Brazil's Neves: An insider in an election about change

The handsome, accomplished grandson of one of Brazil's most beloved politicians, Aecio Neves has been preparing his whole life to be president, friends say.

"Aecio grew up in a political cradle," said one of his longest-serving advisers, Danilo de Castro.

And that, paradoxically, best explains why he's languishing in Brazil's presidential election race.

Neves, 54, has tumbled into a distant third place in polls over the past month as voters who are tired of President Dilma Rousseff's leftist government embrace a candidate who more obviously represents change and a break with Brazil's political establishment - environmentalist Marina Silva.

Neves' struggles speak broadly to the overall malaise currently plaguing Brazil. After an economic boom last decade that brought millions out of poverty, the economy has slowed dramatically since 2011 and slipped into recession earlier this year. Voters are increasingly frustrated with slow growth, high inflation, corruption and the political class in general.

In most previous elections, Neves would have benefited from his record as a pro-business senator and former governor of Brazil's second-most populous state of Minas Gerais. He left office in 2010 with an approval rating just shy of 90 percent and he is favored by many investors and business groups.

But due to Brazil's recent struggles, his insider status has become a clear albatross - especially among young, educated middle-class voters who he was counting on for support but who have largely embraced Silva instead.

In the past week, Neves has tried to fight back by stressing both youth and experience. He has played soccer with former stars including the popular Zico while also warning that only he has the party support to "change Brazil in the right direction."

Aides and supporters point out that the campaign ahead of the Oct. 5 election has been extremely volatile, and that Neves and his centrist Brazilian Social Democracy Party (PSDB) are positioning themselves for one last big shift.

"I don't see a need to change what we're doing," Neves' running mate Aloysio Nunes told Reuters on Monday. "This election has seen a lot of changes already. We'll see how the electorate reacts."

Neves has a long way to go. Recent polls show him with about 15 percent support compared to 36 percent for Rousseff and 33 percent for Silva. Unless Neves stages a dramatic comeback, his rivals will go into an Oct. 26 runoff which polls show is too close to call.

Analysts see two possible paths for Neves to claw back into contention.

One would involve Silva, who has a history of volatile decisions and feuding with allies, self-imploding.

The other, perhaps more likely scenario would see one or both opponents getting caught up in one of the corruption scandals that often rock Brazilian campaigns.

Local media have recently linked senior leaders from Silva and Rousseff's parties to graft at state-run oil company Petroleo Brasileiro SA, and more allegations are possible in coming weeks.

Otherwise, Neves, who declined requests for an interview, may have to content himself with building his reputation for the next election in 2018.

His chances are "very slim," said Cristiano Noronha of political risk consulting firm Arko Advice in Brasilia. "Silva would have to err a lot in the final stretch."

SILVA'S SURGE

Until a month ago, Neves was solidly in second but on Aug. 13 third-placed candidate Eduardo Campos died in a plane crash and the campaign was immediately upended.

Campos' running mate, Silva, took his place and turned out to be a much more effective candidate. Her up-from-nothing life story - she was born into a family of poor rubber tappers - and her record as a campaigner against corruption and deforestation captured anti-Rousseff voters' imaginations in a way that neither Campos nor Neves had.

Neves knows he can't compete with Silva on soaring rhetoric or moral issues so he has emphasized his record as governor - which he says shows in concrete terms how he would run Brazil.

"There's a candidate out there who is promising a bunch of great things without saying how she'll do it," Neves said, in a clear reference to Silva, at a recent campaign appearance back home in Minas Gerais. "Our candidacy is the candidacy of responsibility ... of a safe journey."

Reuters visited Minas Gerais earlier this month and spoke to several of Neves' allies and rivals, as well as many voters.

For the most part, they described an effective, austere government that would be welcomed by investors if mimicked at the national level - especially at a time when Brazil's fiscal accounts are under pressure and fueling high inflation upward of 6 percent a year.

By slashing some public salaries, taking a pay cut himself and reducing the number of government departments, Neves eliminated Minas Gerais' wide budget deficit. That brought in investment and a unique World Bank loan that funded education and anti-poverty initiatives.

Not everyone was a fan. Some teachers said he scrapped their benefits system in 2003, and then he and his successors failed to fully implement a new system of merit-based bonuses.

Neves supports "a state less and less involved in people's lives," said Beatriz Cerqueira, coordinator of the Minas Gerais teacher's union and a longtime critic.

De Castro, Neves' adviser, conceded the initial budget cuts were "very tough" but said the "housecleaning" led to a surge in investment. Neves says that as president he would seek to raise Brazil's investment rate to 24 percent of gross domestic product from its recent level of around 18 percent, primarily by courting the private sector.

That would help solve supply-side bottlenecks that have in large part caused the economy to average less than 2 percent growth a year since Rousseff took office in 2011.

'LIFE WILL GO ON'

Neves has said he would choose Arminio Fraga, an investment fund manager and former central bank president who is well known on Wall Street, to be his finance minister.

Fraga told Reuters that, by restoring investor confidence, streamlining the tax code and increasing trade, Brazil could by the end of Neves' term be growing at an average annual pace of 4 percent - reminiscent of the economy's glory days last decade.

"It shouldn't be hard to grow a lot faster," Fraga said.

Unfortunately for Neves, even when it comes to courting investors, he hasn't been able to distinguish himself much.

That's because Silva has also promised austerity and increased trade but without some of the negatives that voters associate with the PSDB, which last governed from 1995 to 2003. That period was one of important pro-market reforms, although many voters remember it for high unemployment and unpopular privatizations of state companies.

The similar agendas have left voters to focus instead on Neves' biography - for better and for worse.

He entered politics at age 21 working for his popular grandfather Tancredo Neves, who was set to become president in 1985 but died before taking the oath of office.

Aecio Neves still speaks regularly of his grandfather and once criticized Rousseff for giving a speech with her back turned to a statue of him - even though the statue was reportedly about 100 yards away.

Such episodes, plus Neves' private life as a long-time bachelor before getting married in 2013, have reinforced views of him as a child of privilege - a problem in a country where more than half of households earn less than $1,000 a month.

Allies say the reputation is unfair.

"He's a guy who enjoys life. He likes eating well, he likes his friends, he likes to have his cocktails," Nunes said. "Now, he's (also) extremely disciplined and hard-working."

Advisers say he'll use that discipline to close the gap with Silva and possibly show more of the combative side he displayed as governor.

    But others note that Neves has been relatively gentle with Silva in debates and speeches. They wonder if he is more focused on preparing the PSDB to support Silva against Rousseff in a runoff - and building a personal brand that might look better under different circumstances four years from now.

Neves "is ready to govern, to get to the second round - or not to make it," said De Castro. "I think life for him will go on."

(Editing by Kieran Murray)