Rousseff Buoyed by Rising Poor as Brazil Rating Drop Looms

Brazil’s once-richest man, Eike Batista, is watching his empire crumble. The 16 percent plunge in the Sao Paulo stock exchange in 2013 was second-worst in the world. Meanwhile, Luzia Souza is faring better than ever in the country’s poorest state.

The 29-year-old mother of two is one of 22 million people who have emerged from extreme poverty during President Dilma Rousseff’s three years in office, according to government figures. She moved from a shack regularly flooded by surging rivers and surrounded by open sewage to a house with running water on the outskirts of Teresina, the capital of Piaui in northeast Brazil, under a program financed by the government and the World Bank.

Souza is the type of voter who may help Rousseff win re-election this year despite an economy that has grown at half the pace achieved by her predecessor and inflation that has exceeded the 4.5 percent official target throughout her watch. As investors focus on rising interest rates and deteriorating fiscal accounts that have raised concerns of a credit downgrade, Rousseff’s expansion of social programs for the poor has shored up support among her political base.

“Everything is getting more expensive, but certainly I’m doing better than two or three years ago,” said Souza, who receives 134 reais ($56) a month in cash aid and last year got a 2,500 reais subsidized federal loan to open a clothing store. “Unless a new, much better candidate comes along, I’ll vote for Dilma again.”

Extreme Poverty

This year, Rousseff expects to make good on the pledge from her 2010 presidential campaign to eradicate extreme poverty, defined by the the Social Development Ministry as anyone with income lower than 70 reais a month and by the World Bank as income of $1.25 per day or less.

Such programs ensure Rousseff millions of loyal supporters and help offset discontent with rising living costs and poor public services that brought 1 million demonstrators into the streets in June, said Mauro Paulino, managing director at Datafolha, a Sao Paulo polling firm.

“Recipients of social welfare overwhelmingly support the Rousseff administration,” said Paulino by phone from Sao Paulo. “It’s enough votes to make the difference in an election.”

The president’s office did not immediately respond to requests for comment from Bloomberg.

Approval Rating

Rousseff’s approval rating is 52 percent among those earning less than 1,356 reais per month and zero among those with more than 33,900 reais monthly income, according to a Datafolha poll taken Nov. 28-29. If next October’s presidential election had been held then, Rousseff would have won 42 percent compared with 26 percent for her closest rival, former Environment Minister Marina Silva, the poll showed. The survey had a margin of error of plus or minus two percentage points.

Many of Rousseff’s social programs were started by her predecessor and mentor, Luiz Inacio Lula da Silva. During his two terms from 2003-2010, Lula expanded the cash transfer program he renamed as Bolsa Familia and started the public housing drive called My House, My Life, which has delivered 1.4 million homes since 2009, with 1.6 million more under construction.

Reduce Inequality

As a result, Brazil was the only country to reduce inequality in the decade through 2009 within the group known as the BRICS, which includes Russia, India, China and South Africa, according to data on the World Bank website. The Gini coefficient, a measure of inequality, fell 5.08 points for Brazil, while that of Russia and China rose 2.62 points and 2.86 points, respectively.

The reason Brazil made more progress in promoting social mobility than economic growth is that Lula and Rousseff focused on tackling inequality rather than unwieldy taxes, poor infrastructure, and other obstacles to economic growth, said Deborah Wetzel, head of the World Bank in Brazil. As the global economy and demand for Brazilian products slowed during Rousseff’s tenure, those costs became more evident and eroded the country’s competitiveness.

“Brazil has grown more slowly and growth has been more volatile but the progress in reducing inequality has just been amazing -- it is indeed a revolution,” Wetzel said in an interview in Brasilia. “It was a very deliberate policy choice.”

Top Five

Consumer spending by the 40 million people who emerged into the middle class under Lula drove the economy over the past decade, making Brazil one of the world’s top five markets for cars, mobile phones and civil aviation.

After growing at an annual pace of 4 percent during Lula’s two terms, Brazil’s economy expanded 1.9 percent a year during Rousseff’s first two years in office, according to the national statistics agency. Economists surveyed by the central bank forecast it expanded 2.3 percent in 2013 and will grow 2 percent in 2014.

