July 24 (Bloomberg) -- The return to power of Luiz Inacio Lula da Silva, the mentor and predecessor of Brazil President Dilma Rousseff, is gaining traction among her supporters as her party faces a 2014 election having delivered the slowest average growth in 24 years.
Rousseff’s poll approval ratings have plummeted to the lowest of her term, and since mid-June she was showered with boos at a sold-out soccer game and by dozens of mayors at a public event. More than 1 million Brazilians took to the streets as the cost of living soars and economic growth forecasts drop. Protests escalated from anger over bus fare increases to discontent over corruption, the quality of public services and government spending priorities.
Annual economic growth during Rousseff’s term is forecast by analysts to average 2.12 percent, the slowest during a presidency since that of Fernando Collor, who was forced to resign over corruption charges in 1992. This contrasts with Lula’s record, in which growth averaged 4.1 percent over his eight-year tenure and reached 7.5 percent in his final year, while 40 million people were lifted from poverty.
That has prompted at least two allies of the ruling Workers’ Party, or PT, to consider alternate candidates in 2014, and legislators in the PT and its main coalition partner to openly criticize Rousseff’s economic policy.
“Lula needs to come back, as a candidate or a leader,” Devanir Ribeiro, a deputy in the lower house of Congress and co-founder of the Workers’ Party, said in an interview in Brasilia. “I’m worried about Dilma’s rejection rate. The risk of losing the election is real.”
The approval rating of Rousseff’s administration plummeted to 31.3 percent from 54.2 percent in June and a high of 56.6 percent in July of last year, according to an MDA poll published by the National Transport Confederation on July 16. It showed that 44.7 percent of those surveyed would not vote for Rousseff under any circumstance. MDA interviewed 2,002 people from July 7 to 10 and the poll has a margin of error of plus or minus 2.2 percentage points.
In an Ibope poll published by O Estado de Sao Paulo newspaper July 19, 41 percent favored Lula, the most popular president in Brazil’s history, in next year’s election, while 30 percent backed Rousseff.
Protesters in a Labor Day parade on May 1 carried a banner calling for Lula to return, prompting Sao Paulo Mayor Fernando Haddad to reply: “Who knows, maybe one day he’ll come back. He’s in good health.”
Lula, who was treated for throat cancer in 2011, has ruled out running in 2014. “People know it’s no use knocking on my door,” Lula told reporters July 18 in Sao Paulo. “Comrade Dilma Rousseff is an extraordinary president,” he said.
Rousseff declined to comment, according to an e-mailed response from the president’s press office.
The talk of Lula’s return reflects dwindling confidence in Rousseff and is likely to continue over the next year, said Joao Augusto de Castro Neves, Latin America analyst at political risk consulting firm Eurasia Group.
“These calls gained strength because of Dilma’s decline in the polls and a search for leadership,” Neves said by telephone from Washington. “This will be the tightest and most competitive election in a long time.”
The benchmark Bovespa stocks index has fallen 30 percent since Rousseff took office in January 2011. It gained 125 percent in the first 2 1/2 years of Lula’s presidency, and 515 percent during his entire eight-year tenure. Brazil’s dollar bonds have gained 16 percent under Rousseff, versus 103 percent during Lula’s first 30 months, according to JPMorgan.
Lula, whose past promises to suspend debt payments unnerved investors during his 2002 campaign, began to regain their trust by appointing Wall Street executive Henrique Meirelles to head the central bank and boosting interest rates to combat inflation.
Under Rousseff, the central bank headed by Alexandre Tombini slashed rates to a record low 7.25 percent, only to see inflation surge above the 6.5 percent upper ceiling of the target range, undermining consumer purchasing power. Since April, policy makers have boosted the rate to 8.50 percent and indicated that the world’s biggest tightening cycle this year will continue. The bank targets inflation of 4.5 percent, plus or minus two percentage points.
Fiscal discipline has also deteriorated under Rousseff, with the primary budget surplus in 12 months through May falling to 1.95 percent of GDP from 2.77 percent at the end of Lula’s last year in office. Investors fear she may further boost spending to address protester demands, Tony Volpon, Nomura Holdings Inc.’s director of emerging-market research, said by telephone from New York.
Quicker inflation, increased family indebtedness and a drop in consumer and business sentiment have led to slower economic growth. Analysts in the latest central bank survey cut their 2013 GDP growth forecast for the 10th straight week, to 2.28 percent, and predicted 2.6 percent expansion in 2014. That contrasts with the 7.5 percent growth that helped make Brazil a Wall Street favorite in 2010, Lula’s last year in office.
Debt servicing costs that have doubled in seven years to 44 percent of household income, and annual inflation hovering around the ceiling of the target range, have eroded business confidence to the lowest in over four years. Consumer prices rose 6.4 percent in the month through mid-July from the year before.
Brazil’s unemployment rate jumped to 6 percent in June, the highest in more than a year, from 5.8 percent in May. That was higher than expected by all but one of 27 economists surveyed by Bloomberg, whose median estimate was 5.8 percent. First-half job creation was the lowest in four years.
While Rousseff sought to emerge from Lula’s shadow early in office and accepted the resignations of several holdovers from Lula’s cabinet in the wake of corruption charges, she still consults him on a regular basis, including two private meetings following the street protests last month.
Rousseff supporters such as PT legislator Jesus Rodrigues Alves say she will address protesters’ issues and is still the favorite in next year’s election, ahead of Marina Silva, a former environment minister who pledged to cut taxes and social security benefits in her 2010 presidential campaign in which she placed third. Silva polled second with 22 percent in the Ibope survey.
A weak economy and the demonstrations make her re-election almost impossible, said Beto Albuquerque, lower house leader of the Brazilian Socialist Party, or PSB, a member of the governing coalition.
“It’s time for an alternative and we’re working on our own presidential candidate, Governor Eduardo Campos,” he said.
Campos, governor of the northeastern state of Pernambuco for the PSB, placed fourth with 5 percent in the Ibope opinion poll, which interviewed 2,002 people July 11-14 and has a margin of error of plus or minus two percentage points.
“There’s a certain fatigue with the PT,” said Paulo Rubem Santiago, a legislator who in 2007 switched from the PT to the allied Democratic Workers Party, which he says should not consider Rousseff as the only option in 2014.
While Silva gained most from Rousseff’s decline in popularity, no presidential hopeful has so far managed to sufficiently harness growing discontent to become a clear front-runner, said Cristiano Noronha, a political analyst with consulting firm Arko Advice in Brasilia.
“The lack of a clear alternative may save Rousseff next year,” he said.
Rousseff’s tendency to centralize decision-making and a lack of charisma and political savvy has soured her relations with her allies in Congress, said Darcisio Paulo Perondi, deputy leader in the Chamber of Deputies for the PMDB, the largest coalition partner.
“There’s very strong discontent in the party faction, the president erred on economic policy, failed in public services and slighted politics,” Perondi said in an interview in Brasilia. “If she changes economic policy and builds bridges to Congress, she can recover but it will be a gigantic task.”
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