Politics
Brazil Ex-Insider Returns to Help Oust President
Luciana Magalhães
The Wall Street Journal, August 12, 2014
With slow growth and high inflation hurting Brazilian President Dilma Rousseff's chances of winning a second term, a financial heavyweight has joined the opposition to persuade voters that Brazil needs a new economic steward.
Arminio Fraga, a former central banker, has been advising Aecio Neves of the Brazilian Social Democracy Party for several months. He's now talking openly of returning to government, perhaps as finance minister, if Mr. Neves can pull of an upset in October's presidential elections.
"I wouldn't make myself available if I didn't feel deeply bothered, and I am," Mr. Fraga, 57, said last week in an interview in his office in Rio de Janeiro.
Ms. Rousseff still holds a comfortable lead heading into the first round of voting October 5. But recent polls show Mr. Neves closing the gap in the event of a runoff, which is looking increasingly likely.
The president's Achilles' heel is the economy. GDP growth likely won't crack 1% this year; some analysts are even predicting a recession. But it is Brazil's stubbornly high inflation, which is hovering at around 6.5%, that is most worrisome to many voters. As recently as the 1990s, Brazil was bedeviled with hyperinflation; automatic cost-of-living increases are still built into salaries, rents and pensions.
Mr. Fraga appears to be positioning himself as something of an inflation whisperer. As president of Brazil's central bank from 1999 to 2002 under the administration of President Fernando Henrique Cardoso, he helped stabilize the currency and rein in consumer prices. Mr. Fraga supports restrained public spending, tough inflation targeting and a floating exchange rate, policies that became known in Brazil as the "economic tripod."
He is highly critical of the Rousseff administration's decision slow inflation by capping gasoline prices and electricity rates, moves he dismissed as "gimmicks." He's also alarmed that Brazil's central bank has been intervening regularly in the currency markets to prop up Brazil's real against the dollar, a strategy he ridicules a "populist move."
Mr. Fraga said these are stopgap measures that already are proving unworkable and that Brazil needs to focus on long-term fundamentals like increasing private investment and balancing its books. Credit agency Standard & Poor's earlier this year cut the credit rating on Brazil´s long term bonds to one notch above junk, citing deteriorating government accounts and rising debt.
"We have to give up on these gimmicks that have a lot of side effects and focus on bringing inflation down," Mr. Fraga said.
After leaving the central bank, Mr. Fraga helped found Gávea Investimentos, an asset management firm with around $7 billion in assets under management. He also served as chairman of Brazil's BM&F Bovespa SA, BVMF3.BR +0.91% Latin America's largest stock exchange. Earlier in his career he worked at Soros Fund Management LLC in New York for 6 years.
But whether those prestigious credentials help boost Mr. Neves chances at the presidency remains to be seen.
A spokesman for Ms. Rousseff declined to comment. But on the campaign trail, the president and her political mentor, former President Luiz Inácio Lula da Silva, constantly remind voters that millions of Brazilians have been lifted from poverty since their Workers´ Party ascended to power with Mr. da Silva's election in 2002.
Economist Luiz Gonzaga Belluzzo, who has advised both Ms. Rousseff and Mr. da Silva, noted Mr. Fraga's ideas didn't translate into robust growth for Brazil.
"They speak about the 'economic tripod' as if it were holy trinity, but the fact is that during the eight years of Cardoso government the economy grew very little, an average of only 2.3%," said Mr. Belluzo, who is also an academic and writer.
Mr. Fraga contends that many Brazilians sense the country is on the wrong path and that current pessimism about the economy is well-founded.
"I believe our history proves that high inflation, high budget deficit and weak balance of payments have never been good for growth, on the contrary," he said.
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