Brazil's Rousseff faces major test on wage vote

Wed Feb 16, 2011 8:20am EST

Related Topics

* Rousseff faces first big test of congressional support

* Gov't holds firm on wage proposal, favored to win vote

* Rousseff putting popularity at risk with austerity steps

By Raymond Colitt and Stuart Grudgings

BRASILIA/RIO DE JANEIRO, Feb 16 (Reuters) - President Dilma Rousseff faces on Wednesday the biggest test yet of her ability to harness her coalition and tame surging inflation in Brazil when Congress votes on a rise in the national minimum wage.

Rousseff, who last week ordered $30 billion in budget cuts for 2011, has held firm in the face of calls from union leaders and their backers in Congress to allow an increase in the monthly minimum wage beyond her proposal of a 6.9 percent rise to 545 reais ($326). [ID:nN11131412]

An increase beyond that risks derailing her drive to rein in loose public spending and fueling inflation that hit a six-year high near 6 percent last year as the economy boomed. [ID:nN15179591] [ID:nN14119393]

Winning enough votes for the proposal should in theory be easy for Rousseff, whose ruling coalition holds handsome majorities in both houses of Congress after her convincing election victory last October.

But weak party loyalty means the government has had to cajole and court coalition members, including its own labor minister, in recent days as it seeks to avoid what would be a humiliating defeat in Rousseff's first major test of congressional support.

Rousseff is risking her as yet untested popularity by pushing austerity, although analysts say she can afford to use up some of the political capital she gained in the election.

Her predecessor, former union boss Luiz Inacio Lula da Silva, oversaw a nearly 60 percent rise in the real value of the wage between 2002 and 2010 that helped lift millions from poverty and kept his popularity at record highs.

UNION PRESSURE

Union leaders, who want an increase to at least 580 reais from 510 reais, say Rousseff is using inflation as an excuse to push an agenda of fiscal austerity that will hurt the poor and working class the most.

"Inflation isn't being caused by demand, it's coming from outside. It's from commodities and financial speculation," Antonio Neto, president of the major CGTB union, told Congress on Tuesday in front of Finance Minister Guido Mantega and cheering union members.

"We can't accept this -- it's like using the flu as a kind of cure."

The minimum wage is used to calculate a range of state salaries and benefits, including pensions for nearly 19 million Brazilians. Each additional real adds nearly 300 million reais to annual government spending and stimulates an economy that is already stretched to its limit.

The government, whose coalition controls roughly 380 seats in Congress, needs a simple majority of the 513 votes to ensure the proposal's passage to the Senate. It is likely to win, but anything less than 60 percent of votes would be a sign of weakness, said Cristiano Noronha, a political analyst with Brasilia-based consultants Arko Advice.

"It's a high-risk vote for the government. There's a lot at stake," he said.

Under a deal struck between Lula and labor unions in 2006, which Rousseff pledged to extend, the minimum wage rise is calculated by adding the previous year's inflation rate to the rise in gross domestic product of two years ago.

Union leaders say an exception should be made this year because Brazil's economy stagnated in 2009 in the wake of the global financial crisis, meaning the government only has to raise the wage in line with inflation. Rousseff will face a tougher dilemma next year, when the wage rise should reflect last year's hot economic growth of around 7.5 percent. ($=1.67 reais) (Editing by Todd Benson and Vicki Allen)

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