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Edition: U.S. Article Comments (1) Full Focus Editor's choice A selection of our top photos from the past 24 hours. Full Article Follow Reuters Facebook Twitter RSS YouTube Read UPDATE 1-Texas authorities find up to 30 bodies 07 Jun 2011 Americans rated most hilarious in global poll 07 Jun 2011 UPDATE 6-Texas authorites find no bodies after psychic tip 07 Jun 2011 U.S. cancer drugs shortage has doctors scrambling 07 Jun 2011 Michael Jackson concert insurers decline to pay out | 07 Jun 2011 Discussed 89 150 economists back U.S. Republicans in debt fight 72 ”The world is getting warmer”: Romney 68 Moody’s sounds alarm over U.S. debt limit and deficits Watched Bodypainters apply their skill Mon, Jul 19 2010 Bernanke sparks fifth-day fall Tue, Jun 7 2011 Demonstrations continue in Yemen 4:28am EDT Resignation of Brazil's Palocci leaves a void Tweet Share this Email Print Related News Bernanke glum on growth but gives no stimulus hints Tue, Jun 7 2011 Greece starts austerity push as nation seethes Mon, Jun 6 2011 UPDATE 6-Left-winger Humala wins Peru election, markets dive Mon, Jun 6 2011 Major stocks hit by economic worry; euro slips Mon, Jun 6 2011 Brazil seeks to boost stagnant ethanol industry Mon, Jun 6 2011 Analysis & Opinion Club for Growth slaps Romney economic record You’re on your own, kids Related Topics World » Brazil » Antonio Palocci attends a signing ceremony of agreements for the construction and improvement of schools using the Acceleration Growing Program 2 (PAC 2) and Paths of School (Caminhos da Escola) at the Planalto Palace in Brasilia in this May 26, 2011 file photo. Credit: Reuters /Ueslei Marcelino By Raymond Colitt BRASILIA | Wed Jun 8, 2011 1:29am EDT BRASILIA (Reuters) - The resignation of President Dilma Rousseff's top aide is unlikely to cause major upheaval in Brazilian financial markets on Wednesday, but it could lead to more government spending and a generally less market-friendly approach in months to come. Antonio Palocci, considered an anchor of fiscal discipline and rigorous inflation control, quit as chief of staff late on Tuesday after a drawn-out scandal over his sudden enrichment and acquisition of a multimillion-dollar home. Most investors don't expect any immediate or abrupt changes to the stable, slightly left-of-center policies that have made Brazil's economy one of the world's brightest stars. Yet over the longer term, Rousseff's government will likely suffer from the loss of its most prominent ambassador to foreign investors. Palocci was a champion of economic reforms such as a streamlining of the tax code that many believe are crucial to ensuring continued strong growth this decade as Brazil prepares to host the World Cup and Olympics. "The news (is) clearly negative," Bank of America Merrill Lynch said in a note to investors. "Palocci is seen ... as having a responsible voice on the economic front." However, the bank added that market reaction would likely be restrained, with possibly some light selling of Brazil's bonds and currency, since there were "no immediate (economic) implications" from Palocci's departure. 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. "The financial market learned that the economic policy has a foundation," said Roberto Padovani, chief strategist with WestLB in Sao Paulo. Indeed, Palocci's resignation could mean some short-term relief for Rousseff. Daily headlines over the scandal have distracted her from tackling economic challenges such as stubborn inflation and an overvalued currency that is fueling an import boom and angering some local industries. Markets may end up paying more attention on Wednesday to Brazil's central bank, which is expected to raise its benchmark Selic rate by 25 basis points after market close to 12.25 percent to try and slow the pace of rising prices. CALM BEFORE ANOTHER STORM? It's the longer term where Palocci's absence will be most acutely felt. The 50-year-old former Trotskyite and trained doctor was easily the most powerful official in Rousseff's government, fellow ministers said. He constantly represented the private sector's interests in high-level meetings, pushing $30 billion in tough budget cuts earlier this year and other steps that would help keep prices down. With him gone, the balance of power in Rousseff's cabinet is likely to gradually tilt to the left, prompting a heavier government hand in the economy. "There's a bit of a vacuum surrounding economic policy-making now. Palocci was a key player," said Alexandre Barros, a Brasilia-based political consultant. In recent months opposing sides in Rousseff's cabinet have played tug-of-war over whether to ease land purchases by foreigners, raise royalties in mining, and partially privatize airports. Rousseff opponents in Congress may also sense an opportunity in Palocci's demise to further attack a weakened government. Rousseff, herself a career technocrat with little political experience, will find it even more difficult to hold together her broad coalition and keep often unruly allies at bay. Palocci's replacement, a legislator from the ruling Workers' Party, is a mirror image of Rousseff, with a long track-record as a civil servant but only six months of political experience as a senator. "Dilma has no political operator to hold her coalition together, to fend off power-hungry allies," said Jose Luciano Dias, analyst with CAC political consultancy in Brasilia. "This crisis is not over." (Editing by Eric Walsh) World Brazil Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story directly or with relevant tangential information. We try to block comments that use offensive language, all capital letters or appear to be spam, and we review comments frequently to ensure they meet our standards. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. Comments (1) nbywardslog wrote: I tend to agree with the author – this is bad news. The temptation with any left-leaning government in charge of a booming economy is to overspend – the UK after 2004 and Australia now being obvious examples. This guy was a steadying hand. Feels to me like some of the mortar just fell out of the Brics. Give them a couple of years and the IMF guys will come calling. Then we’ll know it’s all over… http://hat4uk.wordpress.com/2011/06/06/the-imf-has-endorsed-the-osborne-plan-but-its-too-late-for-either-of-them/ Jun 08, 2011 1:42am EDT -- Report as abuse See All Comments » Add Your Comment Social Stream (What's this?) © Copyright 2011 Thomson Reuters Editorial Editions: Africa Arabic Argentina Brazil Canada China France Germany India Italy Japan Latin America Mexico Russia Spain United Kingdom United States Reuters Contact Us Advertise With Us Help Journalism Handbook Archive Site Index Video Index Reader Feedback Mobile Newsletters RSS Podcasts Widgets Your View Analyst Research Thomson Reuters Copyright Disclaimer Privacy Professional Products Professional Products Support Financial Products About Thomson Reuters Careers Online Products Acquisitions Monthly Buyouts Venture Capital Journal International Financing Review Project Finance International PEhub.com PE Week FindLaw Super Lawyers Attorney Rating Service Reuters on Facebook Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests. NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.

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