Brazil Minister Backs Air Workers' Demand for 10% Raise as Strike Looms

Brazilian Labor Minister Carlos Lupi said he backs airline workers’ demand for a 10 percent wage increase as carriers Gol Linhas Aereas Inteligentes SA and Tam SA make “a lot of money” from increased traffic by the nation’s growing middle class.

Lupi, in an interview in Brasilia yesterday, said that salaries in Latin America’s biggest economy will increase faster than inflation this year as the country reaches full employment by year-end. The pay increases won’t stoke inflation, which is being fueled by speculative capital inflows that have pushed the country’s exchange rate to “worrisome” levels, he said.

Domestic demand, boosted by a 20 percent expansion in consumer credit, fueled the fastest economic growth in two decades last year. The central bank estimates that the $1.57 trillion economy expanded 7.3 percent in 2010, and economists surveyed by the bank expect gross domestic product to grow 4.5 percent this year.

“A virtuous economic cycle favors the worker,” Lupi said. “If wages fueled inflation, the world would be finished. We have a growing middle class that needs to buy, and pay raises will provide more tax collection, investments and ultimately jobs.”

During former President Luiz Inacio Lula da Silva’s eight years in office through 2010, roughly 36 million Brazilians joined the middle class, and Lula’s central bank president, Henrique Meirelles, last year said 36 million more should reach that status by 2014. The national statistics agency in August 2009 estimated Brazil’s population at 191.5 million.

Yields on interest rate future contracts maturing January 2012 rose 3 basis points, or 0.03 percentage point, to 12.12 percent. The real fell 0.5 percent to 1.6822 per dollar, from 1.6739 yesterday.

Jobs, Inflation

Latin America’s biggest economy created 2.54 million jobs in the first 11 months of 2010, helping cut the unemployment rate to an all-time low 5.7 percent. A tighter labor market is an “important risk factor” for inflation, policy makers said in their quarterly inflation report Dec. 22.

Annual inflation, as measured by the IPCA-15 price index, quickened to 5.79 percent in mid-December, the fastest pace in almost two years, the national statistics agency said Dec. 21.

Brazil may create 3 million jobs this year, with the unemployment rate falling to a range of 5 percent to 5.5 percent, which would mean full employment. Job growth would be led by retail, services and homebuilding, Lupi said.

Lupi said “dialogue is over” between the government and the airlines as workers for carriers consider striking for higher wages next week.

Earnings, Infrastructure

Lupi said airlines have made a “lot of money” in recent years and weren’t prepared to handle higher demand for air travel.

Gol and Tam, Brazil’s largest airlines, have gained 5.5 percent and 1.7 percent respectively in the first three days of 2011, in part on speculation President Dilma Rousseff will allow the country’s airport authority to sell shares, boosting private investment in the industry.

Gol shares fell 1.06 percent, the biggest decline since Dec. 27, to 26.21 reais at 9:02 a.m. New York time, while TAM fell 0.5 percent to 39.43 reais.

Rousseff, who took office Jan. 1, may sign a decree this month allowing the authority, known as Infraero, to hold an initial public offering, Folha de S. Paulo newspaper reported Jan. 3, citing unidentified officials.

Brazil’s new president has pledged to rebuild roads, ports, railways, power plants and electricity distribution lines to bolster the nation’s economic growth.

Gol, the No. 2 carrier, expects domestic air demand to increase 10 percent to 15 percent in 2011, according to a Jan. 4 regulatory filing.

Performance

The government will increase regulation of airlines, including boosting enforcement of labor laws, to improve the industry’s performance, Lupi said.

“Airline companies weren’t adequately prepared for the increase of Brazilians’ purchasing power and there’s a lot of abuse on labor conditions -- that’s quite risky,” Lupi said.

Brazilian airline workers may declare a strike as early as Jan. 12 if companies don’t increase their offer of an 8.2 percent pay rise, Marcelo Schmidt, General Secretary of the National Union of Airline Workers, said Jan. 4.

In addition to their wage demand, the union also wants an increase of 15 percent in starting salaries, Schmidt said.

By comparison, the government plans to raise the country’s monthly minimum wage to 540 reais ($323), a 5.9 percent increase from 510 reais.

Competitiveness, Quality of Life

In the long term, Brazil should improve competitiveness of some industries to gain market share from China and other countries, Lupi said.

With higher incomes, Brazilians may also prefer to buy more expensive goods from local suppliers instead of seeking cheap goods from Asia, the minister said.

“People want to buy good things, to improve the quality of their lives,” Lupi said. “Some Brazilian goods such as shoes and textiles are much better than Chinese ones. Restaurants in Paris are starting to serve Brazilian sparkling wine, isn’t that wonderful?”

Gains by the real against other major currencies are hurting exporters in addition to costing jobs as some industries are relying more on imports at the expense of local suppliers, Lupi said.

The real has strengthened 38 percent against the dollar since the start of 2009, the third-best performance after Australia’s dollar and South Africa’s rand.

Currency War

Brazil’s government is ready to take additional measures to stem a rally in the currency, including placing more restrictions on capital inflows, Finance Minister Guido Mantega said Jan. 4.

Mantega said the government has an “infinite” number of tools at its disposal to affect the country’s exchange rate and support exporters hurt by the currency gains.

Brazil’s central bank today set reserve requirements on short dollar positions held by local banks in its third attempt since October to stem a rally in the currency. The real fell as much as 0.8 percent after the announcement.

The new rules have the potential to reduce short positions in the dollar to $10 billion from $16.8 billion in December as banks seek to avoid paying reserve requirements on currency operations, Aldo Mendes, the central bank’s director of monetary policy told reporters in Brasilia.

Rousseff plans to make a “priority” of holding discussions with China over its policies toward the yuan and trade, Trade Minister Fernando Pimentel said this week.

To contact the reporter on this story: Iuri Dantas in Brasilia Newsroom at idantas@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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