A former environment minister who is leading polls ahead of the October election, Silva last week published her campaign platform that calls for a cut to state-subsidized loans, full independence for the central bank to set monetary policy, a free-floating exchange rate and a fiscal policy that would help ease inflation.
“Reducing credit from public banks without providing coverage from private banks or other sources such as capital markets is reckless,” Mantega, 65, said in an interview at Bloomberg’s office in Sao Paulo yesterday. “You will paralyze the economy. You will paralyze investment.”
The economy has become a central theme in the election after Brazil in the first half of the year slipped into its first recession since the aftermath of the Lehman Brothers Holdings Inc.’s collapse in 2008. Inflation hovering near the ceiling of the target range has eroded consumer and business confidence.
Mantega said the economy is already recovering from the contraction at the start of 2014 and will expand in the second half of the year. He echoed President Dilma Rousseff, who last night in a televised presidential debate fended off criticism from Silva by saying Brazil isn’t in recession. The government protected workers from the impact of the global crisis, and near record-low unemployment coupled with higher incomes will allow the economy to rebound, Mantega said.
Gross domestic product fell 0.6 percent in the second quarter over the previous three months, after contracting a revised 0.2 percent in the first quarter, according to data released Aug. 29 by the national statistics agency.
Slower growth didn’t translate into slower inflation, which has remained above the 4.5 percent midpoint of the government’s target throughout Rousseff’s term.
“Dilma hasn’t been able to do one thing that is essential for anyone who wants a second mandate to govern a country like Brazil: recognize mistakes,” Silva said last night. “When things go well, her government gets 100 percent of the laurels. When things go bad, blame goes to the international crisis and nature itself.”
Mantega, who described himself in 2012 as the man who props up GDP, has cut taxes, intervened in the currency, increased public spending and boosted subsidized credit to companies to accelerate growth during Rousseff’s term.
He said yesterday Brazil’s economy was hurt this year by sluggish global growth, a drought at the start of the year that increased energy prices and less working days because of the World Cup.
As Brazil’s longest-serving finance minister, Mantega has seen Brazil’s sovereign debt rating boosted to the second lowest investment grade rating before being cut this year to one level above junk. Standard & Poor’s in March said Brazil’s slow growth and expansionary fiscal policy were behind the nation’s first downgrade in more than a decade.
Silva and Senator Aecio Neves, who is running third in the polls, have criticized the Rousseff administration for its failure to slow inflation or avert a recession. Both say they would implement more austere fiscal policy without sacrificing social initiatives such as cash transfer program Bolsa Familia.
“She says she’ll control inflation with a big fiscal adjustment, which is difficult to understand,” Mantega said about Silva. “You have a very big increase in expenditures and at the same time talk about making an adjustment. Are you going to end social programs?”
The Ibovespa rose 4.9 percent last week as three polls showed Silva leading the presidential race in a second-round runoff. The stock exchange index, which has declined 12 percent since Rousseff entered office, fell 0.2 percent yesterday to 61,141.27.
Silva is tied with the president in a first round with 34 percent of the Oct. 5 vote, according to an Aug. 28-29 Datafolha poll that has a margin of error of plus or minus two percentage points. In a runoff, Silva would win with 50 percent against Rousseff’s 40 percent, according to the poll.
Inflation accelerated to 6.5 percent in July from 5.99 percent when she assumed office in January 2011. Industry confidence as measured by Brazil’s industry confederation, known as CNI, last month fell to its lowest level in more than a decade.
The central bank raised the benchmark interest rate by a total of 3.75 percentage points over nine straight meetings to 11 percent and kept it unchanged in May and July. Policy makers will keep borrowing costs steady for the third straight time on Sept. 3, according to the median estimate of analysts polled by Bloomberg.
Mantega said last week Brazil would widen the primary surplus target to at least 2 percent of gross domestic product in 2015 to help the central bank control inflation.
“Next year, if we meet the target, we will be creating conditions for a more flexible monetary policy,” he said.
To contact the editors responsible for this story: Andre Soliani at firstname.lastname@example.org Randall Woods