Brazil's Rousseff starts market-friendly transition

  • World
  • Tuesday, 02 Nov 2010

BRASILIA (Reuters) - Brazilian President-elect Dilma Rousseff named a market-friendly transition team on Monday as she prepares to take the helm of a booming economy that runs the risk of being tripped up by heavy government spending and an overvalued currency.

Rousseff, who based her campaign on extending the legacy of President Luiz Inacio Lula da Silva, won her first election on Sunday as Brazilians voted overwhelmingly for continuity.

After a bitter campaign in which she offered few specifics on her policy plans, Rousseff chose a seven-member transition team that draws heavily from the moderate wing of her left-leaning Workers' Party, a close aide told Reuters.

Chief among them is Antonio Palocci, a well-regarded former finance minister under Lula who is popular with Wall Street and is likely to take a prominent post in Rousseff's administration, potentially chief of staff.

Others include Jose Eduardo Dutra, president of the Workers' Party and a former chief executive of state oil giant Petrobras ; Fernando Pimentel, a former mayor of Belo Horizonte; and Marco Aurelio Garcia, Lula's foreign policy adviser.

One of Rousseff's first challenges when she takes office on New Year's day will be to address Brazil's hard-charging currency , which is trading near a two-year high and damaging exporters.

In a series of interviews with TV networks, Rousseff said on Monday there was evidence the world was in a currency war and it was up to multinational institutions to ensure that countries did not unfairly keep their currencies weak.

"I start to devalue and another country starts to devalue and this blocks trade. ... It creates a trade war," she said on TV Record.

At Lula's suggestion, Rousseff will travel with the president to the G20 summit in South Korea on November 10-12, where the leaders of the world's top economies will discuss global currency tensions.

Rousseff has stressed heavily since her election victory that she will run a prudent government, keeping a check on public spending and maintaining the stability of an economy that is among the world's hottest emerging markets.

"We will not play around with inflation," she said in one of a series of interviews with TV networks before taking off for several days to rest after an intense four-month campaign.

"We will have a government that uses inflation targets in the same way that the Lula government did."

Rousseff spent most of the day meeting with advisers and talking to foreign heads of state by telephone at her home in Brasilia. Financial markets reacted positively to her acceptance speech, in which she pledged to rein in government spending while maintaining the social welfare policies under Lula that lifted millions out of poverty.

"Markets reacted well to her words, especially when she carefully spelled out the delicate issue of public expenses," said Fernando Mendes, head of fixed-income trading at Lerosa Investimentos in Sao Paulo.


The possibility of greater fiscal discipline led investors to bet on a medium-term decline in interest rates, which are among the highest in the world and one of the main causes for the currency's constant appreciation.

Brazil's stock index rose more than 1 percent.

Palocci, the face of fiscal austerity in Lula's first term, suggested the budget could be adjusted to slow spending.

"There's no fiscal crisis in Brazil today ... but we have no problem in finding the savings that Brazil needs to keep its debt projections on a downward trend," Palocci said in an interview with Folha de Sao Paulo newspaper.

Still, analysts worry Rousseff is not sufficiently committed to broader changes, such as an overhaul of the nation's bloated social security system and its suffocating bureaucracy that are crucial for long-term growth.

Rousseff must now emerge from Lula's shadow and overcome the perception, still held by some Brazilians, that she is an inexperienced acolyte with little experience of her own.

The headline in Monday's O Estado de Sao Paulo newspaper was simply: "Lula's victory."

Rousseff pledged in her victory speech to extend a "new era of prosperity" that has lifted 20 million Brazilians into the middle class and thrust the country into the BRIC club of emerging economic powers alongside Russia, India and China.

She took 56 percent of the vote. Her rival, Jose Serra of the centrist PSDB party, had 44 percent.

Rousseff will continue to push Lula's flagship initiatives, including reforms to give the state a greater role in developing vast new oil wealth and ambitious infrastructure plans as Brazil prepares to host the 2014 World Cup and the Olympics two years later.

(Additional reporting by Brian Winter and Alonso Soto in Sao Paulo; Editing by Stuart Grudgings and Todd Eastham)

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