LatinFocus Brazil Economic Briefing

Veteran Labour Party candidate favoured in presidential polls
The 6 October presidential elections are likely to dominate the political stage in the next five months. This year’s vote will end the eight-year presidential term of incumbent Fernando Henrique Cardoso of the centrist Brazilian Social Democratic Party (PSDB, Partido da Social Democracia Brasileira). The current front runner for both the first and second round run-off election on 27 October is the left-wing Labour Party (PT, Partido dos Trabalhadores) and three-time presidential candidate Luiz Inácio da Silva. Lula, as he is popularly called, was long considered the representative of the dogmatic socialist wing of the PT but has moved notably to the centre since the last presidential elections. He now better represents the PT, which has grown and enlarged its base of supporters nationwide, gained new seats in Congress, and won key posts in important municipal elections. Lula has backed away from previous talk of debt renegotiation and calls to reverse the country’s privatization programme in an effort to appear more private sector friendly. However, confidence in a possible Lula government is likely to emerge only once the composition of his economic team and a coherent economic programme becomes clear, since concerns over his adverse stance towards the neoliberal macroeconomic policy and advocacy of inward looking development models continue to cloud investor perceptions over the desirability of a PT government.

The departure of Roseana Sarney - the presidential candidate of the centre-right Liberal Front Party (PFL, Partido da Frente Liberal) - in response to alleged irregularities in campaign finances, has strengthened Lula further, since she was in a strong second place standing before her exit. The governing PSDB’s candidate, Jose Serra, who would be expected to ensure continuity of the current government’s economic policy, has moved up to second place but remains well behind Lula in the polls and is currently unlikely to win in a second round run-off election against Lula. Thus, the Cardoso coalition base (principally the PSDB, the PFL, the catch-all Brazilian Democratic Movement Party (PMDB, Partido do Movimento Democrático Brasileiro) and the centrist Brazilian Progressive Party (PPB, Partido Progressista Brasileiro) appear to lack a truly competitive candidate. In addition, Serra has been pinpointed as the source for the investigations into Sarney’s campaign and her subsequent withdrawal, which caused the PFL to leave the governing coalition. The bare-knuckles strategy Serra has embraced so far could threaten to fracture the coalition more and worsen the prospects for a continuity of the broad, centre-left coalition that sustained the Cardoso administration and undermine governance if Serra were to be elected.

Note: The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Brazil. For more details please click here.

For five-year forecasts, please click here.

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