August 28, 2014 / 8:29 PM / in 4 years

Brazil's Mantega says opposition win could wreck economy

BRASILIA (Reuters) - Brazil’s finance minister waded into the country’s presidential campaign on Thursday, warning that an opposition victory in the October election could push the economy into recession and undo a decade of social gains under the ruling Workers’ Party.

Brazil's Finance Minister Guido Mantega speaks during an interview with Reuters in Brasilia August 5, 2014. REUTERS/Ueslei Marcelino

The comments by Guido Mantega, which the opposition and some analysts criticized as unbecoming of a sitting finance minister, came on the eve of the release of official data that is expected to show that Brazil, Latin America’s largest economy, is already in recession.

Brazil’s once high-flying economy has slowed sharply in the last four years under President Dilma Rousseff, complicating her chances for re-election in October. Growth is now at a crawl, inflation is running high, and business confidence has evaporated, discouraging investment.

The slowdown has given the opposition ample fodder to criticize Rousseff on the campaign trail.

Mantega sought to paint a rosier portrait and said he worries that a new government would raise interest rates to “stratospheric” levels to curb inflation, derailing the economy and throwing Brazilians out of work.

“If they criticize us, that’s because they plan to do the opposite. That will create a recession, increase unemployment and revert social and real income gains made by the population,” Mantega told reporters after unveiling the 2015 budget bill.

Some analysts frowned on Mantega’s comments, saying a finance minister should steer clear of election politics.

“I find it strange that a minister makes a comment like that,” said Jankiel Santos, chief economist at Espirito Santo Investment Bank in Sao Paulo.

Falling investment and consumption have probably already put Brazil in recession. Data due out on Friday will likely show that gross domestic product shrank a seasonally adjusted 0.4 percent in the second quarter, according to a Reuters poll.

Rousseff’s re-election, considered almost certain just a few months ago, has been cast into doubt by the sudden surge of environmentalist Marina Silva, who entered the race last week after her party’s candidate was killed in a plane crash.

Two polls this week showed Silva narrowing Rousseff’s lead and forcing a second-round runoff on Oct. 26 in which she could handily defeat the incumbent.

The prospect of a Rousseff defeat has excited investors who are frustrated with a weak economy and what they criticize as the president’s interventionist economic policies, buoying the Sao Paulo stock market in recent weeks.

The market favorite, centrist Aecio Neves, is now in third place in the polls. Silva has promised to adopt policies that are as orthodox and business-friendly policies as Neves’s, focused on restoring fiscal discipline and freeing up market forces.

Both opposition candidates advocate central bank autonomy and have not said where they would like interest rates to go.

Mansueto Almeida, one of Neves’s top economic advisers, told Reuters on Thursday that he saw no need to raise interest rates next year given the economic slowdown.

“The minister is doing electoral terrorism,” Almeida said. “That speech that the opposition will raise interest rates is completely wrong.”

No one from the Silva camp was immediately available to comment.

Mantega said the government is working to create the conditions for the central bank to adopt an expansionary monetary policy after raising rates for more than a year.

Mantega, who is often criticized for his overly optimistic predictions, also said the economy will recover in the second half of the year and accelerate further in 2015.

Economists do not expect Brazil to grow more than 0.7 percent this year and 1.2 percent next year, according a weekly central bank survey.

Additional reporting by Luciana Otoni; Editing by Anthony Boadle and Leslie Adler

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