GRI Series on Brazil: Elections precede economic reform

GRI Series on Brazil: Elections precede economic reform

In Brazil, economic adjustment will have to come from within the ruling party after the October elections. Complex political coalitions and a shared national social policy agenda have created a decade-long political convergence, where opposing parties have failed to distinguish their platforms for economic change.

Two months after the end of the World Cup, Brazil will hold general elections, choosing state and national legislatures as well as the president. Many within the international business and financial community are hoping for a change in national leadership. Generally, business is rooting for the Brazilian Social Democracy Party (PSDB), a centrist party committed to fair markets without ignoring the social realities of Brazil.

This change in political leadership is unlikely to occur at the presidential level. The Workers’ Party (PT)  incumbent, Dilma Rousseff, has a substantial lead in all presidential polls. Even if the PT does lose in the elections, the federal system and complex political coalitions holding local governments together will prevent PT policies from being eliminated at the local level.

Fiscal adjustment, bureaucratic effectiveness and further financial openness are unlikely. Deviating from the current social policy regime and reducing spending would affect widely supported efforts to reduce poverty in Brazil’s northern states.

The PT’s lead in election polls had recovered to 38% in the past month because of the national team’s success in the World Cup and because the PT national convention rally was held in late June (in May, the PT’s support had waned from around 40% to around 30%). Influential political figures from PMDB also endorsed the PT in the October elections. As the incumbent since 2002, the PT has more state resources on its side and is fully expected to use the party machine to bring a second presidential term for Rousseff. There is also the question of ideological convergence within the major parties.

The PT, PSDB, Brazilian Socialist Party (PSB) and PMDB are all vast. They each have different intra-party ideological tranches. For the average Brazilian voter, it is difficult to grasp the difference in economic policy objectives between a PSDB and a PT administration.  Federalism also plays a large role in the Brazilian ideological convergence; each Brazilian state has its own government with limited autonomy. There are numerous coalitions in each state between the four mentioned parties as well as local and single-issue parties. While the PT and PSDB fight on the national scale, they are governing together in some localities.

Rousseff’s 38% approval rating is far lower than her predecessor, the beloved Lula. This is attributed to a variety of reasons, but mostly because the economy has taken a tumble since Rousseff came to power. The medium voter’s pocketbook has severely deflated since Lula left office in 2010 and voters have seen the state invest heavily in projects such as the World Cup, which are not aligned with the PT’s bottom-up, consumer led growth approach. The issue of misappropriated state funds is a crucial campaign issue and it has brought centrist parties such as the PSDB and PMDB as well as the leftist PSB back into the race for the presidency and key local government seats.

The PT has lost ground during the current Rousseff administration. High commodity prices surely boosted incomes across different industries during the first decade of the 2000s. But the years of easy state revenues have ended, alongside China’s reduced consumption and the EU’s stagnation.

If Brazil is to improve the investment environment, it will have to do so under the current political leadership. Business will have to learn to adapt to a Brazilian development trajectory that is less open than that offered by the Pacific Alliance countries. As the largest market in Latin America, Brazilian policymakers can take comfort knowing that its market size is large enough to attract investment in less than optimal economic conditions.

Categories: Latin America, Politics

About Author

Daniel Lemaitre

Daniel is a GRI Senior Analyst. He has worked in policy research centered on the political economy of the Andean region in the public, NGO, and private sectors. Daniel holds an MSc in Comparative Political Economy from the London School of Economics, concentrating on Latin American markets.