Rousseff government pledges industry stimulus after election win
BRASILIA,
Brazil — One day after Brazilian President Dilma Rousseff won
re-election in the closest race since at least 1945, her government said
it will move to spur growth in the world's second-largest emerging
market.
"We will have several stimulus measures for industry," Deputy Finance Minister Paulo Caffarelli told reporters in Brasilia Monday. "We can expect that the economy will become better."
Rousseff, who has maintained record-low unemployment even as the economy posted the slowest growth under any Brazilian president in more than two decades, won 52 percent of the vote, while Senator Aecio Neves garnered 48 percent.
She has built support through the Bolsa Familia program that has benefited 14 million poor families, a public housing drive that will have 2.75 million homes contracted by year-end, a program that dispatched thousands of doctors into deprived areas, and scholarships.
After winning the country's top job by the tightest margin since at least 1945, Rousseff faces the challenge of pulling the economy out of recession while capping annual inflation running above the central bank's target range. Her attempts to revive the economy by reducing taxes and increasing subsidies have fueled inflation and widened the budget deficit, threatening the country's investment-grade status.
Cafferelli's comment that economic stimulus will continue into Rousseff's second term reflects the fact she's been in campaign mode and hasn't yet turned attention to 2015, according to Tony Volpon, managing director at Nomura Securities.
"They still need to sit down, look at the situation as it really is, and then decide what they need to do," Volpon said by phone from New York. "There's a litany of issues she needs to deal with and nomination of the finance minister — whenever he comes, no one knows — will be an important signal as to whether she wants to do things differently or not."
Rousseff Sunday promised "great changes" in her second term, starting with a plebiscite on political reform and open dialog with her critics.
"I will take urgent actions especially on the economy to return our rhythm of growth and continue guaranteeing high levels of employment and assuring salary increases," Rousseff said in her victory speech. "We will give more impetus to economic activity in all sectors, especially industry."
Brazil's economy shrank 0.6 percent during the second quarter of the year after contracting a revised 0.2 percent during the first three months of the year. Industry fell 1.5 percent on the quarter, while investments dropped 5.3 percent.
"New measures should be announced, but they aren't ready yet," Finance Minister Guido Mantega told reporters Monday in Brasilia. Rousseff's victory ''shows the population approves of the economic policy we are implementing.''
In his concession speech, Neves said unifying Brazil was Rousseff's main challenge.
"Sometimes in history, narrow results produce much stronger and faster changes than very wide victories," Rousseff said Sunday in her victory speech. "I will and I want to be a much better president than I have been up to now."
Her "first and most important" task is an overhaul of the political system that will help reduce corruption, Rousseff said. During the race she proposed a ban on corporate funding of campaigns and rules to increase the number of female candidates in elections. Congress needs to approve the changes.
Rousseff said she will continue to fight inflation with rigor, advance in fiscal responsibility and take measures to boost economic growth. In September, she said Mantega, who many investors see as responsible for the widening budget gap, would not return in her second term.
Domestic issues will be exacerbated by a more challenging international environment, which Rousseff has blamed for much of Brazil's slowdown. Global growth is faltering, and an increase in lending costs in the U.S. could increase capital outflows. Prices of commodities — which account for 50 percent of Brazilian exports — are down this year, including 40 percent for iron ore and 17 percent for soybeans.
Rousseff will need to reach out to the opposition to bolster the economy and rebuild relationships hurt during the campaign, Andre Cesar, a political analyst, said by phone from Brasilia following the vote. She needs to pick a finance minister from outside her party, he said.
"She has to give a clear and rapid signal to the financial market," Cesar said. "She needs something fast. There's not much time."
In the run-up to the election, more than two-thirds of Brazilians polled by Ibope said they're looking for change. Last year, 1 million took part in street protests, as the growing middle class expressed demands for better education, health services and public transport.
Some supporters of Rousseff railed against the media Sunday night, chanting against Brazil's biggest media group Globo in the Brasilia hotel where the president gave her victory speech. One person at the event interrupted a television reporter who was filming a segment, calling the journalist a fascist.
In the final days of the campaign, Rousseff accused Brazil's most-read weekly magazine, Veja, of carrying out "electoral terrorism" to hurt her re-election bid. Veja reported Oct. 23 on its cover that Rousseff was aware of an alleged scheme to funnel kickbacks from Petroleo Brasileiro to politicians. She denies the allegations.
