Tensions Rise Within Brazil Economic Team as Election Nears

(Bloomberg) -- As Brazil’s election race heats up, so are tensions in the country’s economic "dream team."

Finance Minister Henrique Meirelles, who is currently testing the waters for a possible presidential bid, is becoming increasingly irritated with Treasury Secretary Ana Paula Vescovi, according to four people with knowledge of the matter. While some of Vescovi’s decisions may have been technically correct, Meirelles has told his advisers they have not always proven politically astute.

Tensions Rise Within Brazil Economic Team as Election Nears

Widely respected by financial markets for her solid performance in the face of a dismal fiscal scenario, Vescovi’s potential departure could prove destabilizing, particularly if Meirelles also leaves to run for president. Bickering between two of the leading lights of the economic team has added to the growing sense of drift in President Michel Temer’s administration, as ministers head for the exit ahead of October’s elections and the hopes of passing further reforms start to fade.

"The economic team is totally united," Meirelles said when asked about the alleged dispute at a press conference in Rio de Janeiro on Friday. "We’re working on communication."

Within the Treasury, Vescovi has argued for rigorous discipline to avoid the kind of loose accounting practices that ultimately led to former President Dilma Rousseff’s impeachment. Meirelles, while in broad agreement, wants greater coordination between the two institutions, the sources said.

The finance minister was unhappy to find that, on his return from the World Economic Forum in Davos, the state-backed Caixa Economica Federal bank had suspended unsecured loans to states and municipalities, a decision which could negatively impact the delicate negotiations in Congress over the administration’s pension reform proposal. Vescovi chairs the bank’s administrative board.

The treasury secretary also publicly contradicted the minister over federal financial aid to a bankrupt north-eastern state. This prompted Meirelles to ban her from speaking to the press except for her monthly press conferences on the treasury’s fiscal results, according to two people. Her comment to the media during one of these conferences that a lower-than-expected deficit was "nothing to celebrate" also went down badly with Meirelles.

Two people close to Vescovi say she has considered quitting to run for office herself, but has resisted the idea over doubts as to whether she has enough political savvy. "The secretary clarifies that she is a public servant and isn’t considering a political career," the finance ministry said in its e-mailed statement.

The dispute comes as the recovery in Latin America’s largest economy still faces significant headwinds, with the recent decision by Standard & Poor’s to downgrade Brazil’s credit rating dealing a blow to Meirelles’s credibility.

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