Silva Economy Adviser Warns Against Brazil Currency Intervention

Policies to control inflation with a stronger real pose a threat to Brazil’s economy, Eduardo Giannetti, who is economic adviser to potential presidential candidate Marina Silva, said.

“The currency intervention in Dilma’s government was to contain domestic prices,” he said today at an event in Sao Paulo about the administration of Dilma Rousseff, cautioning that he was speaking on his own accord and not as Silva’s adviser. “That is an action that generates distortions and is a worrying framework for the country.”

Silva, 56, became the wild card in Brazilian politics after her running mate, presidential candidate Eduardo Campos, died in a plane crash last week. She replaced Senator Aecio Neves as second in polling for the Oct. 5 vote and is statistically tied with Rousseff in a possible runoff, according to public opinion research company Datafolha.

The economy has become a central theme in the election as analysts surveyed by Bloomberg estimate gross domestic product contracted second quarter as the inflation rate ended the period above the ceiling of the target range.

A trained economist, Rousseff said in an interview on nightly news yesterday that Brazil is still overcoming the impact of the global crisis and that the economy will improve in the second half of the year. Unemployment is near record lows and wages are increasing, she said, adding that her administration has cut some taxes to lower the cost of living.

Inflation Quickened

Inflation quickened to 6.52 percent in June, exceeding the official target range of 2.5 percent to 6.5 percent for the first time this year before easing to 6.5 percent last month. GDP probably fell 0.2 percent in the second quarter after slowing in the first three months of 2014, according to the mediate estimate of analysts surveyed by Bloomberg.

Policy makers have struggled this year to slow inflation by raising the benchmark interest rate and keeping a lid on some energy prices. Giannetti said policies to contain prices are “extremely harmful” in the short term.

The central bank is intervening in the currency market through daily swap auctions that have helped the real appreciate more this year than any other emerging market currency tracked by Bloomberg. A stronger real reduces the price of some imports.

“A victory by the opposition would allow the economy to function with less clumsy intervention,” Giannetti said today. “Brazil would go through a couple of quarters of adjustment but would have growth by the end of 2015.”

Campos’s party, the Brazilian Socialist Party, or PSB, tomorrow will appoint Silva as its presidential candidate while naming Congressman Beto Albuquerque as her running mate, according to a statement e-mailed by acting PSB President Roberto Amaral.

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