Rousseff channeled the call for change by promising a "new government" with "new ideas." She also cast doubt on what sort of shift Neves would represent, saying he would boost interest rates to bring inflation down to target, triple the jobless rate and curtail social programs.
Rousseff has defended her economic performance by saying she preserved jobs in the face of the global economic crisis. While the economy entered recession in the first half of this year, September's 4.9 percent unemployment rate was a record low for the month. Real average income has risen 10 percent during Rousseff's tenure and 33 percent in the past decade.
Her government has also funded post-high school technical education for families that benefit from welfare programs, while Rousseff and her predecessor Luiz Inacio Lula da Silva provided 20 billion reais ($7.9 billion) in subsidized loans to about 1.6 million students and scholarships for 1.4 million Brazilians.
"Voters have gone through a rapid rise in their economic standards and conditions, and that benefits the incumbent," Christopher Garman, head of emerging markets research at political risk consulting firm Eurasia Group, said by phone from Washington. "When the incumbent says if you vote for the opposition you run the risk of losing what you have, that resonates."
The
swelling of the middle class places a greater burden on Rousseff to
deliver economic growth, said Paulo Sotero, director of the Brazil
Institute at the Woodrow Wilson International Center for Scholars.
Mantega's announced exit indicates she has heard the market's call for
renewal and will bring in "new blood," he said."We will have several stimulus measures for industry," Deputy Finance Minister Paulo Caffarelli told reporters in Brasilia Monday. "We can expect that the economy will become better."
Rousseff, who has maintained record-low unemployment even as the economy posted the slowest growth under any Brazilian president in more than two decades, won 52 percent of the vote, while Senator Aecio Neves garnered 48 percent.
She has built support through the Bolsa Familia program that has benefited 14 million poor families, a public housing drive that will have 2.75 million homes contracted by year-end, a program that dispatched thousands of doctors into deprived areas, and scholarships.
After winning the country's top job by the tightest margin since at least 1945, Rousseff faces the challenge of pulling the economy out of recession while capping annual inflation running above the central bank's target range. Her attempts to revive the economy by reducing taxes and increasing subsidies have fueled inflation and widened the budget deficit, threatening the country's investment-grade status.
Cafferelli's comment that economic stimulus will continue into Rousseff's second term reflects the fact she's been in campaign mode and hasn't yet turned attention to 2015, according to Tony Volpon, managing director at Nomura Securities.
"They still need to sit down, look at the situation as it really is, and then decide what they need to do," Volpon said by phone from New York. "There's a litany of issues she needs to deal with and nomination of the finance minister — whenever he comes, no one knows — will be an important signal as to whether she wants to do things differently or not."
Rousseff Sunday promised "great changes" in her second term, starting with a plebiscite on political reform and open dialog with her critics.
"I will take urgent actions especially on the economy to return our rhythm of growth and continue guaranteeing high levels of employment and assuring salary increases," Rousseff said in her victory speech. "We will give more impetus to economic activity in all sectors, especially industry."
Brazil's economy shrank 0.6 percent during the second quarter of the year after contracting a revised 0.2 percent during the first three months of the year. Industry fell 1.5 percent on the quarter, while investments dropped 5.3 percent.
"New measures should be announced, but they aren't ready yet," Finance Minister Guido Mantega told reporters Monday in Brasilia. Rousseff's victory ''shows the population approves of the economic policy we are implementing.''
In his concession speech, Neves said unifying Brazil was Rousseff's main challenge.
"Sometimes in history, narrow results produce much stronger and faster changes than very wide victories," Rousseff said Sunday in her victory speech. "I will and I want to be a much better president than I have been up to now."
Her "first and most important" task is an overhaul of the political system that will help reduce corruption, Rousseff said. During the race she proposed a ban on corporate funding of campaigns and rules to increase the number of female candidates in elections. Congress needs to approve the changes.
Rousseff said she will continue to fight inflation with rigor, advance in fiscal responsibility and take measures to boost economic growth. In September, she said Mantega, who many investors see as responsible for the widening budget gap, would not return in her second term.
Domestic issues will be exacerbated by a more challenging international environment, which Rousseff has blamed for much of Brazil's slowdown. Global growth is faltering, and an increase in lending costs in the U.S. could increase capital outflows. Prices of commodities — which account for 50 percent of Brazilian exports — are down this year, including 40 percent for iron ore and 17 percent for soybeans.
