Brazil: election outlook
There is more to this election than meets the eye
21 July 2010
Christopher Garman
Director, Latin America
(202) 903 0029
[email protected]
Main conclusions
(1) Dilma Rousseff is the clear favorite, and she is poised to benefit
from an overarching congressional majority
(2) There is more at stake in this election than meets the eye
•
Macroeconomic policy: Differences between Dilma Rousseff and Jose
Serra are more narrow than conventional wisdom suggests
•
Sector specific industrial policy: Very different views on how to
develop Brazil’s oil sector, with important repercussions for growth.
Outcome will also be important to utilities, telecom and mining.
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
Presidential Polling Data
Presidential election: First Round Simulation Polls
45
40
35
30
25
Jose Serra
20
Dilma Rousseff
Marina Silva
Eurasia Group is the world’s leading global political risk research and consulting firm. This presentation
is intended solely for internal use by the recipient and is based on the opinions of Eurasia Group
analysts and various in-country specialists. This presentation is not intended to serve as investment
advice, and it makes no representations concerning the credit worthiness of any company. This
presentation does not constitute an offer, or an invitation to offer, or a recommendation to enter into any
transaction. Eurasia Group maintains no affiliations with government or political parties.
15
10
5
6/25/2010
6/11/2010
5/28/2010
5/14/2010
4/30/2010
4/16/2010
4/2/2010
3/19/2010
3/5/2010
2/19/2010
2/5/2010
1/22/2010
1/8/2010
12/25/2009
0
© 2010 Eurasia Group, 475 Fifth Avenue, 14th floor, New York, New York 10017
www.eurasiagroup.net
Source: Datafolha
4
Rousseff will grow further with TV time
80
50
75
45
70
40
65
35
60
30
Support for Dilma
55Eurasia Group is the world’s leading global political risk research and consulting firm. This presentation 25
6/25/2010
6/11/2010
5/28/2010
5/14/2010
4/30/2010
4/16/2010
4/2/2010
3/19/2010
3/5/2010
2/19/2010
2/5/2010
1/22/2010
1/8/2010
is intended solely for internal use by the recipient and is based on the opinions of Eurasia Group
50analysts and various in-country specialists. This presentation is not intended to serve as investment
20
advice, and it makes no representations concerning the credit worthiness of any company. This
presentation does not constitute an offer, or an invitation to offer, or a recommendation to enter into any
transaction. Eurasia Group maintains no affiliations with government or political parties.
12/25/2009
Identification of Dilma as Lula's Candidate
Dilma Familiarity-Support Correlation
© 2010 Eurasia Group, 475 Fifth Avenue, 14th floor, New York, New York 10017
* 23 point increase in identification of
Dilma as Lula's candidate corresponded
with a 12 point increase in her support
www.eurasiagroup.net
Dilma Identification
Support
Source: Datafolha
5
House Election Projections
Chamber of Deputies
Party
Seats Won Actual Seats Held Election Seats Margin
2011 Projection
Left Parties
PT
83
79
80-90
85
PSB
27
27
35-45
40
PDT
24
23
20-30
25
PCdoB
13
12
10--20
15
147 (28.7%)
141 (27.5%)
165 (32.2%)
Centrist Parties
PMDB
89
90
95-105
100
PP
41
41
40-50
45
PR
23
40
30-40
35
PTB
22world’s leading global
22political risk research and
15-25
20
Eurasia Group is the
consulting firm. This presentation
is intended solely
internal use by
the(37.6%)
recipient and is based on the opinions of Eurasia Group
175 for
(34.1%)
193
200 (39%)
analysts and various in-country specialists. This presentation is not intended to serve as investment
Opposition
advice, and Parties
it makes no representations concerning the credit worthiness of any company. This
presentation does not
or an invitation to offer, or 10--15
a recommendation to enter into13
any
PPS
22 constitute an offer,15
transaction. Eurasia Group maintains no affiliations with government or political parties.
