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Focus: Brazilian elections 2010

In a year, essential Rising Power Brazil goes to the polls.  The election is currently heating up. On October 3, 2010 (and if need be, in a second round on October 24), Brazilians will vote for president, all 26 of their governors, all 513 members of the lower house of Congress, and two-thirds of their 81 senators.  This is a pivotal election, coming after eight years of President Lula’s rule, which has been emblematic of Latin America’s ongoing transformation away from political and economic polarization and toward a more equitable, though still market-based, society.  See an excerpt of a JPM report on Brazilian politics below.

Lula, whose personal approval remains at a colossal 80% (though approval of his government rests at around 67%), is seeking to hand the reins to comrade-in-arms Dilma Rousseff, a less-than-exciting minister in his government, whose predilection for state intervention in the economy is well-known.  Sadly for the left, she remains around 20 points behind Jose Serra in opinion polls.  Serra, also unglamorous, is the Social Democratic Governor of Sao Paulo, Brazil’s largest state by any measure, and the man Lula trounced in 2002 (albeit in two rounds).

Lula’s historic accomplishment has been to marry his impeccable leftist credentials and penchant for addressing Brazil’s woeful income inequality to market-based economics.  In effect, he has neutralized the arguments of his opponents, pushing Serra’s normally socially-conscious Social Democrats (PSDB party) to the right of Brazilian politics. 

Yet, with Brazil’s financial condition improving while he has been in office, not least because of the hard work of Serra’s predecessor and brother-in-arms former President Cardoso, Lula has allowed fiscal policy to slip of late.  This, in a country where the government debt to GDP ratio is a rather high 70%, a tough burden for an emerging economy.  

Lula’s first milestone toward establishing his market-friendly credentials took place in early 2003 with his appointment of BankBoston executive Henrique Meirelles to the Central Bank.  The Central Bank subsequently raised interest rates in order to break inflation expectations that had been aggravated by the collapse of the currency, triggered by worries over the election of firebrand former union leader Lula to Brazil’s highest office.  Meirelles, with whom I interacted many times as a Brazil analyst, while no Arminio Fraga in terms of economic orthodoxy and financial acumen, maintained the credibility of the Central Bank, wrought by Fraga and his team during the Cardoso administration.  He now wants a political career, probably aspiring to the presidency.  He is likely to sit this one out, perhaps running for VP as Dilma Rousseff’s running mate, putting his PMDB party (a non-ideological centrist party) in alliance with Lula’s PT (the Workers Party), counterpoised against the likely center-right coalition of Serra’s PSDB with the renamed Democrats, who are affiliated globally with Christian Democracy.  It is encouraging to see Brazil’s parties coalescing more or less into two ideological options, though we shall see if this sticks in Brazil’s notoriously fragmented multi-party system.

As of now, Governor Serra is way ahead in the polls.  However, a combination of Meirelles’s economic credentials with Dilma’s clout as a champion of the poor (and a former guerrilla), could pose some difficulties for Serra, especially if Meirelles and Dilma get a grip of Lula’s coattails.  Moreover, the injection into the mix of the mercurial, but exciting Ciro Gomes, a leftist former minister in Lula’s government, as the candidate of the small Brazilian Socialist Party, will be interesting at a minimum.  At stake, Brazil’s direction:  further right to achieve higher GDP growth and fiscal consolidation or along Lula’s path of gradually increasing state direction of the economy.  

From a J.P. Morgan article of October 6, 2009:

Brazil: Election countdown


On September 30, BCB Governor Henrique Meirelles joined ranks with the

PMDB party. There is rising speculation that he could run for the Senate, or even

get the vice presidential nomination on Dilma Rousseff’s ticket. Meirelles has

already said that he will stay at the central bank until March 2010, and will only

then decide his political future. One way or another, we think that he will be

orchestrating interest rate hikes before leaving. Our call for a tightening cycle of

200bp starting in January fits well with the electoral cycle since an earlier hike

would tame inflation expectations, opening room for a smooth tightening and

preserving decent growth rates at the time of elections.


Our central view that the elections will be competitive remains solid. The

current opposition is represented by São Paulo Governor José Serra. While Dilma

Rousseff is the government’s official candidate of the, two other contenders (Ciro

Gomes and Marina Silva) were part of President Lula’s cabinet and could very well

share the governing group’s advantages. Therefore, it is difficult to forecast the

outcome of the election, at least until the official electoral program starts on national

TV in August 2010. This is going to be a source of uncertainty and should

contribute to market volatility, especially as little is known about the candidates’



We feel that the October 2010 elections are important and could have market

implications. In the next decade, important foundations of a fast-growing

emerging market will likely consolidate, and many choices will need to be made

in terms of institutions, governability, the role of the state, infrastructure, etc.

Although Brazil is likely to join other countries in adopting a more hands-on

government approach in different sectors of the economy and society, the degree

and manner of how this is done varies widely across the political spectrum.


The plot thickens for the official candidate, but it is too soon to worry. The

latest polls indicate that official presidential candidate Dilma Rousseff’s (PT)

voting intention is falling. She appears tied or behind Ciro Gomes in most polls,

and her ratings have not really improved in six months. The Lula Administration’s

theory is that the president’s high popularity (about 80%) will spill over onto his

chosen presidential candidate. While we still believe that this will be the case,

Rousseff’s ratings need to improve in the next few months, when party coalitions

will start to consolidate. The PT national television program, to be aired in

December, should help considerably.


Emy Shayo

(55-11) 3048-6684

[email protected]

Banco J.P. Morgan S.A., São Paulo



Roger Scher

Roger Scher is a political analyst and economist with eighteen years of experience as a country risk specialist. He headed Latin American and Asian Sovereign Ratings at Fitch Ratings and Duff & Phelps, leading rating missions to Brazil, Russia, India, China, Mexico, Korea, Indonesia, Israel and Turkey, among other nations. He was a U.S. Foreign Service Officer based in Venezuela and a foreign exchange analyst at the Federal Reserve. He holds an M.A. in International Relations from Johns Hopkins University SAIS, an M.B.A. in International Finance from the Wharton School, and a B.A. in Political Science from Tufts University. He currently teaches International Relations at the Whitehead School of Diplomacy.

Areas of Focus:
International Political Economy; American Foreign Policy