Brazil: election outlook

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Brazil election outlook

• The second round and beyond

Christopher Garman Director, Latin America (202)
903 0029 garman_at_eurasiagroup.net
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Two messages

• The election will tighten, but Rousseff remains a
  heavy favorite
• Next administration will be marked by a
  continuity, but there will be some positive and
  negative surprises

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Probability of Victory for Government Candidate
Source Clifford Young and Christopher Garman,
The Unpredictability of Pundits and Predictable
Elections Using public opinion to predict
political disputes, WAPOR, 12 May 2010.
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Voter Demands
  Social Class Social Class Social Class
  AB C DE
Crime and Violence 50 49 53
Jobs 44 49 54
Healthcare 41 43 48
Drug Trafficking 31 37 41
Education 39 27 15
Low Salaries 15 21 20
Corruption 20 14 10
Source Ipsos Public Affairs, September 2010
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Congressional Election Results
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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
  Silvas 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)

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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

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Rousseffs 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