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July 11, 2006 10:10 pm

Interview transcript: Geraldo Alckmin

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Richard Lapper, the FT’s Latin America editor, and Jonathan Wheatley, Brazil correspondent, talked with Geraldo Alckmin, candidate for president from Brazil’s centrist Democratic Movement of Brazil party (PSDB), on July 8 2006 in Brasília. The following is an edited transcript of the interview, which took place over breakfast.

Also read the transcript of the FT’s interview with Luiz Inácio Lula da Silva, Brazil’s president.

FINANCIAL TIMES: One thing we would like to explain to our readers is the difference between a second Lula government and an Alckmin government. How would things change for Brazil?

GERALDO ALCKMIN: One important change is in the reforms that Brazil needs. I don’t believe that the reforms that weren’t enacted in these past four years are likely to be done [under a second Lula mandate] because a second mandate is always weaker, and the PT will be enormously reduced. The PT’s force in Congress should be cut almost by half. Today things change very quickly, and Brazil can’t run the risk of losing another four years. The modern world is a world of efficiency. So I believe that a new government, coming in with support in the polls, will have more political conditions to advance.

I would put political reform first. Governability in Brazil is in very bad shape. There are too many parties and no party loyalty. We have 19 parties with seats in the Lower House. This will get better under the barrier clause that will be in force [at October’s elections] for the first time, and the number should fall to seven parties. I intend straight away in January to present a political reform where the most important element will be party loyalty.

FT: What would be the result?

ALCKMIN: The result would be this: today there are 513 deputies and 81 senators, so you have 591 interlocutors. Without party loyalty, each deputy is a party. With party loyalty you will improve governability, with seven or eight parties you have more political stability.

FT: Which means parties voting together…?

ALCKMIN: Exactly. And this is a change in quality in Brazilian politics, which has no tradition of party politics or of party programmes. What it has is a tradition of unbalanced, personality politics.

FT: So this would able you to enact other reforms?

ALCKMIN: That’s why it comes first, to give you governability. Together with this, also in January, would come tax reform. Our tax system is very complex. It needs simplifying. We have dozens of taxes and contributions. The first thing is to unify the ICMS, the main tax on the circulation of goods and services. It has 27 different sets of laws [one for each state] and 55 different rates. We intend to have one federal law and five rates, and then we would go on to unify all the taxes on consumption into a single value added tax – the IPI, ISS, CMS, unify them all into a VAT. In other words, simplify, reduce tax evasion, reduce the fiscal war between the states, and seek efficiency in the tax system.

Another aspect is that we have a very high tax burden, 38.9 per cent of gross domestic product. It’s the tax burden of the United Kingdom, except there they have income per head of much more than $30,000, and we have income per head of $6,000. It’s not possible. This is taking the Brazilian economy to a high level of informality, which is very worrying, because it doesn’t protect the worker and it leads to unfair competition. Informality doesn’t produce technological innovation, it doesn’t export, it’s bad.

We intend to work very hard on taxation, we see this as one of the knots in Brazil’s economy. Because the tax burden is very large, and the system is very bad, there is only one instrument available to control inflation, which is interest rates, monetary policy.

FT: The Lula government tried to do this. What happened with the reform that was attempted in 2003?

ALCKMIN: The 2003 reform simply maintained the CPMF [a tax on financial transactions] that was supposed to end, and maintained the DRU [which releases some federal revenues from earmarking]. And it increased the tax burden, because in changing Cofins [a social security contribution] from the cascade system to aggregate value, there was an increase in the tax burden. Last year it increased by 1.5 per cent. So we arrived at almost 39 per cent of GDP. We are at least 10 to 15 points above other emerging countries, almost double the rate of our neighbours in Latin America.

Then we come to another area I will work on, which is the efficiency of public spending. The Brazilian government spends a lot and spends badly. With this tax burden, there is no investment. Last year investment was 0.4 per cent of GDP. So the highways… You need investment in transport, railways, waterways, highways, integration of different modalities. Investment is very small. The government is going along one line and we are going along another. Today the line is, increase current spending, increase taxes, and cut investments. So we arrive at 0.5 per cent of GDP in investment.

FT: How much was it when the present government came in?

ALCKMIN: It was more than 1 per cent, almost 1.5 per cent of GDP, and I understand that Brazil needs to invest at least 2 per cent of GDP. It’s a very big country, there are lots of logistical bottlenecks.

FT: We asked the president about this and he said there is lots of investment, that Petrobras has a plan to invest $87bn…

ALCKMIN: Petrobras is a public-sector company, it won’t invest in the infrastructure of the country, it will invest in its own activities. So I’m not counting the public-sector companies, which have their own budgets. I’m referring to public investment by the government. I intend to reduce current expenditure, reduce taxes – it’s the other way round – and increase investment.

