Brazil Stocks Rebound From Protests With Sao Paulo Fix-It Mayor


Sao Paulo Mayor Fernando Haddad steps out of a black sedan in Paraisopolis, a neighborhood of small brick homes, cramped storefronts and narrow streets, in mid-July. He is meeting with residents weeks after about a million Brazilian protesters took to the streets across the nation, railing against corruption, shoddy education and inadequate public transportation.

On this sunny morning, a throng of people surround Haddad at the site of a partially constructed road. As the mayor takes questions for 30 minutes, he indicates to residents that he’s heard the cries of protesters and is responding, Bloomberg Markets magazine will report in its November issue.

Gilson Rodrigues, president of a community group, points to mounds of construction debris from people who built their own homes. He wants it hauled away.

“OK, so we need to set up a regular system of collection,” says Haddad, dressed in casual pants and a blazer.

A man in a green-checked shirt asks about security: “There’s a stoplight where carjackers trap five or six cars at a time and rob them. We’ve already asked to put a police station there.”

Haddad can’t offer much help.

“The city doesn’t control the military police,” the mayor says. “Have you tried speaking to the security secretary?”

Before Haddad, a native of Sao Paulo and former minister of education, leaves the site, he delivers a promise.

“In 60 to 90 days, this road project will be completed,” he says.

Stocks Surge

Haddad, 50, has issued a flurry of pledges to improve everything from mass transit to government transparency after the sometimes violent demonstrations in June helped fuel a sell-off of stocks and bonds. Brazil’s Ibovespa benchmark equity index plunged 11.3 percent in June, the worst rout in more than a year, before rising 15 percent from July 1 to Sept. 25. Sao Paulo, Brazil’s financial hub, contributes almost 12 percent of gross domestic product to a national economy that’s sputtering.

Investors say Haddad’s response to the demands of protesters -- he’s installing 220 kilometers (137 miles) of exclusive bus lanes in a city famous for traffic jams -- has helped restore some stability in the streets and markets.

“You can already see that Haddad is doing things, particularly with transportation,” says Leonardo Kestelman, a Sao Paulo-based managing director at Dinosaur Securities LLC, an investment firm that oversees $800 million in assets. “A calm Sao Paulo is good for markets.”

President Rousseff

Brazil’s President Dilma Rousseff has made Sao Paulo, Latin America’s biggest city, with a population of 11 million, a focal point of her response to the protests. The demonstrations that swept the nation began in Sao Paulo after Haddad raised bus fares by 20 centavos (9 cents). In July, Rousseff joined Haddad at city hall to announce that the government was giving Sao Paulo 8 billion reais ($3.5 billion) to help pay for the mayor’s transportation and housing initiatives.

With a presidential election in 2014, Rousseff is counting on Haddad, a fellow Workers’ Party leader, to improve public services and help her regain the confidence of voters, says Joao Augusto de Castro Neves, a Latin America senior analyst in Washington at political risk firm Eurasia Group. (On Sept. 17, Rousseff called off her state visit to Washington over allegations that the U.S. National Security Agency had monitored her e-mail and telephone communications with top aides.)

“As long as local government responds to the protesters’ specific demands, that will keep things where they are now and won’t undermine Rousseff’s election chances,” says Castro Neves, a Brazilian. “Everything that happens in Sao Paulo has national repercussions.”

38% Illiteracy

Haddad, who hadn’t held elective office before his term started in January, said the city would build 55,000 affordable-housing units, three hospitals and 43 health clinics by 2016. In August, Haddad, a former professor of political theory at the University of Sao Paulo, proposed improvements to public education in a city where 38 percent of fourth graders have trouble reading and writing.

He wants additional university training for teachers, more homework and testing, and 367 new schools. And Haddad has hired the city’s first comptroller and installed a whistle-blower program to curtail corruption that can sabotage proposals from a mayor.

“My dream is to transform Sao Paulo into a city capable of promoting development,” says Haddad, whose full head of tousled dark-brown hair adds to his youthful appeal, at his office in April. “There are federal resources, but we lack the capacity to execute.”

Education Minister

Haddad’s goal is made harder by a national economy that may expand only 2.35 percent in 2013, according to a central bank survey of economists in September. And Rousseff, who succeeded Luiz Inacio Lula da Silva in 2010, has stoked price increases by pressuring banks to boost lending. Inflation, which stood at 6.09 percent in August, has twice broken the upper limit of the central bank’s target this year, squeezing consumers and helping spur the demonstrations -- the largest in Brazil in two decades.

In 2005, Lula appointed Haddad as his minister of education amid the biggest corruption scandal since the country’s dictatorship ended in 1985. Haddad, who has a master’s degree in economics and a doctorate in philosophy from USP, was a political unknown serving as executive secretary in the ministry. Haddad replaced a minister who had left his post to run Lula’s Workers’ Party after its president became ensnared in a bribes-for-votes scheme.

Corruption Convictions

The Supreme Court convicted 25 party officials, congressmen and executives, including Lula’s former cabinet chief, in connection with bribing lawmakers to win votes. On Sept. 18, the Supreme Court allowed 12 of the defendants to appeal their sentences.

As minister of education, Haddad made the school systems more transparent and accountable -- themes he’s carried over to city hall.

“Haddad is someone who likes to get his hands dirty in policy,” says Ricardo Musse, a USP professor who now works as Sao Paulo’s coordinator of cultural programs.

Over more than six years, Haddad created a program to track ministry projects online and demanded that city and state education officials document their results after receiving grants. He also expanded the number of university campuses to accommodate 300,000 students a year, triple the amount when he started, although some new schools lack full-time faculty and libraries.

Lula’s Advice

“You have to train people, change laws, make your acts transparent, create internal control systems to catch misuse of money,” Haddad says. “You have to create a culture of execution, and that’s not a simple task.”

