Brazil’s Serra May Vow to Outdo Lula as Presidential Bid Begins

Jose Serra, the frontrunner to succeed Brazilian President Luiz Inacio Lula da Silva, begins his campaign tomorrow aiming to persuade voters that he’s best- suited to expand on economic gains made during Lula’s tenure.

Brazil’s biggest opposition party, known as the PSDB, will declare Serra, 68, its candidate for October elections at an event tomorrow in Brasilia, setting up a race against Lula’s chosen heir, former cabinet chief Dilma Rousseff, 62.

Rousseff, who has never run for elected office, has cut Serra’s 14-point lead in a December poll to 9 points last month as she and Lula traversed the country inaugurating public housing and health clinics popular with Lula’s working-class base. Instead of attacking Lula’s track record, Serra will showcase his accomplishments expanding Sao Paulo’s infrastructure while cutting taxes and improving state finances.

“Serra won’t portray himself as the anti-Lula candidate because it wouldn’t work with voters,” said Rafael Cortez, a political scientist at Sao Paulo-based consulting company Tendencias Consultoria Integrada. “He wants to avoid a clash with Lula at all costs.”

Brazil’s gross domestic product has tripled since Lula, the most popular leader in Brazil’s history, came to power in 2003. Annual inflation, which was 12.5 percent at the end of 2002, has slowed by more than half to 5.2 percent.

Serra told supporters that “Brazil can do better” in a March 31 speech after he resigned as Sao Paulo state’s governor.

Private Investment

Serra, who lost to Lula in 2002 elections, is more likely than Rousseff to court private investment and contain government debt that has risen to 63 percent of gross domestic product this year from a pre-crisis low of 56 percent, Cortez said. During the global financial crisis, Serra sold state-owned bank Nossa Caixa to raise capital while Lula injected more than $100 billion into government lenders.

Still, a Serra administration wouldn’t be risk-free for investors, Bank of America-Merrill Lynch said in a report last month. As recently as July 2009, the former student leader exiled by Brazil’s 1964-1985 dictatorship criticized “stratospheric” interest rates that strengthen the currency and hurt exports. As health minister last decade, he forced foreign pharmaceutical companies to slash prices on AIDS drugs by threatening to break their patents.

Senator Sergio Guerra, president of the PSDB party, defended Serra’s record and said there’s no reason for investors to be concerned.

“We’ll show voters that Serra is the most adequate candidate and meets requirements for the job, to lead Brazil now in this new century,” Guerra said in an interview April 7.

Voter Polls

Serra has the support of 36 percent of those surveyed in a Datafolha poll published March 27, compared with 27 percent for Rousseff, a member of the Worker’s Party. The poll, taken March 25 to 26, had a 2 percentage point margin of error. A Vox Populi poll conducted March 30 and 31 put Serra’s support at 34 percent of voters, while Rousseff had 31 percent. Its margin of error was 2.2 percentage points.

Former central bank director Paulo Vieira da Cunha, now a partner at Tandem Global Partners LLC in New York, said investors are concerned that a Rousseff government may spend excessively. Lula’s pressure on state-owned banks to boost lending also poses a threat, he said.

“I see with great concern a transition from Lula’s regime, known for macroeconomic stability, to Rousseff’s regime,” Vieira da Cunha said in a telephone interview. “There’s a clear deterioration of fiscal policies that needs to be addressed.”

Still, Serra’s comments that Brazil’s inflation wouldn’t be much higher if the central bank lowered interest rates are also alarming from an investment perspective, Vieira da Cunha said.

Currency Gains

Both Serra and Rousseff are likely to take measures to curb the currency’s appreciation in the medium term, said Joao Manuel Cardoso de Mello, an economics professor and one of the founders of Campinas University who has taught Rousseff and helped Serra become a professor after he returned from exile. The university is based in Campinas, Sao Paulo state.

“Some more energetic intervention in the exchange rate will need to be done, and the next government will have to face that problem,” Mello said. “I can tell you that both Serra and Dilma know that perfectly well.”

Rousseff supports the current model of an inflation target set by the government and pursued by the central bank, said former Finance Minister Antonio Palocci, an adviser to her campaign. She poses no threat to the economy, he said.

“Dilma will reinforce her commitment when it’s appropriate,” Palocci said. “She’s part of a government committed to the reduction of the debt-to-GDP ratio, inflation control, floating rate policy.”

Lula’s popularity, at a record 76 percent according to a March 25 to 26 Datafolha poll, will set the tone for the electoral campaign this year, said Alexandre Barros, head of Early Warning, a Brasilia-based political risk company.

“If Serra says he’s the best to push forward Lula’s accomplishments voters will be suspicious,” Barros said. “If Serra is so good, why hasn’t Lula chosen him as successor?”