Brazil bids farewell to Lula as Rousseff steps in

By Raymond Colitt

BRASILIA (Reuters) – Brazilians spilled on to the streets of the capital on Saturday to witness the swearing in of the first woman to become Brazil's president and bid farewell to the most popular leader in the country's modern history, Luiz Inacio Lula da Silva.

Dilma Rousseff, a 63-year-old a former Marxist guerrilla turned technocrat who had never run for elected office before sweeping October's election, will take the reins of an emerging giant with a booming economy, vast new oil reserves and growing diplomatic clout on the global stage.

But she will also inherit a country with a long list of daunting challenges that Lula failed to tackle, including an overvalued currency that is hurting industry, rampant public spending that is fueling inflation, and notorious bureaucracy that stifles investment and discourages innovation.

When Rousseff's motorcade passes Brasilia's modernist government buildings in a convertible 1953 Rolls Royce flanked by an all-female security detail, many Brazilians will be there to salute their outgoing, not their incoming president.

"I'm here to thank Lula for all he's done. If Dilma can do half of that I'll be happy," said Izabel Rosales Figuereido, who traveled from the western state of Mato Grosso do Sul to attend Rousseff's inauguration.

Lula is a tough act to follow. In his eight years in office, Brazil won a long-sought investment grade credit rating, more than 20 million Brazilians were lifted out of poverty, and unemployment fell to an all-time low of 5.7 percent. And while glaring inequalities persist, the middle class now accounts for more than half the population in this vast country of 190 million people.

The folksy former metalworker, who groomed Rousseff to be his successor, leaves office with a sky-high personal approval rating of 87 percent and legendary status among the poor.

Rousseff, who appointed an experienced and respected economic team, will maintain the mostly market-friendly policies that helped cement Brazil's place among the elite BRIC group of fast-growing emerging economies that also includes Russia, India, China and now South Africa.

She has also pledged to build on the social welfare programs championed by Lula with hopes of eradicating extreme poverty in Brazil by the time it hosts the World Cup in 2014. Two years later, Brazil will also host the Olympic Games.

But Rousseff lacks Lula's remarkable charisma, which was key for the former union leader to push his legislative agenda through an often unruly Congress.

POLITICAL SKILLS TO BE TESTED

A bookish technocrat who served as Lula's energy minister and chief of staff, Rousseff's political skills will be put to the test early on as she tries to marshal support for spending cuts and wage caps intended to shore up public finances.

"The question is whether she has the courage and support to stand up to vested interest," said Pedro Simon, senator for the PMDB, the largest party in Rousseff's coalition. "There's already an army of scoundrels wanting the victory spoiled."

One of the first challenges of her 10-party coalition will be a politically sensitive tax overhaul she plans to send to Congress early in her tenure, something Lula avoided.

Rousseff is expected to wield a heavy government hand in several sectors of the economy, particularly the oil industry. Developing vast, new offshore oil reserves spells huge opportunities for more wealth and jobs but risks sidelining private capital and technology.

Given the many pressing demands at home, she is likely to take a lower international profile and avoid courting controversy, like Lula did when he angered Washington with mediation efforts over Iran's nuclear program.

Rousseff has signaled she wants to warm ties with the United States and has distanced herself from Iran, harshly criticizing Tehran's human rights record.

Washington will be one of her first foreign destinations, a close aide said this week, and U.S. Secretary of State Hillary Clinton is among 30-plus foreign dignitaries attending the inauguration ceremony.

(Additional reporting by Ana Nicolaci da Costa and Leonardo Goy; Editing by Todd Benson and Jackie Frank)