By Paulo Trevisani And Jeffrey T. Lewis 

BRASÍLIA--President Dilma Rousseff began her second term in office with promises to fight corruption and fix the economy, acknowledging the many challenges facing her and Brazil over the next four years.

In an inauguration ceremony that was upbeat but drew sparse applause and little spontaneous celebration by her supporters, Ms. Rousseff extolled her legacy of poverty reduction while outlining a vision to get Latin America's largest country back on track.

"We will prove that it is possible to make adjustments to the economy without repealing rights that have been won or betray social commitments, " she said in a speech in Brazil's Congress attended by cabinet members, foreign dignitaries, allied lawmakers and other officials.

Her pledge came as Brazil confronts flat growth, stubbornly high inflation, ballooning debt and a potentially explosive corruption scandal at state-controlled oil giant Petróleo Brasileiro SA, or Petrobras.

The tone stood in contrast to 2011, when she was first inaugurated and Brazil's economy was coming off a 7.5% expansion the year before, fueled by a commodities boom that has long since ended.

Ms. Rousseff's first administration was marked by a robust expansion of popular social programs that helped her win re-election. But her new economic team has already begun belt-tightening to reduce growing deficits. Earlier this week the government announced measures that will cut unemployment and retirement benefits. Lawmakers haven't yet approved the measures. Economists have urged spending cuts to tame inflation, which for years have been at the top end of Brazil's 2.5% to 6.5% target range.

Brazil's current mix of slow growth and high inflation is often attributed to what some say were economic missteps--such as excessive government intervention in the economy--by Ms. Rousseff's administration.

Joaquim Levy, Brazil's new finance minister, is tasked with preserving Brazil's hard-won investment-grade credit rating, obtained in 2008, following a downgrade this past year.

But fixing the economy could mean tough political battles, even with government allies. "We expect the president to be loyal to calls from workers to advance in labor benefits, not a package of reforms that hurt workers," said Senator Randolfe Rodrigues, from one of the several leftist parties that support the Rousseff administration, to reporters as he walked into Congress for the inauguration.

A protégé of former President Luiz Inácio Lula da Silva, Ms. Rousseff struggled at times during her first four years to get controversial bills approved, even with her broad coalition in Congress.

Her second term promises to be even tougher. Ms. Rousseff eked out her narrow victory in the October presidential race, relying on attack ads to tear down her opponents. Still, her Workers' Party and most of its allied parties lost seats in Congress.

But the darkest cloud on the horizon for Ms. Rousseff might be the fast-moving corruption scandal at Petrobras.

Brazilian prosecutors allege that executives at Petrobras conspired with construction companies to inflate the cost of contracts, skimming off as much as $1.5 billion, by the estimate of Brazil's budget watchdog, to enrich themselves while funneling kickbacks to Ms. Rousseff's Workers' Party and its allies.

Ms. Rousseff hasn't been implicated in the scandal, and leaders of her party have repeatedly denied allegations of involvement. Police have already filed charges against 36 suspects, including two former Petrobras officials.

In her speech on Thursday, Ms. Rousseff said that "corruption offends and humiliates the workers, the business people and all honest and good-willing Brazilians. Corruption must be extirpated."

Prosecutors are expected to start handing down indictments of elected officials in February. The scandal has emboldened opposition parties, which are pushing to reopen a parliamentary probe into the Petrobras case after an earlier one recommended charges be filed against dozens of people.

"Congress has an obligation to investigate," said Federal Deputy Antonio Imbassahy, leader in the lower house for Brazil's largest opposition party, the Brazilian Social Democracy Party, after listening to the speech on TV. He said his party will fight in the new legislature, to be inaugurated in February, for a continuation of the probe that last year.

Given the many difficulties facing Ms. Rousseff, including calls for her impeachment, she will struggle to turn those challenges to her advantage.

Thousands of Ms. Rousseff's supporters were on hand for the celebration, some of them bused in by the ruling Workers' Party. While many expressed loyalty to the president for expanding social programs that have pulled millions from poverty, some expressed doubts that she can fix Brazil's problems quickly.

Sitting on the grass under the shade of some palm trees to get relief from a blazing sun and 90-degree heat, Ana Paula de Assis, a 38-year old housemaid said she expected the president to "improve health, safety, education," but doubted inflation could be tamed anytime soon.

"Our salary never goes up, only prices," she said.

Access Investor Kit for Petróleo Brasileiro SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=BRPETRACNOR9

Access Investor Kit for Petróleo Brasileiro SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=BRPETRACNPR6

Access Investor Kit for Petróleo Brasileiro SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US71654V4086

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Petroleo Brasileiro ADR (NYSE:PBR)
Historical Stock Chart
From Mar 2024 to Apr 2024 Click Here for more Petroleo Brasileiro ADR Charts.
Petroleo Brasileiro ADR (NYSE:PBR)
Historical Stock Chart
From Apr 2023 to Apr 2024 Click Here for more Petroleo Brasileiro ADR Charts.