The Workers’ Party brass picked Haddad to run for mayor based on his record as minister and because he was one of the few prominent officials left untainted by the bribery scandal, Musse says. He says Haddad won Lula’s trust while serving as his minister and the former president was a close adviser to the mayor during his campaign.

“The party wants to renew its leaders, and Haddad is one of the new generation, more technocratic, less ideological,” analyst Castro Neves says.

As mayor, Haddad is trying to rein in developers and relocate businesses after decades of chaotic construction have left the city a tangled mess. Sao Paulo’s postindustrial north and east sections are marred by little-used railroad tracks, empty warehouses and large pockets of poverty.

City Design

These areas reaped few of the economic benefits of Brazil’s boom starting a decade ago, which spurred the building of high-rise luxury condos now selling for $3.9 million and offices towers mostly in the financial districts in the south and west. The lopsided development has worsened the city’s gridlock as workers in the north and east are forced to commute long distances across town. The combined length of all of Sao Paulo’s traffic jams on July 26 stretched to a record 300 kilometers, according to the city’s traffic engineering company.

“A city has to have a design,” says Haddad, whose father immigrated to Brazil from Lebanon and owned a textile store in Sao Paulo. “If you can’t see the design, you can’t see the city. That is what is happening now.”

The mayor has proposed changes to the city’s master plan to reconfigure where Paulistanos live, work and drive. He’s calling for the elimination of property taxes for businesses that move to the east side, bringing jobs to commuters’ doorsteps. He’s pushing for incentives for developers to create affordable housing in the job-rich city center and tax hikes on builders who want to put up taller structures outside areas favored by the city.

Building Restrictions

New housing located near train and bus stops must be denser, with more units that are smaller, to encourage the use of mass transportation. And to discourage car ownership, each unit can have no more than one parking spot.

Real estate developers are bristling at some of the proposed restrictions. Rafael Rossi, a partner at Huma Desenvolvimento Imobiliario, a Sao Paulo-based builder, says the tax increases could make new developments in certain areas nonviable and shrink the housing supply.

“This will freeze the real estate market,” Rossi says. “Apartment prices will go up a lot.”

With the number of cars registered in Sao Paulo rising 32 percent to 7.4 million during the past decade, a commute within the city can take several hours.

Transit Shake-Up

On a May afternoon, Dulce Bernardo, a 60-year-old housekeeper, boarded an accordionlike bus for a 14-mile trip home to the city’s southwestern fringe. She was lucky to get a seat while other passengers stood packed in the aisle. The bus crept to a halt for 10 minutes several times on the clogged highway during the two-hour journey.

Some days, Bernardo says, the trip takes four hours -- and six when it rains.

“There are times when you can’t see anything. People keep getting on. They sit on top of the ones who are seated,” Bernardo says. “No one deserves to have to travel like this.”

In June, Haddad began a shake-up of the public transit bureaucracy, canceling an auction to renew contracts with private bus companies worth 46 billion reais. The Mayor’s Office plans to hire an international auditor to examine the contracts for signs of abuse and inefficiency.

And Haddad set up a council on public transportation, made up of commuters, bus company executives and union representatives, who were given access to the contracts and will see the auditor’s report in 2014 to help them make recommendations for service improvements.

Civic Participation

“Haddad is doing a lot around public participation,” says Americo Sampaio, a government transparency advocate with Our Sao Paulo Network, a collection of 700 civic groups.

Corrupt government officials, who work for bribes rather than the public interest, are a threat to any mayor’s agenda, says Jose Carlos Blat, a prosecutor for the state of Sao Paulo. Blat says bribery and extortion infect city government: Developers overcharge on public works as part of kickback schemes, and regulators extort bribes from business- and homeowners in exchange for permits.

Corruption is barely a hindrance to elected office. Although former Sao Paulo Mayor Paulo Maluf was charged by federal prosecutors in 2004 for getting kickbacks on a road project, he was elected as a federal deputy from Sao Paulo state in 2006. In 2007, the New York district attorney indicted him for allegedly hiding stolen funds from the road project offshore. Maluf, who was re-elected in 2010, has denied the charges in the two cases. His spokesman says the city auditor approved all of the costs related to the road project.

Curbing Abuses

“Corruption in Brazil is like a cancer that has spread out of control,” Blat says. “But even with a terminal patient, there is always a little hope.”

Soon after taking office, Haddad hired a comptroller, Mario Vinicius Claussen Spinelli, to guard against the misuse of funds. In July, the mayor established a Web page for people to report abuses by public officials. It receives hundreds of complaints each week. Working with the comptroller, police have arrested five public employees this year for soliciting bribes.

Haddad’s ability to improve city services ultimately depends on federal funding. He’s asked the government for an additional 14 billion reais -- a request that federal officials have yet to approve.

In July, in a show of fiscal restraint, Rousseff’s finance minister said 10 billion reais would be cut from the budget. Haddad is also trying to free up money for improving services by negotiating a lower rate on the 54 billion reais of city debt owed to the federal government from a 1997 bailout.

Improving Paraisopolis

The people of Paraisopolis, one of the favelas, or low-income neighborhoods, in Sao Paulo, have reason to approve of their mayor. Paraisopolis began decades ago as a squatter settlement and over the years added better housing, schools, clinics and retail chains.

By mid-September, city crews had built 85 percent of the 1.5-kilometer paved road that should be finished by November, a few weeks later than the mayor had promised. The six-lane thoroughfare will connect two sections of Paraisopolis and ease travel to surrounding areas for its 100,000 residents.

The completion of the road will be a small victory for the rookie mayor who hopes to leave his imprint on Sao Paulo and the nation’s presidential elections in 2014.

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