Elections, fiscal projections and slow recovery cause some uneasiness
After several months of bullish performance despite continuous political volatility, markets in Brazil lurched a bit lower last week. In addition, forecasts for this year’s GDP growth by private bank analysts are beginning to show less enthusiasm. Although Moody’s Investors Service raised its outlook on Brazil’s sovereign debt to stable, saying that whoever wins October’s elections will pass fiscal reforms, local analysts seem less certain of that.
Curiously, this turn of events comes after former President Lula, who was feared by most in the markets, began serving his sentence for graft charges and is now considered practically out of the presidential race. Some seem to believe that without Lula, there is increased risk of polarization between right and left in the electoral runoff, and that centrist candidates will face an uphill battle to conquer a place in the second round.
The first poll of voters’ preferences after Lula’s imprisonment came out on Sunday and showed that far-right Jair Bolsonaro and environmentalist Marina Silva are statistically tied as front-runners. But mostly the survey showed that uncertainties prevail. Two-thirds of Lula’s supporters (who comprise roughly one-third of all voters) say they would vote for anyone the former President endorses.
The problem is that Lula has not yet endorsed anyone and his party clings to the prospect of his candidacy, which may be registered by August 15, even with Lula in prison. The electoral court would then have up to September 17 to validate it or not. His party’s presumed heirs received no more than 2% of voters’ preferences in the poll and candidates from other leftist parties who were recently praised by Lula rank even lower.
Ms. Silva was a minister in Lula’s first cabinet, but she broke ties with him and has been opposing his party for years. However, some still consider her a threat to business due to her environmentalist platform and leftist past. She appears in the poll as the biggest beneficiary of Lula’s absence. So, too, does Ciro Gomes, himself a former minister under Lula. Gomes has adhered to a more radical leftist stance in recent years and is more feared by markets and the business community than Silva.
Former Chief Justice Joaquim Barbosa may also rise in the polls if he indeed becomes a candidate. An Afro-Brazilian of humble origin, Barbosa is identified as staunchly anti-graft and considered a moderate. He has never run for public office and his positions on many key issues are not well known.
The candidates who are preferred by markets and business—former São Paulo Governor Geraldo Alckmin and former Finance Minister Meirelles, as well as others from the center-right camp—still need to prove their electoral viability.
The October election is totally up for grabs. This together with worse than expected economic performance in the first quarter are the likely reasons behind last week’s market uneasiness. It remains to be seen whether or not it will continue.
The views and opinions expressed in The Pulse are PATRI’s own and do not necessarily reflect the views and opinions of the Brazil-U.S. Business Council. For additional information please email Carlos Eduardo Lins da Silva, at linsdasilva@patri.com.br.
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