Brazil has new chief of staff; markets react

As the political scene and markets recover from the resignation of Dilma’s government top official Antonio Palocci yesterday, new chief of staff, Gleisi Hoffmann is appointed starting a fresh chapter in the Rouseff’s government.

Markets reacted by a slight depreciation of the Brazilian currency as the markets worried over the capacity of the government of carrying out the necessary economic reforms alter Palocci’s fall. Amongst those changes, is a most anticipated a tributary code restructuring. Brazil's currency weakened by 0.32 percent to bid at 1.581 per US dollar.

“The government bleeds with Palocci’s resignation”, said Sergio Guerra, head of the Social Democratic Party (PSDB), one of the most significant parties of the opposition, as President Dilma convalesces from her first political crisis since assuming the largest South American country office in January. Known mainly as bureaucrat, this might the first political test of a ruler whose focus is efficiency and administration rather than politics.

In fact, Palocci was one of the last ruling Workers' Party leaders after a corruption scandal in 2005, know as Mensalao, defenestrated most of former president Luiz Inacio Lula da Silva’s top advisors and historical party heads. Palocci survived unharmed.

Now, the former chief of staff is accused of lobbying for powerful corporations by influencing government decisions on behalf of clients of his economic consultancy and also embezzlement. No criminal charges have been filed against Palocci and the chief public prosecutor shelved a formal investigation on Monday. But opposition leaders and even some ruling party allies pressed for him to step aside.

Palocci denied any wrongdoing but the burden might have been too much for the still settling Dilma’s government. The scandal threatened to consume the government's agenda, distracting from needed reforms in the tax regime and elsewhere.”He had no alternative but to resign. He failed to explain his income”, said Guerra, part of the opposition that probably played a big part on Palocci’s beheading.

“The resignation can’t be an excuse to halt the investigations,” said opposition leader Duarte Nogueira. The former chief of staff was just a few votes away of being investigated by the Brazilian Congress in a CPI, a Political Commission usually used to investigate political wrongdoing and often employed to pressure the ruling government. According to the opposition leaders, Palocci stepped down to spare Rouseff’s government of possible erosion. “As long as he stayed in office, the crisis would remain” said PMDB opposition leader, Valdir Raupp.

During a press conference at the Senate, the newly appointed chief of staff, Gleisi Hoffmann, regretted Palocci’s exit. “It is a pity to lose a minister with his qualities,” she affirmed. During nearly a decade in power, Workers' Party governments including Rousseff's have repeatedly defied predictions of a shift to the left and guided Brazil to robust economic growth of 4 to 5 percent a year. Palocci’s resignation is expected to relieve President Dilma of the political pressure, but raises questions over the next steps of the government’s economic policies.