Now, even increasing public investment isn’t enough. You have to bring in the private sector, through concessions and PPPs [public private partnerships]. The government of the PT, of Lula, hasn’t done one PPP or concession.

FT: It approved the legislation…

ALCKMIN: But it didn’t put it into practice. We, in São Paulo, have experience of this. We have 3,300 kilometres of highways under public concession, 12 groups working, we have eight years of experience.

FT: What is the problem with the federal government’s PPP programme?

ALCKMIN: Partnerships with the private sector pre-suppose that each side has confidence in the other. There have been a number of episodes involving bad experiences, for example the expropriation of Petrobras’s assets in Bolivia and the dubious and submissive position of the Lula government in this episode. There was no firm position against the expropriation, which tore up contracts and created judicial uncertainty. The invasions of property in Brazil, of farms, urban areas, the National Congress that was invaded and damaged, there is a tolerance of movements that are even supported by public money but do not respect the law. And the politicisation of regulatory agencies, the undermining of the regulatory agencies, and political interference. And there is a lack of efficiency in the government, the government is slow. We intend to increase public investment and bring in the private sector to move things forward.

FT: How would you redesign the state to reduce spending and find money for investment?

ALCKMIN: We have already done this in the state of São Paulo. We reduced taxes and increased investment. We have experience of this. Some examples: reducing current expenditure. In electronic purchasing alone, using information technology, we saved R$4bn, as well as this being a vaccine against corruption.

FT: R$4bn out of total spending of how much?

ALCKMIN: It’s on average about 20 per cent [of total purchasing]. I’ll give you an example. Newspapers in Brazil today are writing about the so-called Operation Bloodsucker. What is that? It is overcharging on purchases of ambulances. Members of Congress and of the Executive are involved in corruption in the purchase of ambulances. If all this was done electronically there would be no possibility of corruption. So technology needs to be used to modernise the state and to allow greater efficiency in public spending.

Another thing is this: there is no need to make people redundant other than in reducing political appointments. My party, the PSDB, we are parliamentarists, we support a parliamentary system, where there is a stable bureaucracy. When you change government, you change only a few jobs. You have a career civil service, a stable bureaucracy. The size of the state machinery is exaggerated. The number of ministries and secretariats with status of ministry has today reached 34. There is an exaggerated number of ministries and political appointees. More than 30,000 appointments were created [under this government].

Brazil needs to grow more quickly. A country like ours can’t grow at 2 or 3 per cent a year. We are a young country, we need to create 1.8m jobs a year. With Brazil growing more quickly and with control over current expenditure you open room for investment. The problem is that in recent years current expenditure has grown more quickly than the economy. This creates a bad outlook for the future.

So you don’t come into government cutting jobs, you make the economy grow and don’t let current expenditure grow by as much.

FT: Is that one of your proposals, to introduce a parliamentary system?

ALCKMIN: In a second phase. You can’t introduce parliamentarism without strong political parties. Brazil still doesn’t have strong political parties. So at this point, no, but we will create the conditions, with a smaller number of parties, party loyalty, mixed district voting. In mixed district voting you have between 50 and 80 per cent defined by district and the rest on party lists. The same system as in Germany.

FT: You mentioned the regulatory environment. This is one concern of our readers, that as well as the mensalão and corruption in general there is this tendency in the judiciary to interpret laws with a great deal of freedom and this creates an environment of judicial uncertainty. What would you do about that?

ALCKMIN: We need to improve judicial security. My obsession will be with growth, with job creation. And the government can create jobs only in a complimentary way. Jobs are created by entrepreneurs, the private sector. Industry, agriculture, retailing, services. We need to attract productive investment. The way you can do this is through an environment that stimulates investment. Judicial security is an important item. Respect for the law and for contracts, the independence of the regulatory agencies, legislation, a good regulatory environment, government efficiency – it is a mix of factors. So we are concerned by political interference and the undermining of the regulatory agencies.

We intend to go into a big partnership with the private sector in infrastructure. Energy and transport. We have done this in São Paulo, we have experience in energy and transport.

FT: Will there be an effort to reduce bureaucracy, the amount of time taken to open or close a business?

ALCKMIN: We will draw up an agenda for growth, a new national agenda. And within this agenda will be debureaucratisation, the agility of the state’s activities, simplification. In São Paulo we created a service called Poupa Tempo [Time Saver – simplifying day-to-day bureaucracy for private citizens]. We have provided services to 140m people over the past five years – 140m services provided, three times the population of the state. This is a public service of high quality. Brazil has an inheritance of cartórios [notary publics] that needs to be overcome. This is a very big direct and indirect cost for the population. Efficiency begins at home and the government must give a good example of quality in public spending. I am convinced that fiscal issues are one of the central issues that prevent stronger growth in Brazil.

