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Brazzil - Politics - January 2004

Gearing up for Elections in Brazil

The October elections in Brazil will be the first real test of
President Luiz Inácio Lula da Silva's popularity. The Workers'
Party (PT) hopes to retain the mayors of four capital cities
where they are now in charge: São Paulo, Porto Alegre, Belo
Horizonte and Recife. The hardest battle will be in São Paulo.

Richard Hayes


The São Paulo stock exchange remains buoyant although there has been some profit taking this past week. C-Bonds are quoted above their face value and the real continues strong against the US dollar. A sovereign risk 30-year bond issue was over-subscribed. This will add another $1.5 billion to the foreign reserves. Henrique Meirelles, central bank president, and his colleagues at the treasury department are smart to take advantage of the current positive sentiment toward Brazil that is evident in the market.

Although the total government debt grew by 17.4 percent last year, it has been stretched out somewhat and the portion denominated in US$ has dropped to 32.4 percent according to a press report. This indicates increasing confidence in the nation's ability to manage its obligations.

The real economy shows few signs of improvement. Unemployment continues to be a major problem yet to be addressed by the government in concrete terms. They talk about stimuli to certain sectors that will increase jobs such as civil construction, infrastructure projects and tourism.

Speaking of tourism, the requirement that American visitors be photographed and finger printed appears to be a permanent fixture. With the introduction of new equipment and the elimination of the inking of ten fingers, the process has been speeded up considerably. Editorial comment has pointed out the folly of this measure but public opinion seems to be in favor of this reciprocal move started by a judicial decision in Mato Grosso and later confirmed by the federal government.

The Federal Police were caught off guard by the decision. This caused much confusion and delays in the first days of the year. In Rio de Janeiro, that depends upon foreign visitors more so than São Paulo, arriving passengers as compensation were awarded with gifts and shown a pre-Carnaval dancing display that cheered them up.

An American Airlines crew member gave the finger while being photographed in Cumbica, São Paulo's international airport, and was detained nearly 24 hours until the company came up with R$ 36,000 (US$ 12,000) to pay his fine. The proceeds are to be donated to a charity in Guarulhos, the city where the airport is located.

This matter of visas and identification of visitors was discussed at a meeting between Lula and Bush during the Monterrey confab earlier in the month. Lula has made the suggestion that both countries eliminate the need for visas for visitors from their respective countries. This would eliminate photographing and finger printing of Brazilians and Americans in both countries. Bush promised to study the matter, which has little chance of happening very soon if ever. But Lula is gaining points among his leftist supporters that have been disappointed by his apparent drift to the center in order to gain the confidence of the international financial community.

Investment in infrastructure projects has yet to appear. Lula's government has remained mute while Roberto Requião, the quixotic governor of the important state of Paraná, has taken over the concessionaries of privatized highways. His allegation is that their tolls are excessively high.

Political Interference

The recent dismissal of Luiz Guilherme Schymura as president of Anatel, the regulatory agency for the telecommunications sector, also signals that political meddling is always a potential hazard to investors. It is not that Schymura was any kind of star, but law determined his three-year term of office, something that Lula and his buddies choose to overlook.

His replacement is Pedro Jaime Ziller, a union leader close to the current Minister of Communications Miro Teixeira. This appointment was viewed as a consolation for Miro Teixeira, who will probably loose his job soon due to his changing of political parties.

There are rumors that Lula, encouraged by Dilma Rousseff, the Minister of Mines and Energy, will soon get rid of the heads of ANP that is in charge of petroleum matters and ANEEL that regulates the electrical sector. The PT seems convinced that it should eliminate any vestiges of the sensible measures taken by the last government of Fernando Henrique Cardoso to isolate utilities from political influence thereby encouraging private investment. Lula's government wants to gain more control over these important sectors that were privatized during the last administration. This could lead to rate freezes if inflation picks up.

Congress has begun its special session that is expected to cost taxpayers more than R$ 50 million (US$ 17 million). The purpose of this convocation is not clear. Although there are several important items to be resolved such as a new bankruptcy law, clarification of the use of genetically modified seeds, independence of the central bank as well as finishing up the reforms started last year, the retirement system and an overhaul of taxes, I do not expect to see much happening during this period that is normally part of a sixty-day recess.

With municipal elections coming up in October, I doubt if any thorny measures will be resolved. There is no practical reason for this expensive exercise other than to bestow additional earnings upon the members of the legislative branch of government and their staffs. A calculation in an editorial shows that each member of Congress will earn R$ 1,272.00 (US$ 424), or 5.3 times the monthly minimum wage, per day of "work."

The October elections will be the first real test of Lula's popularity. The PT hopes to retain the mayors of four capital cities where they are now in charge, São Paulo, Porto Alegre, Belo Horizonte and Recife. The biggest effort will be in São Paulo where Marta Suplicy won handily four years ago.

Marta has raised taxes and right now has the southern part of the city torn up with work on two major arteries. Therefore she is not all that popular with a lot of people. Marta's current husband, a Franco Argentine, has been given a cushy job in the PR and publicity organization of Duda Mendonça, the man who handled Lula's presidential campaign and orchestrates publicity for the PT.

I can foresee a more pronounced drift to the left as nationalism ratchets up and the propaganda machine plays down the lack of progress on campaign promises. More hot air and vague non-executed plans will be the rule for 2004, I expect.

Richard Edward Hayes first came to Brazil in 1964 as an employee of Chase Manhattan Bank. Since then, Hayes has worked directly and as an advisor for a number of Brazilian and international banks and companies. Currently he is a free lance consultant and can be contacted at 192louvre@uol.com.br

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