One senator in her coalition, Magno Malta, proudly told the press he had refused to answer Palocci’s telephone call, while the allied PMDB party has prepared a list of demands if Palocci is to be saved.

Last week Rousseff also lost a battle in Congress, as the Chamber approved a forestry code despite her opposition that may provide amnesty to those guilty of illegal deforestation.

The Central Bank will release Tuesday the April consolidated primary account balance. Numbers already released for the federal government indicate the headline number will likely be good, though it seems the government is, contrary to promises, cutting spending on investment rather than on salaries and overhead.

Treasury Secretary Arno Augustin said last week, the government intends to increase investment spending and run lower primary account surpluses the rest of the year, as in his opinion the pace of economic growth has already slowed.

The IBGE will release first quarter GDP Friday, with markets forecasting a quarter-over-quarter number between 0.9% and 1.5%.

The Central Bank’s IBC-Br index showed 1.3% quarterly growth, an annual rate over 5%.

The government’s goal is to cool GDP growth this year down to a 4.5% rate to fight inflation.

The IBGE releases industrial production Tuesday and manufacturing producer prices Thursday.

Finance Minister Guido Mantega, after meeting with Christine Lagarde in Brasilia Monday, reaffirmed his wish that the next International Monetary Fund Managing Director be chosen “based more on quality and competence than on nationality.”

He said Brazil would probably wait until June 10 to endorse a candidate.

Agustin Carstens, the only other currently declared candidate for the post, is scheduled to visit Brazil Wednesday and Thursday.