.png)
.jpg)
Incumbent President Dilma Rousseff of Brazil's Workers' Party narrowly won a runoff election Oct. 26 against challenger Aecio Neves of the Social Democracy Party of Brazil. Rousseff edged out Neves with about 51 percent of the vote compared to Neves' 48.5 percent.
A Rousseff win ensures that the political and economic model of state-centered economic development will remain in place for the moment. Rousseff will likely attempt to maintain the high levels of public spending that have characterized her first administration and the two preceding Workers' Party presidencies of Luiz Inacio Lula da Silva.
The challenge for a second Rousseff administration will be primarily economic. Rousseff will have to contend with a slowing national economy. The gross domestic product is projected to increase by less than one percent year-on-year in 2014. For Rousseff, mitigating the more detrimental effects of a slow economy, such as unemployment, and reining in growing inflation will be crucial to maintaining social stability in a second term. Rousseff will also likely have to reconsider the issue of electricity and fossil fuel subsidies during a second term. With the current reduced global oil prices, the Brazilian government currently faces less of a financial burden from selling subsidized fuels domestically than it once did, but Brazilian public finances, particularly those of state oil firm Petrobras, will remain affected by this subsidy in the long run.
Economic relations with the Common Market of the South (also known as Mercosur) will continue to vex Brasilia in a second Rousseff term. With the economy in a slump, Brazil could seek other markets abroad outside of Mercosur. Brazilian manufacturing exports to Argentina, one of Brazil's primary trading partners, have dropped as a result of Argentina's economic crisis. During a fourth Workers' Party term, Brazil will likely prioritize the search for additional markets abroad and could even try to negotiate changes to the Mercosur regulatory structure in an attempt to maximize access to other markets.
Editor's Note: Brazilians head to the polls Oct. 26 to elect the country’s next president in a runoff vote between left-leaning incumbent President Dilma Rousseff and surprise right-leaning challenger Aecio Neves. Rousseff cemented the popularity of her ruling Workers' Party by continuing high social spending -- following in the footsteps of her predecessor, Luiz Inacio Lula da Silva -- and advocating continued engagement with the Common Market of the South, or Mercosur. More recently, however, she has had to contend with a slowing economy and inflation. Public discontent over rising transportation fares, political corruption and government spending on sports stadiums and infrastructure for the World Cup boiled over into large protests in 2013, which further complicated Rousseff's tenure.
Neves and his Social Democracy Party of Brazil emerged as the dark horse in the Oct. 5 election. He advocates cutting government spending and liberalizing Brazil's trade relationships, so a Neves victory would likely shift the state's macroeconomic policy more toward free markets. Neves could also change the direction of Brazilian foreign policy by focusing more on trade relations with states outside of Mercosur.
Regardless of who wins, Brazil's next president will have to contend with a number of economic and fiscal issues. Inflation is rapidly approaching the annual limit of 6.5 percent laid down by the central bank, government spending will likely need to be reined in, Brazilian manufacturing output remains uncompetitive abroad, and yearly economic growth has slowed to below 1 percent annually. Stratfor has covered these dynamics extensively, and below is a set of analyses from the past couple of years that illustrate the issues shaping this election.
The Geopolitics of Brazil: An Emergent Power's Struggle with Geography
May 13, 2012: South America is a geographically challenging land mass. The bulk of its territory is located in the equatorial zone, making nearly all of the northern two-thirds of its territory tropical. Jungle territory is the most difficult sort of biome to adapt for human economic activity. Clearing the land alone carries onerous costs. Soils are poor. Diseases run rampant. The climate is often too humid to allow grains to ripen. Even where rivers are navigable, often their banks are too muddy for construction, as with the Amazon.
This creates a challenge for Brazil as it tries to develop its economy into a world-leading powerhouse. Brazil's geographic constraints shape the actions of its leaders, despite their political parties or ideologies.
Labor Strife Challenges the Brazilian Government
July 18, 2012: Around 5,000 striking federal workers gathered July 16 at a plaza nearby several government ministries in Brasilia to begin a four-day sit-in demanding better pay and benefits. The demonstration is the latest in a series of high-profile Brazilian labor disputes that began in May with a strike by higher education professors and staff and has gradually expanded to include several other public sector unions.
