By Carla Simoes and Alexander Cuadros – Oct 31, 2010 9:11 PM GMT-0600
Mon Nov 01 03:11:59 GMT 2010
Rousseff Is Elected Brazil’s First Female President

Dilma Rousseff was elected today Brazil’s first female president after she pledged to continue the policies of her mentor Luiz Inacio Lula da Silva and end poverty in the world’s eighth-largest economy. Photographer: Evaristo Sa/AFP/Getty Images

Presidential Candidate Jose Serra

Jose Serra, presidential candidate for the Brazilian Social Democratic Party. Photographer: Jefferson Bernardes/AFP/Getty Images

Dilma Rousseff said her main goal is to eradicate poverty in Brazil while maintaining a lid on spending after being elected the country’s first female president.

Rousseff, who had never before run for political office, won 56 percent of the vote yesterday compared with 44 percent for Jose Serra, the former governor of Sao Paulo state. The former cabinet chief dedicated her victory to Brazil’s women, and choked with tears as she remembered the legacy left by her mentor, President Luiz Inacio Lula da Silva.

“We’ll care for our economy with complete responsibility,” Rousseff, 62, told supporters in Brasilia. “The Brazilian people don’t accept governments that spend at unsustainable levels and for that reason we will make every effort to improve public spending.”

Rousseff won by promising continuity with Lula, whose policies lifted 21 million Brazilians out of poverty since 2003 and created a record 15 million jobs. While lacking the charisma of her former boss, who leaves office Jan. 1 with a record 85 percent approval rating, she’ll be helped by the fastest economic growth in more than two decades.

“For the first time since the Second World War we’re going to have a political transition that will have little impact on economic activity,” Carlos Langoni, a former central bank president, said in a phone interview from Rio de Janeiro.

Under Lula’s watch, stocks rose six-fold as the economy expanded at almost twice the pace of the previous eight years and inflation fell by a third from a peak of 17.2 percent.

Former Guerrilla

Rousseff is a former Marxist guerrilla who was jailed and tortured by Brazil’s 1964-1985 military dictatorship. She joined Lula’s Workers’ Party, or PT for its Portuguese initials, on the eve of his election after serving as energy secretary in Rio Grande do Sul state. She served as Brazil’s energy minister and chairwoman of state-controlled oil company Petroleo Brasileiro SA before replacing PT stalwart Jose Dirceu as cabinet chief.

Rousseff’s candidacy was put in doubt when she announced in April 2009 that she was being treated for lymphoma. Five months later, her doctors pronounced her in “excellent health.”

Serra, who also battled Brazil’s dictatorship as a student leader, led Rousseff by as much as 35 percentage points in a Datafolha poll taken March 2008. The 68-year old former health minister’s campaign fell flat as he failed to present an economic program that could persuade voters to abandon Lula.

Rousseff, who did a masters degree in economics at Campinas University, crisscrossed Brazil with Lula over the past year. As president, she said she’ll “knock on his door” regularly for advice. Lula will bring Rousseff to the Group of 20 nations summit this month in South Korea, the president’s foreign policy adviser Marco Aurelio Garcia said.

Tears for Lula

“The happiness I feel for my victory is mixed with emotions over his departure,” a teary-eyed Rousseff said last night after thanking Lula for her victory. “I know a leader like Lula never will be long from his people, from each of us.”

Maintaining Lula’s economic policies may be insufficient to allow Rousseff to match his successes, which include winning Brazil’s first investment-grade credit rating in 2008. Traders are pushing up borrowing costs for Brazil, which has $957 billion in public debt, on bets that Rousseff will fail to curb spending, forcing policy makers to raise interest rates in 2011.

The interest-rate futures contract due in January 2015, the month Rousseff’s first term would end, yielded 11.64 percent on Oct. 29, a level that suggests traders expect the central bank to raise the benchmark rate almost one percentage point during the next four years, data compiled by Bloomberg show.

Tighter Spending

“In the short term, fiscal policy is key,” said Roberto Padovani, chief economist at Banco WestLB do Brasil in Sao Paulo. “If there is a clear sign of tighter fiscal policy, interest rates will tend to drop and the currency will be less strong.”

An early test of her discipline will be the 2011 budget and whether she seeks to raise the country’s monthly minimum wage more than the 5.5 percent to 538.15 reais ($317) proposed by Lula, said Pedro Tuesta, a Washington-based economist for Latin America at 4Cast Inc. Serra vowed to raise it to 600 reais.

‘Huge Rally’

Rousseff last night said social programs and investment Brazil needs would not be reduced. On the campaign trail, she vowed cut net public debt to about 30 percent of gross domestic product by 2014 from 41 percent. Latin America’s biggest economy will grow 7.3 percent this year, the fastest pace since 1986, according to estimates by the central bank.

Investors will scrutinize Rousseff’s cabinet picks for clues to how serious she is about restraining spending, said Marcela Meirelles, an emerging-market analyst with TCW Group Inc., which manages about $110 billion. Returning campaign adviser Antonio Palocci to his former post as finance minister would trigger a “huge rally,” especially in fixed-income assets, she said.

Central Bank President Henrique Meirelles may stay in his post for another six months to ease the transition, she said. Meirelles, arriving at Rousseff’s victory party last night, said “nothing is planned” for him to stay at his job.

Cabinet Picks

“Very early on, this new administration will have to send a signal to the market,” analyst Meirelles said in a phone interview from Los Angeles.

Rousseff will benefit from a majority in Congress. The PT picked up five additional Senate seats in elections last month, bringing to 14 the number of lawmakers it has in the 81-seat chamber. Parties backing the government will control another 35, and in the lower house her coalition got 311 of 513 seats.

Traders are wagering that policy makers, who have kept the benchmark Selic rate unchanged in their past two meetings after raising it to 10.75 percent from a record low 8.75 percent earlier this year, will be forced to resume increases early next year to curb inflation. The central bank will need to boost rates to 12.25 percent next year, according to Bloomberg estimates based on interest rate futures contracts.

“Brazil is going to have an inflationary problem, whether people believe it or not,” said Eric Conrads, who helps manage about $1 billion in emerging-market funds at ING Investment Management in New York. “If you’re getting a bit more relaxed on the fiscal front, you add fuel to the fire. The easy job is over; the hard job is ahead.”

To contact the reporters on this story: Carla Simoes in Brasilia at Alexander Cuadros in Sao Paulo at

To contact the editor responsible for this story: Joshua Goodman at