PV
13
14
10--20
15
DEM
65
56
40-50
45
© 2010 Eurasia Group,
475 Fifth Avenue,
14th floor, New York,
New York 10017
PSDB
66
59
60-70
65
166 (32.4%)
144www.eurasiagroup.net
(28.1%)
138 (26.9%)
Other Parties
25 (4.9%)
35 (6.8%)
10 (1.9%)
TOTAL
513
513
513
6
Senate Election Projections
Senate
Party
Seats Won Actual Seats Held Election Seats Margin 2011 Projection
Left Parties
PT
PSB
PDT
PCdoB
11
9
13-17
15
3
2
4-5
5
5
6
3-5
4
2
1
1-2
2
21 (25.9%)
18 (22.2%)
26 (32.1%)
Centrist Parties
PMDB
15
18
14-19
17
PP
1
1
1-3
2
PR
3
4
1-3
2
leading global7political risk research and consulting
firm. This presentation
PTBEurasia Group is the world’s
4
5-6
6
is intended solely for internal use by the recipient and is based on the opinions of Eurasia Group
23 (28.4%)
30 (37%)
27 (33.3%)
analysts and various in-country specialists. This presentation is not intended to serve as investment
Opposition
advice, andParties
it makes no representations concerning the credit worthiness of any company. This
to enter into
PPSpresentation does not1constitute an offer, or0an invitation to offer, or a recommendation
1-2
2 any
transaction. Eurasia Group maintains no affiliations with government or political parties.
PV
0
1
0
0
DEM
18
14
8-12
10
th
© 2010 Eurasia Group,
New York 10017
PSDB
15 475 Fifth Avenue,
14 14 floor, New York,
9-14
12
34 (42%)
29www.eurasiagroup.net
(35.8%)
24 (29.6%)
Other Parties
3 (3.7%)
4 (4.9%)
4 (4.9%)
TOTAL
81
81
81
7
Macroeconomic Policy Outlook
Dilma Rousseff
•
Fiscal Policy: Investors will be pleasantly surprised with Rousseff’s stance
on fiscal policy, but disappointed over her ability to follow through—for both
structural and non-structural reasons.
•
Exchange Rate and Monetary policy: Rousseff’s advisors will be more
worried about currency appreciation, and makeup of CB board is at play.
Jose Serra
•
Fiscal Policy: Stronger conviction over the need to curb rising
expenditures, and a bit more leeway to follow through.
•
Exchange Rate and Monetary policy: Risk of interventionist measures
on currency probably a bit higher than those in a Rousseff administration
(but not by much); pundits overplaying risk to operational autonomy to CB.
8
Differences rest on sector-specific policy
BNDES Investment Forecast
400
250.0
200.0
194.7
350
200.0
150.0
250
96.2
112.5
200
77.3
46.3
150
100.0
70.0
40.0
71.4
11.8
% Increase
R$ billions
300
50.0
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100
1.5
39.1
-1.9
Eurasia Group is the world’s leading global political risk research and consulting firm. This presentation
0.0
is intended
50solely for internal use by the recipient and is based on the opinions of Eurasia Group
analysts and various in-country specialists. This presentation is not intended to serve as investment
advice, and it makes no representations concerning the credit worthiness of any company. This
0 does not constitute an offer, or an invitation to offer, or a recommendation to enter
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presentation
into any
transaction. Eurasia Group maintains no affiliations with government or political parties.
O
il
© 2010 Eurasia Group, 475 Fifth Avenue, 14th floor, New York, New York 10017
www.eurasiagroup.net
Source: BNDES
2005-2008
2010-2013
% Increase
9
Reform Outlook: few macro reforms on the agenda
Dilma Rousseff
•
Political outlook: Overarching majority, but she will be challenged to
manage tensions between the PT and PMDB
•
More micro than macro reforms:
– Microeconomic reform agenda focused on overcoming hurdles to investments
– Regulate the 2003 pension reform, and limit to payroll expenditures
– Tax reform could be revisited, but more piecemeal
Jose Serra
•
Political outlook: Smaller majority, but fewer tensions within coalition
•
The left will have a veto over constitutional reforms:
– Tax reform likely to figure as the largest structural reform
– Fiscal reform agenda focused on issues that only require simple majorities
– Microeconomic reform agenda may get greater push
10