Dilma Rousseff faces scrutiny over her economic record in Brazil

Felipe Miranda, one of the founders of financial research group Empiricus, is somewhat of an exception in Brazil’s business community: he plans to vote for Aécio Neves in Sunday’s presidential elections and is not afraid to say so.

Felipe Miranda, one of the founders of financial research group Empiricus, is somewhat of an exception in Brazil’s business community: he plans to vote for Aécio Neves in Sunday’s presidential elections and is not afraid to say so.

While many figures from investors to chief executives back the market-friendly opposition candidate, few dare to make their position public for fear of upsetting the ruling Workers’ Party (PT) and hurting their own business.

“The government has tentacles all over the economy [which can] make life very difficult,” says one executive at an international bank in São Paulo. He backs Mr Neves and does not know a single person in the market who will vote to re-elect President Dilma Rousseff, he says.

For Mr Miranda, though, disclosing the firm’s political stance was a matter of principle. “In the US people assume a position…it’s the correct thing to do,” he says. He adds he cannot bear the thought of four more years of the incumbent government, which he holds responsible for the country’s low growth, high inflation, deteriorating public accounts, and for “destroying” state-run oil company Petrobras.

In the closest election in a generation, Brazilians – particularly the country’s new middle class – are seeking a leader who will revive growth as well as dealing more effectively with poor public transport, health and education, analysts say.

But with the candidates locked in a dead heat ahead of the vote, the campaign has degenerated into personal attacks, with both sides accusing the other of offences ranging from alcoholism to Nazism.

Although there has been some debate on the PT’s economic strongpoint, how unemployment has stayed low despite a recession, economists say an important opportunity is being lost to discuss why growth during Ms Rousseff’s four-year rule is the lowest for any president since the early 1990s. Inflation, at over 6.5 per cent, has also breached the central bank’s target, and investment remains low.

“We have not seen the full extent of the adjustment that is already in motion regardless of who wins on Sunday,” said Alberto Ramos, economist at Goldman Sachs, warning there is further pain to come.

The ruling PT coalition has instead blamed the global economic crisis to justify the country’s stalled economic growth and its open-ended fiscal stimulus programme that some say threatens the health of the government accounts.

“For six years, the global economy has been facing the worst crisis it has experienced in 80 years,” finance minister Guido Mantega said during a recent debate on Globo TV.

The trouble with this argument is that it fails to explain why Brazil is performing worse than its neighbours. Despite the global financial crisis, China’s voracious demand for commodities kept South America’s economies purring along. Yet Brazil grew at an average of 3 per cent, while Colombia, Chile and Peru grew at almost 5 per cent a year. Brazil slipped into a technical recession in the first half of 2014, while South America’s Pacific-facing economies are forecast to grow 3.5 per cent on average this year.

Not everyone is critical of Ms Rousseff’s policies. Blu Putnam, chief economist at CME Group, said in developing countries allowing a fiscal stimulus at a time of low growth while tolerating inflation of around 5-6 per cent was reasonable.

“I do feel that some fiscal stimulus was probably important,” he said of Brazil.

However, Marcos Casarin of Oxford Economics argues that Brazil’s fiscal polices are unsustainable in the long-term. Brazil’s continuous stimulus is not generating economic growth, forecast to be flat this year. Instead, it is leading to a rise in government debt.

At just under 60 per cent of gross domestic product, gross public debt is not at alarming levels. But Brazil’s high interest rates mean that if debt continues increasing at its current pace, the cost of servicing it would reach over 7 per cent of GDP by 2017 – the peak level for Greece during the eurozone crisis.

Mr Casarin questioned why Ms Rousseff had ditched the previous two governments’ practice of setting aside 3 per cent of GDP from the budget to pay down debt. “It was working – we got investment grade status. Why change that?” Mr Casarin said.

If Ms Rousseff is re-elected, she may try to correct such imbalances. But during her four-year rule, finance minister Mr Mantega has consistently over-estimated forecast growth by an average of 2.77 percentage points a year, according to FT research.

Ms Rousseff has pledged to remove him if she is re-elected but such persistently missed forecasts mean that markets will cut her government little slack.

“They will probably sell a little bit of a fiscal adjustment, but the promise will be an empty promise because of a lack of credibility,” said another economist with a foreign bank.