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President Dilma Rousseff faces a damaging showdown with Congress that threatens to hurt Brazil's growth prospects as she struggles to contain a rebellion over her drive to cut costs and root out corruption.
Since taking office on January 1, the no-nonsense former guerrilla has scorned the usual back-slapping and handouts that oil the wheels of Brazilian politics, depriving allies of influential posts and sticking to a tight spending budget.
But she is now under intense pressure to back down as coalition lawmakers threaten to paralyze planned reforms to boost growth in Latin America's largest economy, which is showing clear signs of a slowdown after a boom in 2010.
Signs of a breakdown in relations with Congress grew this week. Several parties in the ruling coalition openly boycotted Rousseff's bills after officials from various parties were shown on TV handcuffed during a police anti-corruption sweep at the tourism ministry. One small party, the Party of the Republic (PR), walked out of the coalition.
The leader of the main coalition PMDB party in the lower house, Henrique Eduardo Alves, said the government's legislative agenda would be blocked until Congress received the "respect that we want."
"The lack of clarity, of frankness, of respect for parliament can cause grave dissatisfaction," he told reporters.
After a strong start in which she secured $30 bln in spending cuts to dampen inflation pressures, Rousseff has been bogged down by a series of political crises that have resulted in the resignation of three cabinet ministers.
Her drive to clean up government ministries toppled the transport minister — a PR member — in July and has spread to the agriculture and tourism ministries, where fresh allegations of bribes and cash kickbacks have sprung up in recent weeks.
PAYING THE PRICE
The price Rousseff is paying is a deep deterioration in her relationship with Congress, whose support she will need to pass already-delayed bills to spur growth and improve Brazil's bureaucracy-heavy business environment.
These include an overhaul of the country's Byzantine tax code, a regulation of royalties governing the country's oil riches, and framework legislation for a huge mining sector.
"She's fighting a lone war against corruption, that works as long as you don't need Congress but at some point she will," Bolivar Lamounier, a Sao Paulo-based political scientist and consultant, told Reuters.
Crucially, Rousseff's drive for cleaner government does not appear to be winning much support from ordinary Brazilians, who are worried about the rising cost of loans to buy cars and TVs and the perceived political gridlock in Brasilia.
Many middle-class voters approve of Rousseff's diligent, managerial style but are unhappy about slow progress in tackling long-standing problems from health and education to public security, opinion polls show.
While Rousseff's approval rating remains high — at 67% in the latest survey by polling firm Ibope — it has begun to slip and her disapproval ratings have doubled this month in a sign that her political capital is weakening.
An economic slowdown to around 3-4% growth this year from 7.5% last year is likely to further undermine her ratings, which are well below the 80 percent or more achieved by popular former president Luiz Inacio Lula da Silva.
Lula, whose charisma and easy-going style helped him manage the unruly coalition, presided over a long economic boom and the rise of tens of millions into a new middle class. In contrast, Rousseff has had to apply the brakes after loose election-year spending in 2010 blew out the budget and fueled inflation, which is running at an annual pace of 6.87%.
She has presided over five interest rate hikes by the central bank this year to 12.5%, pushing up borrowing costs for ordinary Brazilians.
SPENDING PRESSURES
The austerity measures have extended to Congress, where lawmakers have been deprived of funds for discretionary spending in their constituencies.
Finance Minister Guido Mantega appealed to legislators last week not to approve a host of spending bills, including salary hikes for civil servants, that would torpedo ambitious budget targets the government was hoping to trumpet while Europe and the United States struggle with huge deficits.
But Congress appears to be in no mood to cooperate.
"The problem is the disrespect with which the government treats us. If things don't change, her agenda won't go anywhere," Lincoln Portela, head of the PR party in the lower house of Congress told Reuters.
Close aides say Rousseff will likely make some concessions, such as raising discretionary spending for legislators. But they say she'll hold the course on fiscal discipline, seeing it as crucial to keep fighting inflation that remains close to the top of the government's target.
"Clean government and healthy public accounts, these are her two biggest trumps — she won't give them up now," said one source in the presidential palace, referring to measures to de-politicize and slash corruption in government.
"It's a balancing act, no doubt," the source told Reuters.
