Reporte brazil

POLITICAL OUTLOOK

With the economy rebounding from last year’s downturn, employment levels and real incomes growing strongly and a highly popular outgoing president campaigning vigorously in favour of its candidate, the ruling leftist Partido dos trabalhadores (PT) looks likely to secure a third them in the October 2010 presidential election. Despite tensions created in the alliance betweenthe PT and the centrist partido do movimiento democratic brasileiro PMDB by a revived dispute over the distribution of oil royalties among Brazilian states, the electoral dynamics are expected to continue to favour the PT’s candidate, Dilma Rousseff, who has been closing the gap on jose serra, the opposition candidate from the partido da social democracia brasileira PSBD, in voting intentions polls.After formally announcing his candidacy on March 19th, Mr serra is likely to recover some ground in the polls once he starts campaigning. But this maybe be short-lived given de difficulties faced by his party in putting together a strong alliance (the democratas party, the PSDB’s main ally in the past four presidential elections, has been seriously implicated in recent corruption allegations).Barring a political scandal involving her o Lula, or an economic shock, Ms Rousseff is likely to take the lead in opinion poll within the next couple of months. With legislative fragmentation set to persist, either a Rousseff or a Serra presidency would have to rely on an unruly multi-party alliance in Congress weakening the new government’s ability to pass reforms.

INTERNATIONAL RELATIONSBrazil will seek a growing international role and its temporary seat at the UN, Security Council (until end-2011) adds to its geopolitical influence. Ms Rousseff would provide continuity with Lula’s policies, strengthening relations with other emerging markets and pursuing a more independent line from western nations. However Brazil’s increasingly left-leaning and ambivalent foreign western nations toquestion the reliability of the current and prospective PT governments as an ally. This is exemplified by Lula’s preference to continue negotiations with Iran instead of backing US calls for sanctions. Partly owing to Brazil’s historical non-interference, contradictions in Lula’s efforts to exert greater regional leadership are apparent-accommodating the erosion of democracy in Venezuela andfailing to take a critical position against human rights abuses in Cuba, while interfering in Honduras’s internal affairs following its June 2009 coup. A Serra government would align foreign policy more closely with western interests and would be less tolerant of the regional influence of Venezuela’s president, Hugo Chavez.

ECONOMIC POLICY OUTLOOK
POLICY TRENDS
Federal government interference ineconomic management is set to increase in 2010- 2011 under either a Rousseff or a Serra government, but the shape this would take would vary depending on who wins. However, the economist intelligence unit expects that both Ms Rousseff and Ms Serra would avoid measures that jeopardize macroeconomic stability. Ms Rousseff would almost certainly keep orthodox macroeconomic policies in place, but underher the drift to a more statist development model initiated during Lula’s second term would continue, with higher state intervention and participation in productive sectors such as energy and telecommunications. Ms Serra would be likely to espouse more of a role for the private sector in productive sectors, while developing a more active industrial policy strategy through targeted lending byBrazil’s development bank. Declarations he has given in the past in favour of a weak exchange rate and lower interest rates have prompted speculation that he would be more prone to deviating, if not radically , from macroeconomic orthodoxy. As the campaign officially starts, Mr Serra will be under pressure to justify his views and will state that, if elected, he would promote current spending cuts...