March 16, 2015 / 8:44 PM / 3 years ago

Rousseff to survive Brazil protests, but economy could suffer

SAO PAULO (Reuters) - Huge demonstrations against President Dilma Rousseff over the weekend will make it harder for her to fix Brazil’s finances and repair the economic damage from a corruption scandal at state-run oil company Petroleo Brasileiro SA.

Demonstrators hold a banner reading "Out Dilma and take the PT (Workers' Party) with you. Impeachment now " during a protest against Brazil's President Dilma Rousseff in Brasilia March 15, 2015. REUTERS/Joedson Alves

About 1 million people took to the streets in two dozen cities on Sunday, a much larger turnout than expected, to call for the impeachment of the leftist president and vent their anger over the billions of dollars allegedly misappropriated on her watch from Petrobras, as the company is known.

Rousseff is seen as safe from any impeachment threat for now since it is unlikely her opponents could marshal the necessary two-thirds of votes in both chambers of Congress.

Yet unlike demonstrations that swept Brazil in 2013 over a wide range of grievances from bus fares to spending on the 2014 soccer World Cup, Sunday’s were focused only on Rousseff, meaning the damage to her political capital is much greater.

As such, the protests are likely to impair Rousseff’s ability to push tough budget cuts and tax hikes through an increasingly hostile Congress. If she fails, Brazil may lose its investment grade credit rating - which would deepen the moderate recession already expected for this year.

The anti-corruption tone of Sunday’s protests will probably also make it harder for Rousseff to forge a compromise deal that would allow construction companies swept up in the Petrobras probe to resume normal business.

Prior to the protests, Rousseff’s popularity was already at an all-time low, with only 23 percent of Brazilians describing her government as “great” or “good.” Many believe that number may fall further in new polls expected this week.

Sunday’s protests were peaceful and even festive, and appeared to be mostly composed of richer and middle-class Brazilians, who tended to vote for Rousseff’s centrist opponent, Senator Aecio Neves, in last October’s election.

Nearly all of the two dozen protesters interviewed by Reuters at the São Paulo march recognized that impeachment was unlikely.

“I’d love for (Rousseff) to go, of course, but this protest is really about saying ‘Enough!’ to so much stealing, so much corruption,” said Natasha Salim, 47, a nurse.

Prosecutors say that construction and engineering companies conspired with Petrobras executives to funnel billions of dollars from the company’s coffers into their private accounts and into those of political parties, including Rousseff‘s.

While several senior figures in her Workers’ Party are under investigation, prosecutors have said there is no evidence that Rousseff did anything illegal.

Aloysio Nunes, Neves’ running mate last year and a prominent senator in the opposition PSDB party, said last week he would rather see Rousseff “bleed out” in terms of political support than be impeached.

Rousseff’s working-class base is clearly not happy with current high inflation and rising unemployment, but has not yet mobilized against her. That makes the threat of union strikes or other serious instability more distant.

NEED FOR DIALOGUE

Justice Minister Jose Eduardo Cardozo said at a news conference on Monday that Rousseff’s government recognized the need for dialogue and the need to “rethink” a political system hit by repeated graft scandals since the Workers’ Party rose to power in 2003.

However, he also defended Rousseff’s economic policies and pointedly reminded Brazilians that she was just re-elected to a term that won’t end until the final day of 2018.

Cardozo was joined at the conference by Energy Minister Eduardo Braga, a leader in the PMDB party, Rousseff’s main coalition partner which has increasingly opposed her agenda in recent weeks.

Nonetheless, a senior PMDB official, speaking on condition of anonymity, told Reuters on Monday that Sunday’s protests had clearly weakened Rousseff, and that the government would need to compromise more on its proposed austerity bills.

Morgan Stanley recently estimated that Rousseff will need Congress’ support to push through about 20 percent of the roughly 136 billion reais ($42.2 billion) in spending cuts and tax hikes that have been announced to date.

Almost two dozen companies have been banned from taking contracts with Petrobras while the investigation is ongoing and have laid off thousands of workers in recent months.

Many executives are pressuring Rousseff’s government to coordinate a deal with prosecutors and regulators that would allow them to acknowledge wrongdoing and pay fines but escape lasting damage to their bottom lines.

Some of the companies are involved in projects related to the 2016 Olympic Games in Rio de Janeiro, although government officials have downplayed the threat of key infrastructure not being ready on time.

Protesters said on Sunday they wanted to see guilty parties punished, no matter the effects on the economy.

“If (Rousseff) tries to strike a deal that would set everybody free, even more of us will go out on the streets,” said a 61-year-old security guard who identified himself as João, as he held a sign protesting corruption. “That would result in a revolution.”

($1 = 3.22 reais)

Additional reporting by Anthony Boadle in Brasilia; Editing by Todd Benson and Stuart Grudgings

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