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Rousseff's Tackling Lula Legacy `Positive Surprise,' Brazil's Cardoso Says

Brazilian President Dilma Rousseff’s first month in office has been a “positive surprise” as she seeks to dismantle the free-spending policies of the previous government, former President Fernando Henrique Cardoso said.

Cardoso, who campaigned against Rousseff, said it’s too early to know whether Brazil’s first female president can manage her coalition in Congress as skillfully as her mentor and predecessor, Luiz Inacio Lula da Silva. She’ll also have to “face her own heritage” of overly ambitious, expensive “mega- projects” that she designed as Lula’s cabinet chief, he said.

Still, Brazil’s president from 1995 to 2002 said he’s heartened by Rousseff’s willingness to curb spending, distance herself from Lula’s outreach to Iran and toughen Brazil’s stance toward China.

“She has some different views from Lula and to me that’s a surprise,” Cardoso, a 79-year-old sociologist, said in a Feb. 3 interview at his office in Sao Paulo. “The starting point was not negative.”

Since taking office Jan. 1, Rousseff has pledged to roll back government spending that jumped 22.4 percent last year, helping to fuel the fastest economic growth in more than two decades. On Feb. 9 the government said it would cut 50 billion reais ($30 billion) from the budget to help cool inflation running at a 26-month high.

Photographer: Evaristo SA/AFP/Getty Images

Brazilian President Dilma Rousseff smiles during a ceremony in which news ambassadors present their credentials, at Planalto Palace in Brasilia, on Feb. 9, 2011. Close

Brazilian President Dilma Rousseff smiles during a ceremony in which news ambassadors... Read More

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Photographer: Evaristo SA/AFP/Getty Images

Brazilian President Dilma Rousseff smiles during a ceremony in which news ambassadors present their credentials, at Planalto Palace in Brasilia, on Feb. 9, 2011.

“It’s enough to look at the numbers to know that it’s necessary to be much more strict in public spending,” said Cardoso, who as finance minister in 1994 slashed spending to help tame 4,922 percent inflation. “Lula preferred not to pay attention to numbers. She’s an economist.”

Rebalancing Aspirations

Cardoso said Rousseff has been “very clear” in her refusal to yield to union demands for a bigger increase in the minimum wage than the government is proposing. Unlike Lula, for whom high commodity prices made managing the economy “very simple,” Rousseff will need to “reconnect Brazil with a reform agenda” that tackles barriers to growth, he said.

“You need to rebalance the aspirations a little bit,” Cardoso said, adding that it was impossible for the government to simultaneously build a high-speed train between Sao Paulo and Rio de Janeiro, develop offshore oil fields and build the world’s third-largest hydroelectric dam in the Amazon River basin.

‘Big Power’

“The last part of Lula’s government was very close in imagination to the military regime,” said Cardoso, who spent part of Brazil’s 1964-1985 dictatorship exiled in Chile and France. “The military also had the idea of big power and that growth automatically will solve every problem. Rousseff has to remold her mind to be more sensitive to realities.”

Latin America’s biggest economy expanded 7.3 percent last year, according to central bank estimates, as inflation accelerated to a two-year high of 5.91 percent at the end of December. This year gross domestic product is projected to expand 4.6 percent with inflation easing to 5.66 percent, according to a weekly central bank survey of economists.

The benchmark Bovespa stock index, which surged five-fold under Lula, has fallen 8.6 percent since Rousseff’s victory over Jose Serra in an Oct. 31 runoff. The spread for Brazilian government dollar bonds over U.S. Treasuries narrowed 4 basis points in the same period, according to JPMorgan Chase & Co.

China, Iran

While the 63-year-old Rousseff won’t veer far from Lula’s foreign policy, her willingness to confront China on its policy of undervaluing the yuan is a welcome change, Cardoso said.

“Under Lula, illusions about what could be done with China were enormous,” he said.

China surpassed the U.S. as Brazil’s biggest trading partner in 2009, as demand for the South American country’s iron ore, soybeans and beef surged. At the same time, local manufacturers are facing stiffer competition from Chinese-made goods. Chinese exports to Brazil rose 61 percent last year to $25.6 billion as a 34 percent rally by the real against the yuan since the start of 2009 lowered the cost of imports.

“We don’t want to turn the Chinese into enemies,” said Cardoso. “But you can’t deny that China poses several question marks for us.”

Cardoso said Rousseff has also been “very frank” with Iran, which Lula courted during a series of meetings with President Mahmoud Ahmadinejad in Tehran, Brasilia and New York. While Rousseff and Lula’s Workers’ Party have an ideological aversion to the U.S., such sentiment should be “less profound” in the new government, he said.

Rousseff said she’d make human rights a priority in her relationship with the Islamic Republic, and told the Washington Post in December that she opposed Lula’s decision to abstain on a U.N. resolution condemning Iran for ordering the stoning death of a woman accused of adultery.

Cardoso’s Legacy

Cardoso was elected president as a member of the Social Democracy Party in 1994 after implementing as finance minister the Plano Real that tamed hyperinflation. That success gave him the popular support to advance in Congress his agenda to modernize the economy.

Rousseff, who never ran for office before being elected president and only joined the Workers’ Party on the eve of Lula’s election, lacks similar leverage to manage her coalition, he said.

Handling Congress “is very difficult for anyone, but for her still more because she has no political experience and she’s not like Lula, who controlled the party,” he said.

As president, Cardoso adopted a floating currency exchange rate, passed a law requiring spending restraint and implemented an inflation targeting system.

He handed power to Lula in 2003 with a 24 percent approval rating and after seeking $30 billion in loans from the International Monetary Fund to stem capital flight.

Instead of acting on campaign threats to default, Lula left in place Cardoso’s policies and expanded programs that helped lift 21 million people from poverty. Economic growth during Lula’s eight years in office accelerated to an average annual pace of 4 percent from 2.3 percent under Cardoso.

To contact the reporter on this story: Joshua Goodman at jgoodman19@bloomberg.net

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

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