Brazil poll winner must overhaul economy

GMT 22:25 2014 Thursday ,23 October

Arab Today, arab today Brazil poll winner must overhaul economy

Aecio Neves, presidential candidate of the Brazilian Social Democracy Party
Brasília - AFP

Regardless of whether incumbent Dilma Rousseff or challenger Aecio Neves wins Sunday's Brazilian presidential election run-off, this Latin American powerhouse needs an economic overhaul, analysts say.
Memories of growth racing ahead 7.5 percent in 2010 are now distant, with Brazil sliding into recession amid rising inflation and low investment.
"We need less intervention on the foreign exchange markets, less on prices and a commitment to deal with inflation while introducing more fiscal discipline," said Alberto Ramos, chief Latin America researcher at Goldman Sachs.
The market prefers Social Democrat Neves, accusing leftist Rousseff of using domestic consumption to fuel growth and excessive government interventionism to help keep prices in check by limiting the cost of staples such as fuel.
Under Rousseff's predecessor and Workers Party (PT) mentor Luiz Inacio Lula da Silva, Brazil enjoyed several years of strong growth through 2010.
But since Rousseff took office the following year, growth has been sluggish and will come close to zero this year.
Rousseff, who topped the first round of voting with an eight percent advantage over Neves, says it is not markets that vote.
But the financial world sees in Neves the prospect of more economic liberalism to reboot the economy.
His chief economic adviser, former central bank head Arminio Fraga, has produced a slew of proposals for the Social Democrat's economic program, including fiscal reform exempting imports and investments from tax and tackling Brazil's infrastructure deficit.
- Discipline, investment -
 Analysts urge respecting Brazil's primary surplus -- dipped into to pay interest on debt and its most closely watched fiscal target.
Brazil has been revising its surplus goal downward this year after two previous misses.
Andre Leite, economist with TAG Investments, said investing in much-neglected infrastructure is crucial if the world's seventh largest economy is to return to growth.
But that means possibly adopting strategies such as the tried approach of electricity tariff modifications and concessions.
"The next president must show the market clear and stable rules allowing businessmen to invest more easily," Leite said.
Rousseff, running neck and neck in the polls with Neves, says her government had to batten down the hatches to counter the global crisis and focused on tackling unemployment, which reached an all-time low of 5.0 percent in August.
If elected, she has promised to "raise investment" in a country that slipped back from fourth to fifth on a UN foreign investment index last year, Brazil's first fall since 2009.
- Tackling inflation -
"The current government focuses too much in domestic consumption and credit and forgot about company productivity," said Getulio Vargas Foundation economist Samy Dana.
"We have a huge tax burden, expensive labor and logistical problems. Brazil is a very expensive country and that all taken together means it does not grow."
Brazil has interest rates running at 11 percent, after previously ramping them down to stimulate demand. Annual inflation has also peaked at 6.75 percent, its highest rate in nearly three years.
"We have today a central bank which is not regarded as independent and does not do all which is needed to control inflation," said Leite, echoing Neves's economic team.
Rousseff says making the central bank "independent," giving it freedom to set rates policy, would grant too much power to the banks and potentially affect employment.
Neves's team meanwhile wants a reassessment of the role of state development bank BNDES, one of the world's largest development banks, to determine if private banks could not finance some of its projects.
Rousseff is unconvinced.
"Who is going to finance infrastructure, housing, charging lower rates through long-term payments?" she asked rhetorically.
Rousseff highlights the huge welfare programs that have expanded under her watch, including cheap public housing for the poorest in far-flung regions.
The welfare programs, among them cash transfers for the very poor, were rolled out from 2003 after Lula came to power and have since lifted some 40 million people out of poverty.
Rousseff has enjoyed a political payback, establishing a huge poll lead in low-wage areas that have benefited from such schemes.
Neves gets the bulk of his support from well-educated voters in households earning upwards of $1,575 a month -- more than five times the minimum wage.

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