Gearing up for Elections in Brazil

 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,
Horizonte and Recife. The hardest battle will be in São
by: Richard


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

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

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