FT: How would you attack these issues?

ALCKMIN: Through a set of measures. Brazil must grow, and you must not let spending grow at the same speed.

FT: But to produce growth you must first produce investment.

ALCKMIN: It’s simultaneous. You have to fix the car while it’s moving, you can’t stop the car to carry out repairs. There are fiscal issues that are short-term, medium-term and long-term. So you take short-term actions in January next year and then medium and long-term actions.

FT: So what are the priorities?

ALCKMIN: Everything. An evaluation of all government spending. It’s not possible that the government can spend 39 per cent of GDP and not have money to invest. So you need to carry out a precise evaluation of all spending and seek to adjust it, all of it. The next thing is this: because the government’s fiscal policy is weak, monetary policy has to be very strong. If you had a better quality of fiscal policy, you could have, you will have, better monetary policy.

And this is one of the questions over fiscal policy. Last year Brazil spent, just on interest payments, R$156bn. So you are in a vicious circle. Bad fiscal policy and very tight monetary policy that worsens the fiscal situation. If you confront the fiscal situation you will improve the monetary situation. And the exchange rate will improve too. You will have, without intervention, a floating exchange rate, which is what we support, you will have a more competitive exchange rate.

Why is Brazil’s currency the one that has appreciated by the most perhaps in the whole world? It has appreciated by practically a third. Why? High interest rates that attract a lot of dollars, and low growth. As we grew by only 2.3 per cent last year and imported very little, our trade surplus was very big. If Brazil was growing by 5 per cent you would import more and the trade surplus would be much smaller. So the exchange rate wouldn’t keep getting worse.

So my proposal for the election. The Brazilian people… I don’t even want to discuss what happened in the past. The Brazilian people want to know this: who can do most in the government of Brazil over the next four years? Re-election allows continuity, but it doesn’t bring much progress. What you don’t do in the first mandate in terms of reforms, you are unlikely to do in the next. It’s a kind of continuism, and I believe Brazil can’t put off any longer a series of changes in direction, of unpicking of knots, so that we can progress. So I think a new team with political force, with a project, with speed and a sense of urgency, can do more. That is why our campaign – which hasn’t even begun – will begin to grow strongly. I think the people are understanding this message. Brazil can do more. It can grow more, have more jobs, have better quality education and health, have better public security.

FT: There is an enormous challenge in social policy. The Lula government has the Bolsa Família, 12m families receiving benefits. This is a powerful weapon for the Lula government to win votes. What is your proposal in this area?

ALCKMIN: We will maintain income support programmes. This network of social protection was created in the government of president Fernando Henrique Cardoso [of Mr Alckmin’s PSDB, predecessor to Mr Lula da Silva] and was called Bolsa Escola. You gave money in return for a commitment to send the child to school. It’s schools that emancipate. The Bolsa Alimentação: families received money on the understanding that children were vaccinated. And Vale Gas. These three were unified in the Bolsa Família. These are our programmes, of social democracy, of the PSDB.

In the state of São Paulo we have various programmes. There is one called Youth Action – we give R$60 through a magnetic card to young people from 16 to 24 years old from the most vulnerable, poor families, for them to return to their studies. The student gets money but he has to study. If he doesn’t go back to study he doesn’t receive any money.

So we have various programmes. But we will only really reduce poverty through employment. If Brazil doesn’t have stronger economic growth… the way to reduce poverty is through economic growth, education, the quality of public schools, and science and technology, for the country to be competitive.

FT: What has happened to the quality of basic education under the Lula government?

ALCKMIN: In reality, we haven’t advanced. President Fernando Henrique created Fundep, which was a fund to support basic education. It universalised basic education, for children from 7 to 14 years old. And it stopped there. Nothing else happened. The Fundeb [a fund proposed by the Lula government] still hasn’t been approved after four years.

FT: Hasn’t it been approved?

ALCKMIN: No, it’s gone back to the Lower House. It will only enter force next year. Basic education covers children up to six years old, which is infant education and crèches, primary and middle school. We will invest in basic education and especially in professional training, technical school. And this will be aimed at the job market in each region. Sometimes you create a lot of courses and there are no jobs, while there is a shortage of labour in other activities. So we will give a lot of emphasis to expanding the network of technical and technological training. And this will include buying places from the private sector. You don’t need to build buildings, you can buy places as well, as well as expanding public schools you can use places in the private sector.

Let me say something: we have a lot of experience with management contracts. This is a difference between us and the PT. For the PT, services have to be run by the state. For us they have to public. For example, in the 19 hospitals that we built in São Paulo, none of them have public sector workers. All of them are under management contracts with private sector entities. And they are public hospitals, they are free, universal and equitable. They are public hospitals, in the SUS [the public health system] but their management is private. We have the same experience with the Bom Prato restaurants, we have 24 restaurants offering lunch for R$1. All under management contracts. Twenty-six prisons, all under management contracts. We have good experience of this and it is a step forward in terms of management, because the efficiency of the services improves a lot.