Due to its desire to maintain a budget surplus amid slowing economic growth, Brazilian President Dilma Rousseff's administration has so far resisted pressure to comply with the unions' demands or even to engage in negotiations. However, many of the striking unions make up part of the ruling Workers' Party's support base. Thus, the government may be forced to offer some minor concessions to certain sectors in order to mitigate the economic effects of the work stoppages and to avoid alienating supporters.
Tackling Brazil's Infrastructure Challenge
April 22, 2013: Over the past two decades, Brazilian production of commodities such as iron ore and soybeans has outgrown the country's transportation infrastructure. Considerable bottlenecks have resulted, creating challenges in getting commodities to port. Brazil is learning from its mistakes, and over the next five years attempts to improve and expand Brazil's road, rail and port infrastructure will likely succeed where previous efforts have failed. Still, the sheer expanse of the Brazilian hinterlands means it will probably take decades before the country's interior is efficiently linked with export hubs.
Evaluating the National Effect of Brazilian Protests
June 19, 2013: Facing widespread unrest, Brazilian President Dilma Rousseff will struggle to prevent protests from becoming a referendum on her presidency. The Brazilian protests have grown from small public demonstrations in Porto Alegre, Rio Grande do Sul state, to mass rallies in cities all over the country, including Rio de Janeiro, Brasilia and Sao Paulo. Though the protests have largely been peaceful, there have been several notable violent incidents widely covered by the media. Rousseff has stated her support for the protests as a demonstration of democratic strength. Although general criticism of the government is a widespread theme, the protesters do not yet have concrete demands and the protests are made up of many groups from divergent political positions.
Brazil Seeks Incremental Change to Mercosur
Aug. 12, 2013: In the wake of the global financial crisis, Brazil's exports of higher value-added goods to the traditional markets of the European Union, United States and Argentina collapsed as demand fell, and sustained upward pressure on the national currency made an already poorly competitive manufacturing sector even less so. Added to these factors is Brazil's reclassification as an upper-middle income country, which will eliminate in 2014 Brazil's preferential trade access to the European Union that came with being a developing economy.
As a result, Brazil's industries have put enormous pressure on the government to find growth alternatives, and including the small consumer markets of Venezuela, Ecuador and Bolivia in Mercosur is not enough. For most other countries, this would be a classic market access challenge that would simply require bilateral trade negotiations to drop tariffs and align regulatory regimes. For Brazil, however, it is much more complicated.
Brazil's Drought Has Political Implications
May 28, 2014: The current drought in Brazil has already affected the country's energy and agriculture sectors. Municipalities -- specifically Sao Paulo -- are now facing possible supply shortages as the drought continues. The government is likely to promote conservation measures, and increased water rationing appears unavoidable.
The elections are still six months away, but water rationing in Brazil's largest voting center and the heart of the party supporting Brazilian President Dilma Rousseff's challenger Aecio Neves does not bode well for Neves or his party. Voters in the region are likely to blame the Brazilian Social Democracy Party for the water situation because water management is the responsibility of the Sao Paulo state-owned water and sanitation utility, commonly known as Sabesp, not the federal government. The ongoing water shortage could further lift Rousseff and Eduardo Campos, the other opposition presidential candidate, in the October vote.
In the World Cup, Nationalism Endures
June 9, 2014: For emerging countries, hosting the World Cup and other international events is an opportunity to show that they can provide sound infrastructure and adequate security -- in short, that they belong among the world's major powers. Brazil has spent more than $11 billion on projects related to the World Cup, expenditures that have outraged many Brazilian citizens, leading to protests and instances of open conflict with security forces. Nao Vai Ter Copa, or "There Won't be a World Cup," became a rallying cry for the protesters.
Brazil Weighs Competing Visions for the Future
Oct. 10, 2014: When Brazilians head to the polls for a presidential runoff on Oct. 26, they will choose between two competing visions of how to manage the country's economic and political challenges. With former frontrunner Marina Silva finishing in a surprise distant third place in the election's first round Oct. 5, voters will now either re-elect President Dilma Rousseff and her Worker's Party or put opposition candidate Aecio Neves and his Social Democracy Party of Brazil into power. The incumbent candidate represents a continuation of state-centric policies that have elevated millions of Brazilians but that are facing new difficulties. Her challenger represents an era of structural reforms that stabilized the country and set the stage for its recent growth. Regardless of who wins, the next president will need to deal with popular pressure, particularly from a growing middle class, to improve social services, keep inflation under control and combat corruption, without undermining the economic gains of the past decade.
Courtesy : Stratfor (www.stratfor.com)