Scenarios for Brazil’s Upcoming Elections

The More Things Change…

In October, Brazil will hold general elections for congress, state governors, legislatures, and the presidency. For the first time since 1984, President Luiz Inacio Lula da Silva – whom President Obama dubbed “the most popular politician on Earth”– will not be on the ballot. With so much at stake, political analysts have been speculating about the election’s outcome for months. Perhaps the most hotly debated question is whether Lula’s preferred successor, his Chief of Staff Dilma Rousseff, can ride his 80% popularity rating to a victory. But recent polling has her trailing the more centrist Social Democratic Party (PSDB) candidate, Jose Serra, a Cornell-trained economist, by nearly ten points.

While the election has long been front page news in Brazil, it is also beginning to pique the interest of international observers who are invested in Brazil’s continued growth and stability. Ergo engaged our experts in a brief scenario mapping exercise to forecast potential election outcomes and their impact on Brazil’s global standing.

Insights from the Ergo Network

• Expert 1: Former Brazilian Ambassador to the United States

  Election prediction: “Serra is going to win by a small margin.”

  Wildcard: “The big question mark is the vice presidency of Serra. If Aecio Neves, the governor of Minas Gerais, decides to change his mind and run, then I think Serra has a big chance to win. This is a big question mark. Depending on his decision, the election will tend to be in Serra’s favor or will be much tighter and much more difficult.”

• Expert 2: Founder of leading Brazilian political research firm

  Election prediction: ““My feeling is that Mr. Serra has a better chance. [He] has a very impressive political CV. [He has been] federal deputy, senator, minister of planning, minister of health, mayor of São Paulo and governor of São Paulo state. He has never been accused of corruption and is widely recognized as a competent administrator. This is why his poll ratings have resisted Lula’s sustained efforts to undermine him and build Dilma Rousseff’s image as a winner. So far, her electoral support is 100% derived from Lula’s 80% popularity. Despite legal restrictions, Lula has been campaigning for her continuously over the last eight months or so, while Serra will only state publicly his intention to run in the first week of April.” [At Dispatches press time, Serra had stepped down as governor of São Paulo state and was expected to announce his candidacy on April 10.]

  Impact on foreign policy: “Brazil normally doesn’t change its foreign policy [much], but Lula has been universally criticized for his latest moves; for example, in the case of Honduras and for the sympathetic posture he maintains towards Cuba. Over the last [month], the amount of criticism over his policies has increased. I think that will be drastically changed if Serra wins the election.”

• Expert 3: Former consultant to the Central Bank of Brazil

  Election prediction: “I would give a bit of a higher chance to Serra but lots of things could happen. At this point it is a toss. I don’t think it is settled. For the opposition, the candidate is not that charismatic.”

  Impact on economy: “There are two candidates [Rousseff and Serra] as you know and no matter who wins the election things will remain the same. What is remarkable about both candidates is that the two of them are very populist. The question mark naturally is what commitment will both of them have to macroeconomic stability. Naturally they insist that they will do whatever is necessary to keep the economy stable but the fact is that these two are populist candidates.”

• Expert 4: Professor at leading Brazilian business school

  Election prediction: “I would say that the two of them will go to the second round. There will be no winners from the first round. This for Brazil is already a huge contradiction. It’s a huge thing. In the second round anyone can win and it will depend on the political alliances they make. I think it will depend on the third and fourth candidates. I think they will have a lot of power. [Green Party candidate] Marina Silva is the one who will make the decision at the end. Whoever she supports will win the second round. One-third of Brazilian voters today are for Rousseff, one-third is for Serra and one-third could go to Marina or someone else. So whoever wins this [last] one-third part of the equation will win the second round.”

  Impact on oil exploration and production: “[If Rousseff wins], I expect continuation of what’s going on now [with respect to offshore drilling]. She’ll keep giving a lot of attention to the offshore oil but she will put things in the hands of Petrobras more and more. I think that there will be no discussions about changing what is going on now. In my opinion, she totally believes in Petrobras because of the contacts she has had with them in the last eight years. If Serra wins there will be more debate around the current model of offshore introduction of oil. It won’t be a continuation. There may be some disruptions. He may want to discuss more about what’s going on.”

Ergo’s View

Experts agree that it is still early and the polling too close to confidently predict the election’s outcome. But when pressed, they all suggest that Serra will be the victor. Whether or not that is the case, it is unlikely that Brazil will experience any major policy or legislative shifts during the next presidential administration. Although Serra is considered more centrist, both he and Rousseff are “liberals” by any other country’s standards; but in a country that has enjoyed so much growth over the last decade, maintaining the status quo will be a priority for both.

That is not to say, however, that there won’t be any differences between a Rousseff and a Serra administration. In fact, some of the most tangible differences will impact foreign investors as much as the domestic population. For example:

• Serra is more likely to cater to private sector interests in infrastructure development. He might privatize airport operations and/or encourage investment in public transportation in major metropolitan areas.

• Rousseff is apt to prioritize investment in renewable resources, particularly ethanol and other biofuels. She is also more likely to increase Petrobras’s share of the oil and gas sector by limiting the involvement of foreign-owned companies.

As campaigning officially gets underway this week, look for the race to tighten as the candidates start making their cases more forcefully. To that end, Lula is already doing his part to support his candidate. A week before the start of official campaigning, he announced US$545 billion in new infrastructure spending with Rousseff standing at his side. But in a country as dynamic as Brazil, much is sure to happen between now and October. Indeed, the world will be watching to see whether the backing of Brazil’s most popular president in history is enough for Rousseff to emerge victorious.

Ergo has country teams throughout Brazil, and has conducted numerous studies on Brazilian investment opportunities, including several on FDI in infrastructure-related projects.