Investors hoping for dramatic change in Brazil are now looking for incremental progress following the re-election of Dilma Roussef as president.

Roussef won re-election last month with the narrowest margin of any president in the 29 years since the return to democracy. Her Worker's Party (PT) returns to office for the fourth consecutive term, but with a slight margin: 51.4 percent versus 48.5 percent by the opposing candidate, Aécio Neves. Roussef pledged dialogue to reunite the divided nation.

In her first term, Roussef presided over a deteriorating economy characterized by low growth, high inflation and a mounting fiscal deficit. Last month, Moody's rating agency changed its outlook for Brazil to negative from stable because of debt and sluggish growth projected to come in at less than 1 percent this year. "I want to be a much better president than I have been to date," she said after her victory was declared.

Financial markets are eager to get signals that Roussef will adopt market-friendly policies to stimulate growth and move away from the voluminous public spending and state intervention seen in her first four years in office.

The president has announced that finance minister Guido Mantega, who has held the post since March 2006, will leave office by the end of the year. Initial speculation about his replacement centers on a banker, a lifetime politician and a former finance ministry official.

"Anybody who's seen as being more market friendly would (offer) a strong signal to the markets," says Stephen Double of Holland & Knight. Central bank president Alexandre Tombini is expected to remain in place, according to press reports. "It is quite important (the finance minister and central bank president) have the same outlook on the macroeconomic level," Double said.

The choice for finance minister could calm markets. After his first election in 2001, former President Luiz Inácio Lula da Silva, founder of the Worker's Party and Roussef's mentor, named lifelong banker Henrique Meirelles to head the central bank. Investors were immediately reassured. That example of pragmatism could prevail now, suggests Felipe Berrer, of counsel at Akerman LLP in Miami. "We are expecting someone unbiased, market friendly, not a career politician," says Berrer ,who also heads the Brazilian-American Chamber of Commerce of Florida.

Investors will look for Roussef to make market-friendly moves to ease tax and labor policy. "For everyone investing in Brazil, tax planning is the number one priority that will make you successful or not," says Berrer of Akerman.

Tax and labor policy are nettlesome issues that complicate operating a business in Brazil. Achieving policy reform in this area "is going to be very difficult. It is an urgent matter that has been there for 20 years," says Yosbel Ibarra, co-chair of Latin American and Iberian practice with Greenberg Traurig.

Private investors will take the measure of the space for their capital. In recent years, public funding of private firms has increased enormously, primarily through expansion of lending by the BNDES national development bank. This tends to decrease demand for private investment, lawyers say.

Brazil faces greater competition for foreign investment now than in the recent past.

"Brazil has investment grade neighbors now—Colombia and Peru" says Double of Holland & Knight.

Merger and acquisition shoppers are broadening their sights. "For a long time, Brazil was the must-have in Latin America," Ibarra said. "If I'm in private equity looking for growth, I'd take a hard look at Peru, Colombia, Mexico and Chile," he says. The plan under way to create an integrated stock market that unifies trading for those four countries will create intense competition for Brazil.

Trade policy during Roussef's first term has centered on the World Trade Organization and associations of South American countries. With WTO negotiations stalled, investors are eager to see Roussef reactivate bilateral negotiations for a trade deal with the European Union, Berrer said.

Brazil-U.S. relations suffered a setback when Roussef canceled a state visit to the White House in the wake of revelations of U.S. spying on Brazilian citizens and on Roussef herself.

Investors and markets may look with skepticism at the Roussef victory. But the heft of Brazil remains a powerful argument for engaging with the country.

"Brazil is still a huge economy with huge potential, and they are extremely innovative,'' Ibarra said.