Concerns are mounting about political risk in Brazil amid
doubts about the future policy directions of leading candidates
in Octobers presidential elections.
Although the general consensus is that there will be continuity
in economic policy whoever wins, the vagueness of leading
candidates electoral platforms has alarmed observers.
Nobody has a clue about the programmes of these
candidates, said Marcelo Salomon, chief economist at
Barclays Capital in São Paulo.
Dilma Rousseff, of the ruling workers party (PT) and Jose
Serra, of the opposition social democratic party (PSDB) are
most likely to face off in the polls.
But Paulo Bernardo Silva, Brazils budget and planning
minister, said such fears are unfounded. President Lula
has told his team to show that there is no political risk at
all. There may be a few changes, but no radical shift that
could mean there is a risk.
Silva added: We are not going to play with kind of
argument. I think some analysts that make some noise in order
to see if this creates a good impact for them in the
Lulas former finance minister Antonio Palocci came to the
IDB meeting in Cancun partly to address such concerns,
emphasising that there will be no scare tactics
during the electoral campaign. In 2002, a widespread panic
engulfed the financial markets after Lula, a trade union leader
who had never held an executive job before, took an
unassailable lead in opinion polls.
Both Rousseff and Serra are so-called
developmentalists who favour a greater role of the
state in the economy. Nevertheless, there are differences
between them. Dilma Rousseff prefers the state leading
the development, while Serra is more sympathetic to private
enterprise, said David Fleischer, a political scientist
in Brasilia. But Serra does not share the same economic
philosophy as the mainstream PSDB, and expressed differences
with [the then ultra orthodox finance minister] Pedro
Malan during the previous administration of Fernando
Henrique Cardoso. Serra has also been a fierce critic of the
central banks policy in recent years.
JP Morgan is among the institutions that have hinted that Serra
would do a better job than her opponent. Even though he has not
yet clarified his policy options, Serra is expected to adopt a
tough fiscal stance in order to take some pressure off monetary
The fate of Henrique Meirelles, Brazils central bank
president, is a factor that may influence the markets.
They have great faith in Meirelles. If he drops out of
the central bank, this may be a risk factor, he
Meirelles is considering going back to politics and becoming a
candidate in the elections in October, possibly as a senator or
even as vice president, although a Rousseff-Meirelles is now