As President Dilma Rousseff starts her second term in office after a narrow reelection victory that  divided Brazilians and left her without a clear mandate, prospects for success are threatened by a stagnant economy, a corruption scandal of epic proportions and the lack of solid support from her own political base in Congress. The urgency to confront these challenges, however, is likely to favorably impact Brazil–United States relations and lead to a more productive dialogue than the two countries had in recent years. The disposition of the U.S. government to move in that direction was highlighted on January 1st by the presence of Vice-President Joe Biden at Rousseff's second inauguration, the highest level of US representation at this event in Brazil in a quarter century. The appointment as foreign minister of Ambassador Mauro Vieira, an experienced career diplomat who served as envoy to United States for the past four years, signaled a similar attitude in Brasilia and was well received in Washington.

Three recent developments have contributed to better relations between the continent’s two largest democracies. Brasilia stopped insisting publicly for a clarification from Washington about the National Security Agency’s spying activities on Petrobras, among others, after a Brazilian federal investigation unveiled major crimes of corruption by top company officials and senior executives from major suppliers of goods and services to the state oil giant. Concerns about the spying episode, which led to the cancellation of a state visit to the US by President Rousseff, have been superseded by worries about potential ramifications of the Petrobras scandal in the US, where the company also operates and where inquiries were initiated by two American federal agencies. Civil suits by American investors against Petrobras executives are bound to multiply. Against this backdrop, Rousseff's reputation for personal honesty and her public support for the actions of Brazilian prosecutors in the Petrolão, as the scandal is popularly known, are interpreted in Washington as indicative of the president's determination to prevent the bilateral dialogue from being contaminated by the investigations in the US, which will proceed independently of the White House and Planalto. 

A major correction in the direction of economic policy announced by Rousseff last month is also being applauded in Washington. The new minister of finance, economist Joaquim Levy, enjoys the professional respect and access in Washington and Wall Street his predecessor Guido Mantega never had in the more than a dozen years he held the position. As secretary of the national Treasury during the Lula administration, Levy and then US Undersecretary of the Treasury for International Affairs, John Taylor, developed a series of recommendations to broaden the bilateral relationship and foster economic growth. The recommendations were endorsed by the Brazil- US Business Council but were never adopted. With the Brazilian economy stagnant, the hope in the business communities of both nations is that the Levy­Taylor suggestions, which included tax policy simplification leading to a tax treaty, will now be revived and pursued as part of the effort to rebalance Brazil's public finances, restore policy credibility, and leave behind the frustratingly low rates of economic growth of Rousseff's first four years in office. The president vowed in her inaugural speech to execute the needed fiscal adjustment while preserving popular social policies of income redistribution which contributed to poverty reduction and the rise of tens of millions Brazilians to the middle class in the past decade but crucially depends on the return of a sustainable expansion of the country’s Gross National Product. Assuming Levy and the new planning minister Nelson Barbosa will have the political backing necessary to act, the focus of the new policies will be to improve economic productivity and competitiveness. As Levy publicly stated this will require a gradual opening of the economy as well as abandonment of failed industrial policies the government can no longer finance. More broadly, it points to an exhaustion of statist approaches that have fostered inefficiency and corruption in the public sector in Brazil for generations but in recent years acquired a new virulence, painfully illustrated by the Petrolão scandal.

The normalization of US–Cuba relations announced on December 17 by Presidents Barack Obama and Raul Castro is another factor that has opened a space for better dialogue between Brasilia and Washington. At a minimum it introduces a new, more hopeful political dynamic in the Americas that is likely to reduce anti-American sentiment, which has been fueled in Brazil and the region over the past half century by the failed US strategy to isolate Cuba. This historic initiative weakens the arguments of those who tend to see the US as the cause of all ills that afflict Latin American and the world. It also undermines the position of Brazilian officials of the Bolivarian persuasion involved in regional policy making, some of whom have claimed undue credit for the return of common sense and pragmatism to US–Cuba relations.

The existential crisis created by the drop in oil price for the Bolivarian regime in Venezuela is an opportunity and a challenge for Brazilian diplomacy in the context of the new pressures brought to regional relations by renewed US-Cuba ties. The growing economic difficulties faced by Caracas and the inevitable reduction of its economic assistance to Havana are one of the motives that led Havana to seek a gradual normalization of relations with Washington. The prospect of bad news from Venezuela will inevitably move Brasilia to focus on its national interests in Venezuela, beginning with political stability in the neighboring country. This will require a credible participation by Brazil in efforts to reconcile Venezuelans. The challenge in this regard is to do in foreign policy a correction similar to what has been announced in the economic front in order to restore recent lost prestige and effectiveness of Brazilian diplomacy.

Taken together, the international ramifications of the Petrobras scandal, the proposed change in economic policy direction in Rousseff's second term, and the hemispheric reverberations of renewed US–Cuba ties are an invitation for a more productive relation between Brasilia and Washington in the two years left in the Obama administration. The test will be efforts to reschedule the Brazilian president's visit to Washington. Time is short and the parameters that will guide the White House decision in that regard are now more demanding. According to a well-placed US official, "the question is what does Obama have to gain by receiving Dilma" with all the pomp and circumstance of a state visit? The message was diplomatically conveyed by Biden, who has developed a good personal dialogue with the Brazilian leader. The Vice-President was accompanied in his brief visit to Brasilia – the third in the past two years – by the director of National Security Council for the Western Hemisphere, Ricardo Zuniga, a talented diplomat who has served at the US Embassy in Brasilia and was one of the architects of the Washington-Havana rapprochement.

Paulo Sotero is the Director of the Brazil Institute of the Woodrow Wilson International Center for Scholars.

*Photo courtesy of Flickr user Blog do Planalto.

Click here for Paulo Sotero's interview on NPR All Things Considered, "Brazilian President begins new term with tough road ahead."