FT: You were going to describe the election campaign…

ALCKMIN: I think the campaign is about convincing people. Who will be able to do more over the next four years? I think another PT government could be very problematic. Because it will be weakened from the political point of view, and I don’t know to what extent they believe in these reforms. I don’t know to what extent they believe they are necessary. And I understand that there is a cost built into the economy that we call the PT cost, the PT risk. How can you say one thing for 25 years and then do something else? Their credibility is not that high, there is a built-in risk. So you need to have bigger doses to get smaller results, to prove to the market that you really mean it.

And there is another important question, the question of ethical values. Brazil has gone into reverse gear. We’ve gone backwards in terms of ethics. The mensalão, all the accusations of corruption, which weren’t isolated incidents, they reflect an authoritarian attitude, that the end justifies the means, the use of the machinery of government, the taking over of the machinery of government by the PT. We have gone backwards. I represent a new politics, which is more modern, where the struggle for power is not a matter of patrimony, where you take over power for your party, for your political group. For us, taking power is about service. It is the modern state, to improve the quality of public service and make the country grow. The government’s role is to stimulate the activity of the private sector.

And it begins with principles. I was a co-pilot of a great commander, called Mário Covas, a statesman [the former governor of São Paulo state who died in 2001]. Mário Covas used to say this: “If anyone in my government does anything wrong, I am the one to blame, because I put him there.” He took responsibility. What we have today in the Lula government is the opposite. “I didn’t see anything, I didn’t hear anything, I don’t know anything.” The first task of a governor is to take responsibility. It’s a question of principles and values. And I believe the campaign will be very hard-fought. I believe the electorate will take it to a second round, so they can have greater clarity, remove any doubts, have more security in their choice, and make the debate clearer. So the tendency of the electorate is to take the election to a second round, and I feel good growth [in my support]. The campaign begins in earnest on August 15, which is when the “election hour” [free radio and TV broadcasts] begins. Until then there is only street campaigning.

I have the following thesis. Campaigning begins when the TV soap opera schedule changes, which is August 15. And the vote begins to be defined after the military parade, which is on September 7, Independence Day. From August 15, for three weeks the voter observes and compares, and analyses. And then the voter begins to decide how to vote. Change begins a month from the election. All elections are like this. So I need to be patient, I know it will be step by step.

FT: What will be the role of the [centre-right] PFL in the campaign?

ALCKMIN: Brazil does not have a two party structure. It is multi-party. So alliances are important, to win the election and to govern. We are the only ones to form a big alliance, between two big parties, so we will have the most television time, because it is proportional to each party’s congressional seats. This will make a big difference because I am not well known, I am little known. If I was better known it would help less, but in my case it helps a lot. The campaign is showing that as I become better known and present my proposals my support is growing. I expected at this point to have about 20 per cent, as the campaign starts. But I have 30 per cent, 29 from Datafolha and 32 from Vox Populi [two polling organisations]. And the lowest rejection rate. And the second round is all about rejection. And as well as the PFL we have the support of the [leftish] PPS. So that’s three parties. And the governors from the [catch-all] PMDB. For example, Luiz Henrique [da Silveira] of Santa Catarina, Jarbas Vasconcelos, the ex-governor of Pernambuco. Here in Brasília, Joaquim Roriz of the Federal District, André Pulcinelli, the candidate in Mato Grosso do Sul, Amir Lando in Rondônia. I think my candidacy will grow, I think PMDB voters will have more affinity with us.

FT: Would a PSDB government have invited Venezuela to join Mercosur?

ALCKMIN: I am concerned about Mercosur. First, in trade agreements, with the European Union or with the United States, here in Latin America the United States has been doing bilateral agreements with Chile, Peru, Colombia, and all Central America. We are running the risk of becoming isolated. Mercosur, instead of increasing internal competitiveness has increased protectionism. I intend to work very hard on the question of greater insertion of Brazil in the world and in foreign trade, as foreign trade, both exporting and importing, is a two way street and is fundamental for our economy. Every $1bn you export generates 70,000 jobs in Brazil. So I am concerned about the institutional aspect of Mercosur.

The entry of Venezuela is positive in that it is a very important country, a very important economy. Now, first of all there should have been discussion of the criteria. For example, the common external tariff. Venezuela was part of the Andean Pact, now it has come to Mercosur, but its entry was more political, with everything left to be discussed in the future. So I see it as positive from the point of view of free trade, because I support free trade, but we will have to discuss institutional questions. And president Chávez’s position over the episode of Bolivia was very bad, he gave all his support to Evo Morales against the Brazilian position.

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