Brazil: election outlook
The second round and beyond
8 October 2010
Christopher Garman
Director, Latin America
(202) 903 0029
garman@eurasiagroup.net
Two messages:
(1) The election will tighten, but Rousseff remains a heavy favorite
(2) Next administration will be marked by a continuity, but there will be
some positive and negative surprises
2
Probability of Victory for Government Candidate
100%
99.4%
90%
91.8%
87.1%
80%
70%
60%
50%
40%
41.6%
30.0%
30%
20%
10%
0%
2.6%
Change Scenario
Middling Scenario
Succesor
Continuity Scenario
Incumbent
Source: Clifford Young and Christopher Garman, “The Unpredictability of Pundits and Predictable Elections: Using public opinion to predict
political disputes”, WAPOR, 12 May 2010.
3
First Round Valid Votes: Polls and Results
70.0
60.0
50.0
50.0
46.91
40.0
30.9
30.0
32.61
20.0
17.0
19.33
10.0
0.0
9/1-3/2010
Source: Datafolha,
Ibope
9/14-9/15/2010
9/22/2010
9/26-27/2010
Rousseff
Serra
29-Sep-10
10/2/2010
Results
Silva
4
2nd Round Simulation and Marina Silva Voter Transfers
80
% transferred to
Serra, 68.8%
70
60
56
55
57
56
70.0%
60.0%
55
53
52
52
50
40
80.0%
50.0%
36
36
35
39
38
35
40
39
30
40.0%
% transferred to
Rousseff, 31.3%
30.0%
Source:
Datafolha
Rousseff
Serra
% transferred to Rousseff
2O
ct
-1
0
29
-S
ep
-1
0
28
-S
ep
-1
0
0.0%
23
-S
ep
-1
0
0
16
-S
ep
-1
0
10.0%
13
-S
ep
-1
0
10
3Se
p10
20.0%
25
-A
ug
-1
0
20
% transferred to Serra
5
Voter Demands
Social Class
AB
C
DE
Crime and Violence
50
49
53
Jobs
44
49
54
Healthcare
41
43
48
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15
21
20
14
10
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Corruption
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20
Source: Ipsos Public Affairs, September 2010
6
Congressional Election Results
Chamber of Deputies
Current Composition
2010 Election Results
Party
Left Parties
PT
PSB
PDT
PCdoB
Centrist Parties
PMDB
PP
PR
PTB
Opposition Parties
PPS
PV
DEM
PSDB
79
27
23
12
141 (27.5%)
88
34
28
15
165 (32.2%)
90
41
40
22
193 (37.6%)
79
41
41
21
182 (35.5%)
15
14
56
59
144 (28.1%)
12
15
43
53
123 (24.0 %)
35 (6.8%)
513
43 (8.4%)
513
Other Parties
TOTAL
Party
Left Parties
PT
PSB
PDT
PCdoB
Centrist Parties
PMDB
PP
PR
PTB
Opposition Parties
PPS
PV
DEM
PSDB
Senate
Current+ Composition
2010 Election Results
8
2
6
1
17 (21.0%)
15
3
4
2
24 (29.6%)
17
1
4
7
29 (35.8%)
20
4
4
6
34 (42.0%)
0
1
13
16
30 (37.0%)
1
0
6
11
18 (22.2%)
5 (6.2%)
81
5 (6.2%)
81
Other Parties
TOTAL
7
Two policy drivers that will shape the next
administration
The “challenge of abundance”
•
Politics fundamentally changes when the risk of insolvency is no
longer a key concern for investors
The learning curve on the left
•
Lessons learned in President Luiz Inacio Lula da Silva’s
administration extend beyond low inflation
– Greater appreciation for the bottlenecks for investments
– The left has learned the up-side to developing deeper capital markets
– Policymakers learn from the failures of the past (tax reform)
8
A mix of positive and negative surprises
Macroeconomic Policy Outlook
•
Fiscal Policy: The government will signal a desire to roll back spending,
have some mixed success, but fail to fully deliver
•
Exchange rate and monetary policy: Greater concern on FX
appreciation, but less conflict within economic team
Reform outlook
•
Structural reforms: Tax reform will be the positive surprise
•
Microeconomic reform agenda: Focus on hurdles to investments and
deepening capital markets
•
Sector specific reform: Oil & gas, mining, utilities, telecommunications,
and restrictions on foreign land purchases
9
Rousseff’s Reform Agenda
Structural and Fiscal Reforms
Probability
Timing
Tax Reform
60%
First half 2013
Public Sector Payroll Cap
60%
First half 2011
Public Sector Pension Reform
40%
First half 2012
Microeconomic Reforms
Probability
Timing
Positive Credit Bureau
60%
First half 2011
Antitrust Legislation / Competition reform
70%
Late 2010 to early 2011
Government procurement reform
70%
First half 2011
Public Auditor (TCU) reform
50%
First half 2012
Environmental Licensing
60%
First half 2012
Foreign Asset Amnesty
40%
Second half 2011
Sector Specific Reforms
Probability
Timing
Oil Reform
80%
Late 2010 to early 2011
Foreign Landownership Restrictions
60%
First half 2011 or second half 2012
Mining Reform
60%
First half 2013
Utility Reform
70%
Second half 2011
10