Rousseff will need to reach out to the opposition to bolster the economy and rebuild relationships hurt during the campaign, Andre Cesar, a political analyst, said by phone from Brasilia following the vote. She needs to pick a finance minister from outside her party, he said.
"She has to give a clear and rapid signal to the financial market," Cesar said. "She needs something fast. There's not much time."
In the run-up to the election, more than two-thirds of Brazilians polled by Ibope said they're looking for change. Last year, 1 million took part in street protests, as the growing middle class expressed demands for better education, health services and public transport.
Some supporters of Rousseff railed against the media Sunday night, chanting against Brazil's biggest media group Globo in the Brasilia hotel where the president gave her victory speech. One person at the event interrupted a television reporter who was filming a segment, calling the journalist a fascist.
In the final days of the campaign, Rousseff accused Brazil's most-read weekly magazine, Veja, of carrying out "electoral terrorism" to hurt her re-election bid. Veja reported Oct. 23 on its cover that Rousseff was aware of an alleged scheme to funnel kickbacks from Petroleo Brasileiro to politicians. She denies the allegations.
Rousseff channeled the call for change by promising a "new government" with "new ideas." She also cast doubt on what sort of shift Neves would represent, saying he would boost interest rates to bring inflation down to target, triple the jobless rate and curtail social programs.
Rousseff has defended her economic performance by saying she preserved jobs in the face of the global economic crisis. While the economy entered recession in the first half of this year, September's 4.9 percent unemployment rate was a record low for the month. Real average income has risen 10 percent during Rousseff's tenure and 33 percent in the past decade.
Her government has also funded post-high school technical education for families that benefit from welfare programs, while Rousseff and her predecessor Luiz Inacio Lula da Silva provided 20 billion reais ($7.9 billion) in subsidized loans to about 1.6 million students and scholarships for 1.4 million Brazilians.
"Voters have gone through a rapid rise in their economic standards and conditions, and that benefits the incumbent," Christopher Garman, head of emerging markets research at political risk consulting firm Eurasia Group, said by phone from Washington. "When the incumbent says if you vote for the opposition you run the risk of losing what you have, that resonates."
"People want to see actual measures, actual policy that responds to some of their concerns of excessive taxation, excessive bureaucracy, excessive government interventionism, and a completely clogged regulatory system — those are the real issues," Sotero said by phone.
Business confidence as measured by the National Industry Confederation is at its lowest level in more than a decade. Investment in 2013 amounted to 18 percent of gross domestic product, the lowest of all nations in the so-called BRICS group and less than half China's rate, according to the World Bank. It hit 16.5 percent of GDP in the second quarter, the least in 7 1/2 years.
While restoring confidence to boost investment will be important, Rousseff's greatest challenge is slowing inflation to the 4.5 percent target and re-anchoring expectations, according to Alberto Ramos, chief Latin America economist for Goldman Sachs. Annual price increases exceeded that level her entire term and reached 6.75 percent in September, above the 6.5 percent ceiling of the target range.
Moody's Investors Service raised the possibility that it could cut Brazil's credit rating to junk when it lowered the outlook to negative on Sept. 9. The move came six months after Standard & Poor's lowered Brazil's rating for the first time in more than a decade to one level above junk, citing weak growth and worsening fiscal accounts. A string of monthly primary deficits suggest this will be the second straight year the government fails to meet its budget surplus target.
Rousseff and Mantega have said Brazil's first technical recession in five years is the result of headwinds from the global slowdown. The world economy will grow about eight times faster than Brazil in 2014, according to economists surveyed by Bloomberg, who expect Latin America's largest nation to grow 0.3 percent this year and 1.3 percent in 2015.
The state of the economy did not deter Rousseff's supporters, especially in the poorer regions of the country such as the northeast, who have benefited under the Workers' Party, according to Eurasia's Garman. She won in all nine northeastern states, one of the poorest regions in Brazil. She lost in Sao Paulo, the richest and most populous state.
"She did some things that helped us here in the lower class," said Alan Silva, a 31-year-old unemployed resident of Rio de Janeiro's Mangueira slum. "I wasn't sure the change Neves was going to do was going to work. It's not good to keep changing."
_ Biller reported from Rio de Janeiro. Contributors: Filipe Pacheco in Sao Paulo, Arnaldo Galvao and Raymond Colitt in Brasilia Newsroom and Matthew Malinowski and Anna Edgerton in Brasilia.
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