Brazil's Rousseff reshuffles cabinet to keep allies on board

BRASILIA (Reuters) - Brazil's beleaguered President Dilma Rousseff shrank her cabinet and reshuffled ministers on Friday to bolster alliances within her coalition government and lessen the risk of impeachment sought by opponents.

Rousseff named former defence minister Jacques Wagner, a political heavyweight, as her chief of staff and put one additional cabinet post, the health ministry, under control of the PMDB, a centre-right party that is her main coalition ally and now controls 7 of the government's 31 ministries.

The moves come as Rousseff, politically hobbled less than a year into her second four-year term, grapples with a recession, overdrawn public finances, mounting Congressional opposition and a massive corruption scandal that has already ensnared senior political and corporate officials.

In a Friday morning speech in Brasilia, Rousseff said she was strengthening her coalition's ties to lawmakers needed to help rebalance public finances.

"My government is seeking support in Congress," she said. "We need political stability for Brazil to grow."

To deal with the shifting alliances, Rousseff picked Wagner, a former two-time state governor and close ally of former president Luiz Inacio Lula da Silva, who was in the capital this week advising Rousseff, his protégée and successor.

She named former sports minister Aldo Rebelo, a longtime ally of the ruling Workers' Party, as the new defence chief.

In a largely symbolic cost-saving move, Rousseff eliminated eight of a previous 39 ministries by cutting lesser portfolios and merging others, such as labour and social security, and human rights with racial equality and women's affairs.

She said ministers would take a 10 percent pay cut and that ministry expenses would by slashed by a fifth, partially through the elimination of 3,000 posts.

Rousseff made no changes to her economic team, currently struggling to rein in spending, reverse a fiscal deficit and avoid another downgrade by international ratings agencies following a decision by Standard & Poor's last month to drop Brazil's debt to junk status.

Friday's changes gave more heft to the PMDB, which gained the health ministry, the portfolio with the largest budget.

By further empowering the PMDB, a restive ally that has been increasingly taxing the government in exchange for its support, Rousseff seeks to ensure it will back proposed austerity measures and help thwart efforts by some lawmakers to impeach her.

Some PMDB lawmakers have obstructed Rousseff's belt-tightening proposals and many have vowed not to approve new taxes, crucial to raising revenue, until she makes deeper cuts in spending.

Even with Friday's shuffle, PMDB support may be short-lived, considering a convention next month at which the PMDB is expected to reconsider its relationship to the Worker's Party.

"This reshuffle will give her some relief until the PMDB convention," said David Fleischer, a politics professor at the University of Brasilia.

Rousseff's single-digit approval ratings are the lowest for any Brazilian president in three decades. A poll this week showed Brazilians are most unhappy with high taxes and interest rates.

Other polls show most Brazilians would support her impeachment, though most experts say that at present there are no legal justifications for her ouster.

Her chances of avoiding impeachment also got a boost this week when prosecutors said her declared enemy in Congress, lower house speaker Eduardo Cunha, held Swiss bank accounts that were found in a corruption probe.

Officials said the ministry cuts will save only about 200 million reais ($50.4 million), a drop in the bucket considering her government on Aug. 31 projected a 2016 primary budget deficit of 35.5 billion reais ($8.95 billion)

(Reporting by Anthony Boadle, Lisandra Paraguassu, Silvio Cascione and Alonso Soto; Editing by Paulo Prada and Chizu Nomiyama)

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