Brazil Opposition Vows Austerity Should Party Gain Presidency

Brazilian Governor Jose Serra, the leading candidate ahead of the October presidential contest, would curb government spending if elected in an effort to make room for the central bank to cut interest rates, the head of his party said.

“There will be strong measures to control expenses and the fiscal outlook,” Sergio Guerra, head of the opposition Social Democracy Party, said in an interview yesterday at the party’s headquarters in Brasilia. “We will carry out adjustments to create conditions for lower interest rates.”

Serra’s party wants to foster an environment that allows the central bank, which operates independently of the government, to reduce the benchmark lending rate in an effort to slow the appreciation of Brazil’s currency, which has rallied 44 percent over the past five years. A weaker real would help exporters by making their goods cheaper in dollar terms.

The real has weakened 4.4 percent this year, the most among major Latin American currencies, to 1.8246 per dollar.

Brazil’s benchmark interest rate is the seventh-highest among 52 economies tracked by Bloomberg, even after policy makers cut it to a record low of 8.75 percent in July 2009. Economists expect the so-called Selic rate to be lifted to 11.25 percent by the end of the year to keep inflation in check, a central bank survey published this week shows.

“Given inflationary pressures, it’s clear that the current rate won’t allow the economy to expand with stable consumer prices,” Newton de Camargo Rosa, chief economist at SulAmerica Investimentos, said in a telephone interview from Sao Paulo. “A rigorous fiscal adjustment would allow, without a doubt, the Brazilian economy to operate with lower rates.”

Election Polls

Serra, the 67-year-old governor of Sao Paulo state, leads his closest opponent, Brazilian Cabinet Chief Dilma Rousseff, by 11 percentage points ahead of the first round of elections in October, according to an Ibope poll published Feb. 18 by newspaper Diario do Comercio. Rousseff is backed by Brazilian President Luiz Inacio Lula da Silva.

The country’s policies of maintaining a floating exchange rate and inflation targeting are “unremovable,” said Guerra, 62. Both policies were first implemented in 1999 under then- President Fernando Henrique Cardoso, a member of Guerra’s party.

Serra, head of the Brazil’s wealthiest and most populous state, lost a presidential runoff in October 2002, taking 39 percent of the vote to Lula’s 61 percent.