Brazil & Southern Cone - April 2006 (ISSN 1741-4431)

As expected, Antonio Palocci is economy minister no more. Whether he resigned or was fired remains unclear, but as of 27 March he was replaced by Guido Mantega, until then the head of Brazil's development bank and an erstwhile planning minister.

Plus ça change

Palocci's departure came as no surprise. He was squarely implicated in a scandal surrounding the violation of banking secrecy laws and had little choice but to go. The timing of his departure suited Lula, who needed to reshuffle his cabinet before the end of the month to release members of the government who intend to stand for election in October. Sources in Brasí­lia suggest that Lula was beginning to view Palocci as a liability and was happy to see him go.

The government's main concern was that investors would not see it the same way. Palocci had gained plaudits both at home and abroad for his handling of the economy, in particular his move to free up the central bank. 

The bank has been able to tackle high inflation through high interest rates, even when Lula himself was questioning the wisdom of the now-vindicated policy. With inflation under control the bank has started easing interest rates at just the right moment for the president as the election approaches.

Mantega's first task as replacement was rapidly to convince the business community that he is no different from Palocci and would continue his policies. 

The evidence so far is that Mantega will prove true to his word, although this is not without its complications: Palocci endured a torrid relationship with Lula's chief of staff, Dilma Rousseff, and there is evidence she does not see eye-to-eye with Mantega either.