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July 11, 2006 10:11 pm

Candidate looks to tighten Brazil’s belt

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Geraldo Alckmin strides into a patisserie in Brasília for a chat with the Financial Times looking as brisk and efficient as ever. Neatly fitted out in casual trousers and open-neck shirt, sleeves turned up just the twice, he orders an espresso, politely ignores an attempt at small talk and peers over rimless spectacles in readiness for the first question.

“Brazil”, says the presidential candidate of the centrist PSDB, “can’t run the risk of losing another four years. We need to grow more quickly.”

Mr Alckmin has his priorities at his fingertips and they are based on experience. As vice-governor and then governor of São Paulo, Brazil’s most populous and industrialised state, he was part of a team that turned a 25 per cent budget deficit into a surplus, overhauled the public sector, cut taxes and boosted both public and private-sector investment in infrastructure and services.

He has built a reputation for hands-on, innovative management and a creative approach to the delivery of public services – although a series of prison rebellions, particularly in youth detention centres, sometimes violently dealt with, has tarnished his record.

Yet Mr Alckmin is little known as a personality outside, and even inside, his home state. As campaigning begins for October’s election, he is very much in second place, lagging behind president Luiz Inácio Lula da Silva by between 13 and 17 points in recent polls.

He will hope to close that gap by persuading Brazilians that he is the man to get Brazil growing at a faster rate than the little more than 2 per cent a year over the past decade. “My obsession will be with growth,” he says.

Growth comes through job creation, he says, and: “The government can create jobs only in a complementary way. Jobs are created by entrepreneurs, the private sector. We need to attract productive investment.”

To do so requires an overhaul of the public sector, beginning with the tax system. Brazil’s tax burden is equal to nearly 39 per cent of gross domestic product. “That’s the tax burden of the United Kingdom,” he ob-serves. “We are at least 10 to 15 points above other emerging countries, and almost double the rate of our neighbours in Latin America.”

Tax reform – begun but not finished by Mr Lula da Silva – would include simplification of the bewildering state and municipal taxes on goods and services into a single value-added tax.

Overhauling the public sector also involves tackling inefficiency in spending. “The government is going along one line and we are going along another,” Mr Alckmin says. “Today the line is, increase current spending, increase taxes, and cut investments.”

Current expenditure has grown steadily in recent years, something made possible by an increasing tax take. Mr Alckmin talks about shifting the balance of public spending rather than necessarily paring it back, although he does say it must grow less quickly than the overall economy.

He also sees savings in areas such as public procurement and the number of political appointments – some 30,000 under the present government – and proposes a stable, professional civil service.

Savings would be redirected to public investment, especially transport infrastructure, which has fallen to a fraction of one per cent of GDP. “Brazil needs to invest at least 2 per cent of GDP. It’s a very big country, there are lots of logistical bottlenecks.” Additional investment would come from management contracts and partnerships between the private and public sectors. Mr Lula da Silva’s government has set much store by these and has brought in legislation to make them possible at the federal level. But Mr Alckmin says little has been done, in sharp contrast to the situation in his own state. “We have eight years of experience of this . . . We have 3,300km of highways under public concession.”

Such reform includes making the savings needed to pay down Brazil’s heavy burden of domestic debt, equal to about 50 per cent of GDP. “Last year Brazil spent R$156bn [$72bn] on interest payments. We are in a vicious circle of bad fiscal policy and very tight monetary policy that worsens the fiscal situation [by keeping interest rates high and swelling the cost of debt service].”

He believes investment and growth would bring an additional benefit: by boosting domestic consumption and therefore imports, Brazil’s enormous trade surplus of about $40bn would be cut, relaxing pressure on the exchange rate and improving Brazil’s competitiveness. Lower interest rates would also make the currency less attractive to hot money.

Mr Alckmin makes it sound easy. But he recognises that Brazil will need more discipline in politics, which means reducing the plethora of parties to about seven or eight and bringing in rules to stop legislators flitting between parties.

Congress, he points out, has 513 deputies, and “Without party loyalty, each deputy is a party.” Greater discipline would make passing other reforms much easier.

Can he sell all this? The latest polls suggest he has a chance. While he is trailing Mr Lula da Silva by a large gap, it was much reduced by a flurry of PSDB advertising last month in which he featured prominently.

As the interview ends, Mr Alckmin descends to the patisserie’s basement kitch-en to woo staff. He seems to find it difficult. They are slightly bemused and he is polite but stiff. Mr Alckmin may be the man with the answers, but whether Brazilians will vote for him rather than the charming, football-loving man of the people in the Planalto Palace is another matter.

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