Meirelles happy on the hot seat in Brazil

SAO PAULO -- Standing on the roof terrace of his office, Henrique Meirelles, Brazil's central bank president, scans the crammed skyline of South America's largest city. Pointing to a gleaming skyscraper piercing a distant rain cloud, he smiles with satisfaction.

The object of his affection is BankBoston's local headquarters, as much a monument to Meirelles's personal clout as it is an architectural landmark for this bursting megalopolis of 18 million. When foreign banks were fleeing Brazil in droves, in the wake of its 1999 devaluation, Meirelles, then president of BankBoston, anchored his employer to his volatile country by spending $132 million on an ultramodern, 28-floor headquarters. "It's one of the most sophisticated buildings in Latin America and we built it," Meirelles said proudly.

But despite his professed fondness for his days at BankBoston and the Back Bay home he left in 2002 to return to Brazil, Meirelles has little time to look back.

Like Alan Greenspan, his every move is scrutinized daily in the media and marketplace. But unlike the US Federal Reserve chairman, Meirelles presides over an economy notorious for volatility and high risk. "For better or worse, reactions are a lot more emotional here," said the 58-year-old Meirelles.

Indeed, with Brazil's economy balanced between boom and blow-out, opinions on the former banker's far-reaching influence in the government differ widely.

Since taking office a little more than a year ago, he's endeared himself to the country's left-wing president, Luiz Incio "Lula" da Silva, and made himself Brazil's golden boy on Wall Street by pursuing austerity policies endorsed by the International Monetary Fund. He's also become a sitting duck for businesses and local politicians who blame his and Lula's blind faith in a market-based recovery for the slow pace of economic growth last year, Brazil's worst performance in a decade.

At the heart of the wrangling is interest rates. The central bank lowered the benchmark rate by 10 percentage points between June and December last year, but it's remained stuck at 16.5 percent ever since. With the prime rate for most companies closer to 30 percent, lending and investment are almost nonexistent. Meanwhile, the $50 billion the government annually pays to service its debt is a deadweight on the economy. "Brazil needs rate cuts now, not in the long term," said Maurice Costin, chief executive of Fiesp, the country's influential industry advocacy group.

Erring on the side of caution, Meirelles said, is the price Brazil has to pay to combat decades of spiraling inflation. "Brazilian businessmen are always adamant about interest rates, no matter what their levels," Mereilles said, emphasizing that he's unlikely to ease rates again until a small, seasonal pickup in inflation passes.

Even while judging him too conservative, Meirelles's critics credit his vigilance for bringing inflation down from a spiking 40 percent a year ago to current levels of about 6 percent. But in the face of a three-year virtual economic standstill and rising unemployment, calls to let the economy run full throttle are mounting.

Friends say Mereilles won't let the pressure get to him. "He's not bashful about expressing his convictions in a powerful way, even if he's in the minority -- that's why he's so effective," said Chad Gifford, Meirelles's former boss and chief executive of FleetBoston Financial Corp.

Given FleetBoston's sizable market share in Brazil, Gifford said he now has little contact with Meirelles. Even so, he's followed his performance closely. "He's doing a heck of a job," Gifford said.

Last month, however, the Brazilian markets went haywire when rumors spread that he was resigning. Meirelles says the rumor is speculation. "The chance to apply what I've learned in my career and put into action what I think Brazil needs in order to move out of the cave of chronic instability is a once-in-a-lifetime opportunity," said Meirelles, whose current salary of about $31,000 a year is less than 1 percent of what he earned at FleetBoston.

Friends say Meirelles thrives on being in the hot seat.

"Anyone close to him knows he was destined for this job," says Lawrence Fish, chairman, president, and chief executive of Citizens Bank. In the 1970s, Fish worked as an economics instructor in Rio de Janerio for a US aid program and Meirelles was his hardest-working student. When he left teaching and joined BankBoston in Brazil, he brought Meirelles with him. "It was the best hiring decision I ever made," Fish said.

Meirelles became the head of BankBoston's Brazil operations in 1992. After tripling the bank's assets he was recruited to Boston, in 1996, and named president, amid much speculation he was being tapped as Gifford's heir apparent. When Fleet bought BankBoston, he was put in charge of the global banking division.

Meirelles described his relations with Lula as friendly. Although one was born into privilege and the other into poverty, Meirelles said the two respect each other and see eye to eye on economic policy. "I teach him about economics, and with his 75 million votes, he can teach me about politics," said Meirelles, whom Lula frequently invites to cabinet meetings.

It's no secret the two have needed each other. By offering Meirelles a shortcut to power, Lula also was reassuring markets worldwide.

The pragmatic choice worked better than anyone expected. In the months before Lula's election $28 billion in external credit lines fled the country, forcing the currency, the real, to slide to four to the US dollar and sending the price of the country's debt through the stratosphere. Under Meirelles's steerage, the real has strengthened to $2.80, debt prices are at a six-year low, and thanks to the central bank's buying spree of dollars, foreign reserve levels are healthy again.

But how much longer this marriage of convenience can endure is an open question. A corruption scandal involving a cabinet member has ended Lula's honeymoon period and jeopardized the government's modest growth forecast of 3.5 percent growth. Voters are demanding to see the 10 million jobs the president vowed to create over four years. If Lula's approval rating slides further -- it's now at 40 percent versus 60 percent when he was elected -- he could be forced to abandon the unpopular austerity policies Meirelles so fervently promotes.

Although he describes his current job as a dream come true, during last year's congressional campaign he boasted his candidacy was a first step to an even higher office: the presidency.

Criticism that such overt ambitions conflicted with a central banker's traditional role has forced Meirelles to tone down his self-promotion. But only a little. "There's more I'd like to contribute, but what I'm saying now about this subject is that I'm focused on the job at hand," he said with a grin.