While the economy contracted 0.5 percent in the third quarter as consumer demand eased, inflation is above target at 5.77 percent, government data shows. It will accelerate to 5.98 percent this year, the latest central bank survey showed. The bank targets inflation of 4.5 percent, plus or minus two percentage points.

Personal Wealth

The benchmark Ibovespa stock index has fallen 27 percent since Rousseff took office, partly due to the collapse of Eike Batista’s empire last year after his OGX Petroleo & Gas Participacoes SA failed to produce projected amounts of oil. OGX, renamed as Oleo e Gas Participacoes SA, in October sought projection from creditors in a Rio court, and Batista sold off stakes in his interlocked energy and commodity companies, as his personal wealth of $30 billion began dwindling in mid-2012.

Last year, the Ibovespa was the worst-performing benchmark index after Peru’s among 94 countries tracked by Bloomberg.

A budget deficit that grew to 3.45 percent of GDP in the 12 months through October from 2.7 percent a year earlier prompted Standard & Poor’s and Moody’s Investors Service to cut their outlooks on the sovereign credit rating last year, helping to spur a 11 percent drop in the country’s dollar bonds in 2013, compared with a 6.3 percent loss for emerging markets, according to JPMorgan Chase & Co. indexes.

Bolsa Familia

Rousseff increased by 1 million to 13.8 million the number of families receiving Bolsa Familia, which requires children to attend school and get vaccinations, and mothers to get pre-natal care. She also expanded professional training, child care, rural water storage, and low-cost loans among other assistance programs.

Bolsa Familia has had a “positive effect” on the economy by boosting retail sales and the labor market, acting Social Development Minister Marcelo Cardona Rocha said in an e-mailed response to questions.

The deployment of more than 6,000 mostly Cuban doctors to improve health services also helped boost Rousseff’s approval ratings, said Renato da Fonseca, head of research at the National Industry Confederation, which publishes a quarterly public opinion survey.

At a community center outside of Sao Joaquim, a Teresina neighborhood that made headlines in 1997 because 263 children worked illegally at clay brick furnaces, youth get academic tutoring, participate in cultural activities, and have access to computers with broadband Internet, all co-financed by the Rousseff administration. Across the street at a public nursery, toddlers dig into their free lunch. Public health agents regularly check on kids’ vaccinations, weight, and personal hygiene.

‘Too Hungry’

“When I went to school, some kids were too hungry to study,” said Katia Maria Viera, head of the nursery school. “Today, I don’t have a single case of malnutrition.”

On the Raul Lopes avenue across town, where a Lacoste store sells polo shirts for 249 reais and joggers sport sneakers costing 500 reais, residents frown at Rousseff’s social welfare spending. “If she did as much to help create wealth as she does to distribute it, this country would be doing better,” said Afonso Noronha, a farm equipment salesman. “The country’s infrastructure is a mess and labor costs are stifling.”

In March, Rousseff extended Bolsa Familia so that every registered family receives at least 70 reais per person each month. By early 2014 the government expects to include in the program the last 700,000 families, or roughly 2.2 million people, with an income below that number, said Tiago Falcao Silva, who heads the program to eradicate extreme poverty at the Social Development Ministry.

‘Tasks Remain’

“We created mechanisms to overcome extreme poverty from a monetary standpoint,” Silva said in an interview. “Other, often more challenging tasks remain -- you can’t give health and education with a debit card.”

The government’s population survey for 2012 shows higher extreme poverty levels than the Bolsa Familia data base -- 3.6 percent of Brazil’s 200 million people, or 7.2 million -- partly because the data are based on polling, and some respondents understate off-the-books income. The government forecasts the 2013 survey will show extreme poverty below 3 percent, a level the World Bank considers to be equivalent to eradication.

To be sure, bureaucratic requirements mean even basic government aid doesn’t always reach the most needy.

Carlos Alberto do Santo lives with his wife and four children in a three-by-four-meter adobe hut with one single bed and an outdoor latrine shielded by a black plastic tarp. Successive attempts to enroll in Bolsa Familia to complement occasional income from loading trucks failed because of problems with his wife’s identity card, Santo said.

Even so, he remains optimistic Rousseff’s social safety network will one day reach him.

“I just want to get out of this place,” said Santo, tears swelling as he digs a trench to divert rain water into a garbage-filled lagoon. “God willing Dilma will stay another four years and we too will have a house of our own.”

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