Brazil's Leader-in-Waiting Sees No Quick Fix for Economy

  • Top adviser to VP says fiscal improvements would be gradual
  • `Will we solve the entire crisis? I don’t think so' -- adviser

Vice President Michel Temer is playing down expectations that he can achieve a quick fix for Brazil’s economic troubles should his boss, Dilma Rousseff, be impeached.

Temer, 75, would only achieve gradual improvements of fiscal accounts, is in no rush to raise the retirement age and has ruled out giving the central bank full independence, a move long favored by investors, said Wellington Moreira Franco, the vice president’s top adviser. He spoke in a 30-minute interview from his offices on the top floor of the congressional building that towers over downtown Brasilia.

QuickTake Brazil's Highs and Lows

Brazilian assets for months have rallied on expectations that the vice president could revive economic growth and renew confidence in a country that has been battered by a widening budget deficit, near double-digit inflation and rising unemployment. In a panel organized by Bloomberg this week, three of the country’s top independent fund managers said they expect Temer’s economic team to quickly address the country’s fiscal deficit to win back investor confidence -- which would make room for the central bank to cut the base interest rate by at least 200 basis points.

Now one of his closest advisers says there’s no room for the kind of dramatic austerity measures investors crave in light of the country’s crushing recession.

“Today you have 40 percent of the population in an extremely delicate situation from a social standpoint,” said Moreira Franco, who co-authored the economic platform of Temer’s Brazilian Democratic Movement Party. “You can’t expect to carry out an economic adjustment sacrificing 40 percent of the population.”

Country’s Reins

Temer’s supporters have been battling accusations from members of the ruling Workers’ Party that his administration would cut back on welfare programs to appease business interests, should he take over the top job. The vice president denied those charges in an interview televised on SBT Thursday night, saying his top priorities would be to create jobs and put the economy “back on track.”

The leftist Workers’ Party employed a similar strategy against opposition leader Aecio Neves in the 2014 presidential race, saying he would reduce social spending and raise the benchmark interest rate.

While Moreira Franco didn’t discuss monetary policy, he did say Temer would resist calls to give the central bank full independence. Under current law, Brazil’s president can fire a central bank director at any time. A push to take away that power and give all central bank board members a fixed four-year term gained momentum in Congress early this year before impeachment proceedings started to dominate lawmakers’ attention.

Rousseff will have to temporarily hand the country’s reins to Temer next month if the opposition garners the simple majority it needs to start a Senate impeachment trial, which surveys conducted by local media show it currently has. If the opposition wins a final impeachment vote with a two-thirds majority of the Senate, Temer would assume the presidency until a new president is elected in late 2018.

Extensive Review

Temer will aim to increase the retirement age but only after extensive review and consultations, said Moreira Franco, citing how it took years to study, prepare and build support for the implementation of Obamacare in the U.S.

“We have the challenge to face the biggest crisis in our history in a very short time,” he said. “Will we solve the entire crisis? I don’t think so.”

The government would however seek to stimulate private sector investment by cutting red tape, ruling out caps on investment returns, and scaling back the role of Petrobras in the oil industry, he said. 

“We need clear rules and conditions for investors to make their business plans,” Moreira Franco said.

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