Brazil: Dilma Rousseff re-elected
Whilst no change in presidency, Nicholas Mason, Global Emerging Equities fund manager, identifies key changes the re-elected Dilma Rousseff should consider if she is to revive Brazil’s ailing economy.
Dilma Rousseff has been re-elected president of Brazil, having won a narrow victory in Sunday’s election.
Her re-election is largely based on the success of social programmes implemented by her Workers Party (PT) over the past 12 years and the fact that employment levels have remained strong despite the economic slowdown in Brazil.
In our view, initial market reaction may be negative for some Brazilian assets, as many investors were hoping opposition candidate, Aecio Neves, would win power and put forward a structural reform programme to re-ignite growth in Latin America’s largest economy.
It is, however, encouraging that Ms Rousseff, in her victory speech, has acknowledged the population’s desire for change and indicated a willingness to work with the opposition to build a better country. Having tacked to the left during her campaign, in order to strengthen her core support among the poor and the emerging middle class, she now needs to gravitate back to the centre in order to build a consensus for reform. Following this month’s elections, Brazil’s Congress is now fragmented among 28 political parties, which means that Ms Rousseff will need to win the support of more centrist parties in order to get legislation passed.
In regard to economic policy, she has little room for manoeuvre if the country is to maintain its coveted investment grade rating. She is going to have to change the current policy mix to prevent the country’s debt load from rising and to tame inflation that is close to 6.75%.
We’ll be closely following the announcement of Ms Rousseff’s new economic team. The departing finance minister, Guido Mantega, is unlikely to be missed by many market participants. Investor confidence could receive a boost if she were to name a respected figure such as the economist Nelson Barbosa, Central Bank Governor Alexandre Tombini or former Central Bank Governor Henrique Meirelles to the post.
So whilst it’s ‘no change’ in the Brazilian presidency, we’d expect to see a great deal of change in the country’s administration going forward.