Brazil: Four more years for Dilma Rousseff, but with a weaker mandate

Posted by on Nov 12th, 2014 and filed under Allgemein, Breaking News, Markets. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

On 26 October, Brazilian President Dilma Rousseff of the centre-left Workers’ Party (PT) won re-election by the narrowest of margins. She secured 51.6% of the second-round votes, merely 3% more than her opponent, Aécio Neves of the centre-right Brazilian Social Democracy Party (PSDB).

Neves had trailed Rousseff by 8% in the first round of the election, and thus clearly benefited much – though not enough – from the endorsement of Marina Silva, the candidate for the Brazilian Socialist Party (PSB), who was eliminated in the first round with 21.3% support.

Impact on country risk

Investors negatively received the prospect of a fourth consecutive PT term, as they had hoped for the PSDB to bring about more pro-business policies (in particular a reduced tax burden and less state intervention in the economy) and renewed adherence to macroeconomic orthodoxy (the ‘tripod’ of credible inflation targeting, fiscal restraint and a flexible exchange rate).

The day after the presidential poll, the benchmark index of the São Paolo stock exchange fell by 2.8% and the real depreciated to its lowest US dollar value since May 2005. Obviously, financial market sentiment alone does not explain the tight election outcome.

The desire for change is just as strong among the urban middle class, as evidenced by the 2013 mass protests against the rising cost of living, widespread corruption, and subpar quality of public services and infrastructure. Here too, investor confidence will be key, however.

Indeed, without more investment (now significantly below the 20%-of-GDP threshold) it will prove difficult to boost growth (expected to dwindle to 0.3% in 2014 and 1.4% in 2015) in a sustainable way, that is, without fiscal and monetary expansion that would fuel public debt (already on an upward trend) and inflation (currently above the 6.5% ceiling of the central bank target range).

Moreover, higher growth will be necessary not only to meet middle-class demands, but also to safeguard pro-poor public spending and low unemployment, the things on which the election-winning high level of PT support among lower classes depends. In a polarised Brazil, Dilma Rousseff has four years to prove her critics wrong and get the economy going again.

Country risk analyst, Sebastian Vanderlinden, Credendo Group

Disclaimer: Credendo Group has used its best endeavours to ensure that all the information, data, documentation and other material in this report are accurate and complete. Credendo Group accepts no liability for errors or omissions. The views expressed herein are the author’s personal views and are not intended to reflect the views of Credendo Group. Credendo Group will not be liable for claims or losses of any nature arising directly or indirectly from use of the information, data, documentation or other material from this report. The texts and illustrations can be printed for private use; distribution is permitted only after authorisation by Credendo Group. Quotations are permitted provided that reference is made to the valid source. Reproductions are permitted provided that reference is made to the valid source, unless for commercial aims, in which case reproduction, even with source indication, is not permitted.


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