Chicago-Trained Economist Learns Politics to Save Brazil’s PresidentRaymond Colitt
Brazilian Finance Minister Joaquim Levy got his economics training at the legendary University of Chicago. He may need to learn some lessons from the city’s equally famed hardball politicians to fulfill his latest mission: saving the presidency of Dilma Rousseff.
To restore confidence in an economy that is heading for its deepest recession in 25 years, Levy’s doctorate in economics and asset-management experience in Brazil’s second-largest bank won’t be enough. He must persuade legislators to approve his package of tax increases and social-benefit cuts at a time when the president’s popularity is at a record low.
A corruption scandal in state-controlled Petroleo Brasileiro SA, which prosecutors allege involved more than 50 politicians, makes it harder to mend the government’s fractured coalition, even as the company tries to turn a corner through its release of a long-delayed audited financial report.
“I have a big handicap,” Levy, 54, said at the Bloomberg Americas Monetary Summit in New York on April 20, referring to the fact that in the U.K. the finance minister is also a legislator, while he isn’t. “I don’t have this training.”
The economist is working to overcome that disadvantage by learning the ropes as a power broker, in hopes of gaining the same support from politicians and the public that he has begun to win from investors. He has hobnobbed over breakfast with the head of Congress and dined with allied legislators, sported a straw hat at a farm fair and even doffed his tie on stage.
As Levy struggles to learn the language of politics, the press has jumped on several of his gaffes, plastering them on the front pages of the country’s largest newspapers.
Levy’s degree of success in winning congressional support will help determine whether Brazil averts a debt downgrade to junk status and paves the way for a return of foreign capital. It could also help slow inflation and improve the growth outlook, buoying Rousseff’s popularity and lessening calls for her impeachment.
The publication of Petrobras’s audited results on Wednesday, after a five-month delay that barred the company from bond markets, will aid Levy in his effort to rebuild credibility, said Jankiel Santos, chief economist at BESI Brasil in Sao Paulo.
Petrobras’s $2.5 billion of bonds due in 2024 rose 1.88 cents Friday to 101.88 cents on the dollar, leaving it up 9.5 percent in a month, data compiled by Bloomberg show. Company shares rose 3.1 percent to 13.31 reais after a 1.5 percent drop the day before.
“They had a choice between shoving things under the carpet and taking it into the open,” Santos said, referring to the results that show a net loss of 21.6 billion reais ($7.3 billion) for 2014, of which 6.2 billion reais was related to corruption. “They chose transparency and that helps restore investor confidence. Does it totally eliminate concerns? No, but it’s a step in the right direction.”
After hitting a 12-year low on March 19, the real rallied 11 percent to become the best performer among 16 major currencies tracked by Bloomberg. The Bovespa stock index gained 13.5 percent since Levy took office on Jan. 1, after heading Bradesco’s asset management. Still, the real is the worst major currency performer in the last year.
“The markets want to buy Brazil, they want to be part of Brazil,” said Jorge Mariscal, emerging markets chief investment officer at UBS Wealth Management, said by phone. “Mexico looks less exciting now and Brazil potentially more interesting if Mister Levy achieves some progress on the fiscal front.”
Levy’s involvement in politics is unusual for a Brazilian finance minister, who traditionally relies on the president’s chief of staff and other aides to deal with the 28 political parties represented in Congress and their idiosyncrasies.
When faced with initial opposition to his proposals, Levy went to school. He inquired about how bicameral committees were set up and the sponsors of bills chosen, according to a legislator who attended a meeting during which Levy asked the question. The lawmaker asked not to be named because it was a private meeting.
Levy, who frequently works 14-16 hours and stays long past midnight in his fifth-floor office of the finance ministry in Brasilia, had to retract comments at least twice following gaffes in which he criticized Rousseff.
In a closed-door event with University of Chicago students in Sao Paulo last month, Levy said Rousseff sometimes doesn’t pursue policies in the “most effective way.” After the audio leaked, Rousseff said Levy’s comments had been misinterpreted.
“Levy started as a striker on Dilma’s team and now he’s the captain,” said Gabriel Petrus, political analyst at Barral M Jorge, a consulting firm, referring to the forward on a soccer team. “In some ways he is more important than she is.”
To blend in with farmers at an agriculture fair this month, Levy sported a straw hat. That folksy touch didn’t prevent him from announcing bad news: he said interest rates on farm loans would go up.
Levy’s effort to apply some Chicago-style political skill and muscle in his dealings with lawmakers got a boost when Rousseff appointed Vice-President Michel Temer as liaison with Congress earlier this month.
Temer gives Levy a “weighty ally,” said Eunicio Oliveira, head of the Brazilian Democratic Movement Party, or PMDB, in the Senate. Temer, who is also from PMDB, will help smooth relations with his party, which has opposed some of the government’s proposals even though it is Rousseff’s largest coalition partner.
Senator Romero Juca, also from the PMDB, said he advised Levy to repackage his unpopular measures with plans to stimulate investment and simplify taxes. That would make it easier for legislators to support the adjustments, he said.
“The government needs an economic plan of growth, not only budget cuts,” Juca said in an interview.
Levy will have to be prepared to make some concessions and forfeit some savings to approve his austerity package, said Senator Jose Agripino, deputy leader of the opposition DEM party.
Lawmakers have already made changes to Levy’s original package of benefit cuts and tax increases that would reduce its initial size of 23 billion reais this year.
This could compromise his goal of achieving a budget surplus before interest payments equal to 1.2 percent of gross domestic product. Last year, the government ran a deficit before interest payments of 0.6 percent of GDP.
Hitting his target “will require that the measures that we have sent to Congress be passed, and it will require a lot of attention,” Levy said at the monetary summit.
He remains upbeat about the prospects: “People do understand that this is essential to get Brazil on a new path of growth.”
In the U.S., Chicago has become synonymous with politicians who use a combination of toughness, pragmatism and patronage to achieve their goals.
While that style may not come naturally to Levy, having a reputation as a straight-talking, unaffiliated economist can have advantages with some politicians.
“He is the only person we trust,” said Paulo Pereira da Silva, an opposition lawmaker with the Solidarity party. “Levy gives us the technical data and tries to carry out the political role.”