Rousseff Campaign Head Says Brazil Should Study Capital Controls

Brazilian President Dilma Rousseff’s administration should consider implementing measures to prevent capital flight if elected for a second term, Rui Falcao, the coordinator of her campaign, said in an interview.

“It’s necessary to control purely speculative investment, and this is done with the appropriate capital controls,” Falcao, who also is president of the ruling Workers’ Party, said yesterday.

Rousseff, who is eligible for re-election in October, is struggling to slow above-target inflation that is fanned by a weaker real. The real has depreciated against the U.S. dollar at the second-fastest pace among 16 major currencies in the past year amid concern reduced monetary stimulus in wealthier economies will cause capital to flee Brazil toward the U.S. and Europe.

The real fell 8.8 percent in the past 12 months, while the Ibovespa Sao Paulo Stock Exchange index has declined 1 percent. Consumer prices in April rose 6.28 percent from last year, exceeding the official target of 4.5 percent for the 44th straight month.

The Finance Ministry’s press office didn’t immediately respond to an e-mail and telephone call made after business hours yesterday seeking comment on capital controls.

“This kind of speech from Rui Falcao makes everybody a little bit nervous,” Andre Perfeito, chief economist at Gradual Investimentos, said by telephone yesterday. “It’s likely that we’re going to have some noise, because some clients phoned me to see if it’s true or not that they’re going to make capital controls.”

‘Extreme Measures’

Perfeito said he doesn’t expect Rousseff to resort to “extreme measures” such as capital controls, and that he believes Falcao has no influence in the administration.

Rousseff’s government last year unwound capital controls it implemented to limit dollar inflows that caused the real to hit a 12-year high in July 2011. The government cut a tax on foreign investment in fixed income in June last year and two months earlier eliminated levies on loans for the purchase, production and leasing of capital goods.

Faster inflation is eroding consumer confidence, which according to data published by the Getulio Vargas Foundation in April fell to its lowest level since 2009. Analysts polled weekly by the central bank forecast consumer price increases will accelerate to 6.39 percent this year as economic growth slows to 1.69 percent from 2.3 percent in 2013.

The central bank board has raised its benchmark interest rate in nine straight meetings to combat inflation, marking the longest period of monetary tightening among major world economies in the past year.

‘Formal Autonomy’

Elected officials, rather than the appointed central banker, should have the final say in determining monetary policy, Falcao said yesterday.

“The economy -- and the monetary issue is part of the economy as a whole -- needs to be directed by those who are elected,” he said at the headquarters of the Workers’ Party, known as the PT for its initials in Portuguese. “I’m against the formal autonomy of the central bank.”

The central bank press office declined to comment on Falcao’s comments on autonomy when reached by telephone.

Rousseff’s challengers for elections in October, Senator Aecio Neves and former Pernambuco Governor Eduardo Campos, defend official independence of the central bank and less state participation in the economy.

“More government control, more space for the government in the economy, that was what the PT was always about,” Pedro Tuesta, an economist at 4Cast Ltda., said by phone yesterday.

Rousseff’s Support

Rousseff’s support among Brazilians has been dropping since the end of March, according to public opinion polls, as increasing consumer prices and a possible energy shortage lead voters to consider the other candidates.

Thirty-seven percent of Brazilians said they would vote for Rousseff, compared with 20 percent for Neves and 11 percent for Campos, according to a Datafolha poll published May 9. The survey had a margin of error of 2 percentage points.

Rousseff’s campaign doesn’t need an economic director because her government’s economic policy is already well-defined, Falcao said. He said investments in infrastructure, health and education will begin to bear fruit during a possible second term, setting the stage for the next candidate from the PT.

“We’ve maintained what’s essential for us: economic growth without endangering employment, income and salary and without increasing inflation,” Falcao said.

The PT’s priorities are to re-elect Rousseff so Luiz Inacio Lula da Silva can return as the party’s candidate in 2018, Falcao said. He said the 68-year-old former president, who on May 2 said he would campaign for Rousseff in this election, has given mixed signals about whether he is interested in running for president again.

“Re-electing Dilma also means making Lula’s return possible in 2018,” Falcao said. “His declaration, in his own way of speaking, is that if you bother me enough I’ll come back.”

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