Brazil's Finance Minister Defends Record as Markets React Badly to Rousseff's Re-election

10/28/2014 - 10h07

The day after President Dilma Rousseff's re-election, the real fell against the dollar and the stock market also fell.

Finance Minister Guido Mantega gave an optimistic speech, but advisors to the president expressed concern regarding economic policy during Rousseff's second mandate.

While the dollar closed at a three-year high, Mantega held a press conference in which he said he was "happy with the result of the election' because 'this shows that the population approves of our economic policy."

Mantega and his executive secretary, Paulo Cafarelli, said that the government is working on "several" measures to stimulate industry and improve economic activity, which is due to register growth close to zero this year.

Their tone was of concern for others in government. Presidential advisors told Folha that it was the government's social policies that won the election - not its economic policy. They suggested that it is time the government changed tack in this area.

The main objective should be to put public finances in order, to reduce inflation and avoid losing the country's current credit rating over the next two years. Otherwise, it will become harder for Brazil to borrow money, and the amount of foreign investment in the country will fall.

Mantega promised "stronger" fiscal adjustment in 2015 to make up for the poor performance this year. The government is unlikely to meet its primary surplus target of 1.9% of GDP.

"We're going to continue to try and increase the transparency of our fiscal affairs," said Mantega, recalling part of Rousseff's victory speech on Sunday (26).

Mantega also said he wanted to renew the government's commitment to "maintaining good fiscal results, so that public debt remains under control," and that "keeping inflation under control remains a priority."

However, while this may be enough to allay the fears of some in government, it will not be enough to appease the markets and win back the confidence of business leaders - unless it is accompanied by concrete economic measures.

In addition, advisors suggest that in announcing that it is preparing stimulus measures for certain sectors, the government is persisting with economic policies that were not successful during Rousseff's first term.

They argue that the government needs to abandon short-term measures in order for economic growth to recover.

Monday (27) was a day of turbulence in the market. The stock market fell by 2.77%, with a fall of 12.33% in Petrobras preferred stocks.

Mantega says he expects things to return to normal in the next few days. "It'll pass," he said.

He did not want to comment on possible candidates to replace him as Finance Minister when he steps down.

Translated by TOM GATEHOUSE

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	Pedro Ladeira/Folhapress
	Mantega gave an optimistic speech, but advisors expressed concern regarding economic policy during Dilma's second mandate