By Joshua Goodman and Adriana Brasileiro
Aug. 31 (Bloomberg) -- Banco Central do Brasil President Henrique Meirelles’ political ambitions are raising concern among some investors as he seeks to pull Latin America’s biggest economy out of recession ahead of next year’s election.
The former FleetBoston Financial Corp. banker already is rallying beside President Luiz Inacio Lula da Silva and grinning for crowds in his home state of Goias, where he won a congressional seat in 2002 that he gave up for the central bank post. Meirelles, 64, said Aug. 25 he may join a political party in September. He’s most likely to run for Goias governor, Bank of America Corp. said in an Aug. 18 report.
Meirelles’ predecessor, Arminio Fraga, urged him last week to stay in place until December 2010, when Lula’s term ends. Luiz Fernando Figueiredo, a former bank director, said speculation over Meirelles’ bid for office generates “some risk” for investors as policy makers prepare to meet this week.
“The anchor of the central bank’s autonomy and successful monetary policy is Meirelles, no doubt,” Figueiredo, who runs Sao Paulo-based hedge fund Maua Investimentos, said in an interview. “The lack of details about his political future generates some risk because, conceptually, a run for office and the technical responsibility over economic policy are incompatible.”
‘Solid Commitment’
Meirelles, having tamed inflation and slashed interest rates to a record, indicated last week he may try to leverage his success at stabilizing the economy into public office. Attending a conference in New York on Aug. 25, Meirelles said his policies and the central bank’s autonomy would be maintained should he seek an elective office. He cited Lula’s “solid commitment” to a stable economy.
“Should I become a candidate to a public office and leave the central bank in April 2010, I believe we will see continuity,” said Meirelles, the longest-serving central bank president in Brazil after almost seven years in the job.
Under Meirelles, Brazil’s benchmark lending rate fell below 10 percent for the first time and inflation dropped to 4.5 percent from more than 17 percent in May 2003. Speaking alongside Meirelles in the bank chief’s hometown of Anapolis this month, Lula told a cheering crowd, “I owe to this comrade and the government’s economic team the economic stability and respect that Brazil enjoys today in the world.”
Fraga, the chairman of Brazil’s stock exchange BM&FBovespa SA, said it would be “extremely positive” for the country if Meirelles would stay in command of the central bank until the end of the current government’s mandate in December 2010.
“I hope he stays,” Fraga said in an Aug. 28 interview at an investment conference in Campos do Jordao, Brazil.
Rate Meeting
Meirelles would have to resign by April to become a candidate. For now, he has said he’s focused on lifting Brazil out of its first recession since 2003.
Meirelles will preside over the last meeting of the eight- member monetary policy committee before an Oct. 3 deadline to join a political party if he wants run in October 2010. Policymakers will likely keep the benchmark Selic rate at a record low 8.75 percent on Sept. 2, according to 22 of 24 economists in a Bloomberg survey.
‘Non-Event’
Luis Stuhlberger, managing director of Credit Suisse Hedging-Griffo, said in an interview any change in the presidency of the central bank would be a “non-event.”
Asked if Meirelles’ political ambitions could affect his decisions in coming months, Deutsche Bank AG’s Drausio Giacomelli said it’s unlikely.
“The central bank has been stress-tested over the years on political grounds and I think they have passed, ” Giacomelli, Deutsche Bank’s head of emerging-market strategy in New York, said in a telephone interview last week.
The most likely and “market neutral” replacement for him would be one of the bank’s current directors, Bank of America said. The leading candidate is Alexandre Tombini, current bank director for financial regulation, said Zeina Latif, chief economist at ING Bank NV in Sao Paulo.
Whoever Lula picks will follow the same path, resisting political pressure to keep rates low in an election year should inflation return, said Paulo Vieira da Cunha, a central bank director from 2006-2008.
“The market may be apprehensive, but there’s not much reason for it,” said Vieira da Cunha, who now helps oversee $160 million in emerging-market assets at Tandem Global Partners in New York.
Surprise Hike
Meirelles’ appointment in 2002, after he won a seat in congress for the opposition Social Democratic Party, signaled Lula would abandon his past as a labor activist and discard earlier threats to default on Brazil’s then-$300 billion of public debt.
During his first policy meeting in 2003, Meirelles surprised investors by raising the benchmark rate to 25.5 percent. It was the first sign the incoming Lula administration would fight inflation and resist calls from even the socialist Workers’ Party that Lula founded to stoke growth with looser lending.
The strategy paid off. Since inflation peaked at 17.24 percent in 2003, the government has met its inflation target every year. With price stability, the stock market’s value has soared eight times in dollar terms as gross domestic product tripled. The Brazilian real is the best performer among the world’s 16 most traded currencies this year with a gain of 23 percent against the dollar. It has strengthened to 1.88 per dollar from 3.5 in January 2003.
Goias Trip
The trip to Goias with Lula fed media and market speculation that after more than a decade in Boston and Brasilia, the Harvard University-educated banker plans to run for governor in the rural backland, better known for its thorn- filled pequi fruit than high finance.
Meirelles could also bolster the market credentials of Lula’s chosen successor, Cabinet Chief Dilma Rousseff, by serving as the former Marxist guerrilla’s running mate, said Luis Stuhlberger, Brazil’s biggest hedge fund manager and managing director at Credit Suisse Hedging-Griffo.
“It would certainly make her a stronger candidate,” Stuhlberger said.
Such ambitions would probably exceed Meirelles’ appeal to voters, said Thomas Trebat, director of Columbia University’s Center for Brazilian Studies in New York.
“The only one other position that’s suitable to the stature he currently enjoys is the presidency, but that’s not in the cards,” Trebat said in a phone interview. “Brazil has stronger and younger candidates with more charisma.”
Markets
The Bovespa fell 0.3 percent to 57,573 last week, led by Cosan SA Industria e Comercio, which climbed 12.5 percent, and JBS SA, which gained 6.5 percent. Net Servicos de Comunicacao SA fell the most with a 2.6 percent drop. The yield on the local- currency zero-coupon bonds due January 2010 rose 2 basis points, or 0.02 percentage point, to 8.7 percent. Brazil’s real fell 2.7 percent to 1.8801 per U.S. dollar.
The following is a list of events in Brazil this week:
Event Date
Industrial Production Aug 31
Monthly Trade Balance Sept 1
Selic Target Rate Sept 2
FIPE Consumer Price Index - Monthly Sept 2
Anfavea Monthly Vehicle Sales Sept 4
To contact the reporters on this story: Joshua Goodman in Rio de Janeiro jgoodman19@bloomberg.net; Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net.
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