FACTBOX-Brazilian presidential candidates’ main proposals

By Raymond Colitt

BRASILIA, Oct 22 (BestGrowthStock) – Brazil’s ruling party
candidate Dilma Rousseff has regained a strong lead in opinion
polls and is the favorite to win a runoff vote on Oct. 31 over
opposition candidate Jose Serra.

Rousseff, who has benefited from a booming economy and the
huge popularity of President Luiz Inacio Lula da Silva, fell
just short of the 50 percent she had needed to win a first
round vote on Oct. 3, sending the election to a runoff.

Both of the leading candidates broadly endorse the pillars
of current economic policy that have made Brazil one of the
world’s hottest emerging markets.

Still, there are important differences between former Sao
Paulo state governor Serra and Rousseff, Lula’s former chief of
staff. Here are some of their positions on key issues:

ECONOMIC STABILITY

Both Serra and Rousseff, would maintain the mostly
market-friendly policies that have provided economic stability
over the past decade: a free-floating currency, inflation
control and fiscal discipline. Serra says he would make some
changes but has given few details.

FISCAL DISCIPLINE

Serra of the Brazilian Social Democracy Party is perceived
by some to be the tougher of the two on fiscal discipline,
though he has not announced detailed budget targets. He pledged
to cut government fat to allow for more public investment but
also proposed measures that would increase current
expenditures. These include increasing the minimum monthly
salary to 600 reais ($349) from the current 510 reais,
expanding the social welfare program Bolsa Familia, and
boosting pension pay by 10 percent. Together the measures could
cost the government 1 percent of gross domestic product,
according to private sector estimates.

Serra says the cost is closer to 1 percent of the federal
budget and could be offset by projected revenue increases and
cutting government waste.

Rousseff, whose Workers’ Party has strong ties to public
sector unions, proposes maintaining fiscal discipline with
gradual adjustments but has ruled out the kind of drastic
austerity measures that marked the first year of Lula’s
administration in 2003. She has said Brazil does not need to
rein in public spending for the economy to keep growing at a
robust pace.

Rousseff says she would keep a primary budget surplus
target of 3.3 percent of gross domestic product until net debt
falls to 30 percent of GDP in late 2014. It was 41.4 percent in
August.

The government still expects to hit its primary budget
target in 2010, but a ramp-up in government spending this year
means it may only be able to achieve that by excluding spending
on its infrastructure program or adopting other innovative
accounting methods.

STATE ROLE IN ECONOMY

Rousseff favors a strong state role in strategic areas,
such as banking, petroleum and energy, but she insists private
companies in those sectors would not be crowded out.

She also pledges to promote government efficiency and a
meritocracy while cutting red tape. But she would maintain
current benefits for civil servants.

Rousseff may also increase state intervention in the mining
sector, which could create risks for iron-ore giant Vale
(VALE5.SA: ). Lula’s government has put pressure on the world’s
biggest iron-ore producer to create more jobs in Brazil by
investing in steel production.

Rousseff is likely to push on with efforts to boost access
to broadband Internet services among low-income households
through the revived state-run Telebras (TELB3.SA: ), whose assets
had been privatized in the 1990s. Some private industry leaders
have said they could be harmed by the plan.

Serra favors a strong and active government and applauded
Lula’s fiscal stimulus measures during the 2008/09 global
crisis. But Serra, who authorized the sale of a Sao Paulo state
bank when he was governor there, is seen as more open to
selective privatization and says he would not use state funds
or push state-owned banks to promote private sector mergers and
acquisitions. He proposes policies to develop national industry
and would step up trade safeguards against cheap, mostly
Chinese, imports.

CENTRAL BANK

Rousseff said she would maintain the central bank’s
operational autonomy and the status of its president as a
cabinet minister. Serra has said the central bank must be in
line with government economic policy, and that its chief and
the finance minister should think alike. Brazil’s central bank
follows an inflation-targeting regime that investors say is
crucial for price stability in the country.

STRUCTURAL REFORMS

Both main candidates agree on the need to overhaul Brazil’s
complicated tax system to encourage investment, although
previous efforts at reform by Lula have not amounted to much.

Rousseff has made tax reform a priority. Her proposals
include capital investment and payroll tax breaks and
harmonizing tax levels among states. She would set up a fund to
offset some states’ revenue shortfalls.

Serra wants to reform the pension system by cutting
benefits for some civil servants, while Rousseff favors a
piecemeal reform that would raise more money to finance the
growing pension deficit and alter some retirement rules.

MONETARY POLICY

Rousseff has said that until Brazil’s debt burden falls
considerably, the central bank will have to focus exclusively
on inflation, rather than looking at the broader economy,
including job growth.

She has also ruled out targeting a specific exchange rate
for Brazil’s real currency, which has surged to trade at its
highest level since the September 2008 financial crash and is
hurting Brazilian exporters.

Rousseff has said she wants to bring down Brazil’s interest
rates, which are among the world’s highest and are a major
factor keeping the currency strong. But she is not expected to
act as aggressively as Serra to achieve that goal.

Serra has been more critical of monetary policy, calling
the benchmark interest rate, now at 10.75 percent, “stupefying”
and says that it must be brought down toward international
levels through tighter fiscal discipline. He has also said the
central bank is not the “Holy See,” although he would not
change its informal autonomy.

OIL INDUSTRY

Rousseff fully supports the Lula government’s drive to
heighten government control over new-found oil reserves, and
she helped draft the proposal. The move includes the creation
of a new state company to manage the reserves, a requirement
that state-owned oil company Petrobras (PBR.N: )(PETR4.SA: ) be the
operator of every field, and the creation of a new fund to
invest oil revenue into education, health and other development
projects.

She is likely to continue to push Petrobras to align its
goals with government policy, which could result in a more
limited role for foreign companies in the sector.

Serra is critical of the reform, saying the current model
was adequate to develop new reserves. He says there is no need
to create more bureaucracy with a new state oil company. His
party warns that Lula’s approach could sideline private oil
companies, reducing investment, competition and efficiency.

CURRENCY

Rousseff has ruled out targeting a specific exchange rate
for Brazil’s real currency, which is trading near a 2-year
high. Serra has said the real (BRBY: ) is “mega overvalued” and
was hurting exporters but ruled out abrupt measures or direct
intervention in markets to influence the currency. He has said
allowing the real to depreciate requires tighter fiscal
discipline and lower interest rates.

FOREIGN POLICY

Serra has criticized Lula’s close ties to left-wing allies
in Latin America and to Iran. Easing such ties could affect
energy investments in Bolivia and Venezuela, where state-oil
giant Petrobras has large investments. He has also called for
an overhaul of the South American trade group Mercosur and more
bilateral free trade deals.

Rousseff favors continuity of Lula’s foreign policy
objectives, including regional integration and a bigger say for
developing nations in international agencies. But given her
priority on domestic issues and her lower international
profile, she is less likely to continue Lula’s high-profile
diplomacy. [ID:nN14104044]
(Edited by Kieran Murray)

FACTBOX-Brazilian presidential candidates’ main proposals