MercoPress. South Atlantic News Agency

Rousseff stimuli policies and government intervention in the economy questioned

Brazilian president and Minister Mantega accused of ignoring the sacred tripod: fiscal responsibility, inflation targeting and floating exchange rate

Brazil's economic debate is heating up after three former central bankers this week criticized the economic policies of President Dilma Rousseff, saying she is making Latin America's biggest economy less efficient and more sluggish.

The warnings from Gustavo Franco, Arminio Fraga and Henrique Meirelles, who in that order headed the nation's central bank from August 1997 through 2010, come as political parties begin sparring ahead of next year's presidential elections.

They aimed their criticism at Rousseff's fiscal and monetary policies and her preference for big government and state intervention in the economy.

The complaints, made by the bankers at a conference this week are increasingly echoed by investors, especially because Brazil's economy, which grew by 7.5% as recently as 2010, has posted lacklustre growth during each year so far of Rousseff's term.

The government has grown increasingly prickly over the criticism. On Friday, Finance Minister Guido Mantega fired back.

In an interview with O Estado de S.Paulo newspaper, he said that average inflation has been lower under Rousseff than during the final years of the administration of Fernando Henrique Cardoso, Brazil's president before the leftist Workers' Party began its eleven years so far in power.

Fraga, who has said he has “informal talks” about economic policy with Senator Aecio Neves, the likely presidential candidate for Cardoso's centrist PSDB party, said Brazil's economic policies got off track during the second term of former president Lula da Silva, Rousseff's predecessor and sponsor.

Lula da Silva, a former union leader who surprised investors by adopting market friendly policies when taking office in 2003, substantially increased government spending and banking credit to shield Brazil from the 2008 global financial crisis.

Economists largely gave the measures credit for the red-hot growth in 2010, Lula da Silva's final year in office. But Rousseff, his political heir, hasn't been as lucky. Since she took over, and continued expanding credit and government spending, the economy hasn't grown beyond 3 percent.

Fraga accused Rousseff of weakening the so-called “tripod” of economic policies that have been sacrosanct in Brazil since they helped reverse a period of rampant inflation and erratic growth in the 1990s. It is based on fiscal responsibility, inflation targeting and a floating exchange rate.

“It's been more or less three years that inflation has been around 6% despite attempts to hold fuel prices and bus fares,” Fraga, who served as central bank chief under Cardoso, told an audience of students, investors and journalists.

He compared Rousseff's economic policies to those of Brazil's military dictatorship during the 1970s, which also favoured massive state-run enterprises. Rousseff's policies, Fraga said, are deterring investment, hindering competitiveness, and increasingly isolating Brazil from international markets.

“I see that situation with a lot of concern,” Fraga said.

Franco, meanwhile, said Brazil is becoming a country of public servants who wish to live as pensioners, banking on the promise of revenue from large offshore oil deposits.

Meirelles, who served as central bank president during both Lula da Silva’s terms, defended the initial phase of fiscal stimulus but said it should have already ended. “The problem was that fiscal and credit stimulus remained in place,” he said.