Monday, October 4, 2010
Dilma Rousseff Forced Into Run Off Election In Basil
Brazil’s presidential poll heads for run-off
By John Paul Rathbone and Jonathan Wheatley in São Paulo
Published: October 3 2010 18:21 | Last updated: October 4 2010 02:55
Peck on the cheek: Dilma Rousseff with one of the candidates for a local governorship
EDITOR’S CHOICE
Lex: the Silva chalice - Oct-03
beyondbrics: Brazil - Aug-09
In depth: Americas - Aug-25
Rousseff rallies voters in Lula stronghold - Oct-02
Lula keen to protect legacy as Brazil votes - Oct-01
Analysis: Brazil: Great expectations - Sep-28
Brazil’s presidential election took a surprising turn on Sunday evening when Dilma Rousseff failed to win a majority of the vote and must now take her chances in a run-off on October 31.
Ms Rousseff of the ruling leftwing PT had appeared to be heading for victory on a wave of popular support for outgoing president Luiz Inácio Lula da Silva, her political mentor, who has overseen eight years of booming prosperity and leaves office with an approval rating of 80 per cent.
But with 99 per cent of the vote counted Ms Rousseff, a stern technocrat, had only 47 per cent, short of outright victory. Her biggest rivals, José Serra of the centrist PSDB, had 33 per cent and Marina Silva of the Green party had 19 per cent. Ms Rousseff needed 50 per cent plus one vote to avoid a run-off.
A corruption scandal that unseated her former right-hand woman has dented Ms Rousseff’s lead over the past fortnight.
The result will be a stunning blow to Mr Lula da Silva who made securing his succession the priority of his last year in power. “A vote for Dilma is a vote for me,” he had said on Friday.
The second round promises to be a gruelling campaign. Ms Rousseff will be forced into a direct confrontation with Mr Serra, something both candidates have so far avoided.
Mandatory voting for 131m people
● Brazil is the world’s fourth most populous democracy. Sunday’s vote was the sixth direct presidential election since military rule ended in 1985
● The vote was also the first election since the end of military rule in which Luiz Inácio Lula da Silva was not a candidate
Brazil is the world’s eighth-largest economy, with a gross domestic product of about $1,600bn
● Voting is mandatory for citizens over the age of 18
● About 131m of the 190m population are eligible to vote
● In addition to the president, the following posts are up for election: 27 state governors; all 513 representatives in the chamber of deputies; two-thirds of the 81-seat senate; and 1,059 representatives to state assemblies
● With the exception of a few remote polling stations, votes are cast electronically and can be tallied quickly
For most of the past four months, since her candidacy was officially declared, Ms Rousseff has been content to bask in Mr Lula da Silva’s popularity. Meanwhile, Mr Serra has failed to present either a critique or an alternative to the president’s powerful mixture of tight monetary policy and generous social spending.
Business leaders, the natural constituency of the former governor of São Paulo, have griped about the growing role of the state in Brazil’s economy, championed by Ms Rousseff, and the need for fiscal and other market-friendly reforms, while complaining about his reluctance to take the initiative.
In a televised debate before the poll Mr Serra ducked the chance of direct exchanges with Ms Rousseff in a lacklustre performance.
Political analysts said it would be impossible to avoid a potentially bruising confrontation in a run-off between two candidates.
Furthermore, the second round will boost the standing of Ms Silva, Mr Lula da Silva’s former environment minister and no relation, who resigned first from his government and then from his party after public disagreements with senior ministers, including Ms Rousseff.
Merval Pereira, a political commentator, had said the second round could see Ms Silva in the role of kingmaker and that her support had already been courted by senior figures in Mr Serra’s party, including Fernando Henrique Cardoso, the former president.
Investors have to date largely ignored the election, believing it to be a non-event on the assumption that neither Ms Rousseff nor Mr Serra would deviate much from the orthodox macroeconomic policies pursued by Mr Lula da Silva and Mr Cardoso over the past 16 years.
Analysts have believed that, even if Ms Rousseff failed to win on Sunday, she would go on to victory in the second round – an assumption that now looks questionable.
By John Paul Rathbone and Jonathan Wheatley in São Paulo
Published: October 3 2010 18:21 | Last updated: October 4 2010 02:55
Peck on the cheek: Dilma Rousseff with one of the candidates for a local governorship
EDITOR’S CHOICE
Lex: the Silva chalice - Oct-03
beyondbrics: Brazil - Aug-09
In depth: Americas - Aug-25
Rousseff rallies voters in Lula stronghold - Oct-02
Lula keen to protect legacy as Brazil votes - Oct-01
Analysis: Brazil: Great expectations - Sep-28
Brazil’s presidential election took a surprising turn on Sunday evening when Dilma Rousseff failed to win a majority of the vote and must now take her chances in a run-off on October 31.
Ms Rousseff of the ruling leftwing PT had appeared to be heading for victory on a wave of popular support for outgoing president Luiz Inácio Lula da Silva, her political mentor, who has overseen eight years of booming prosperity and leaves office with an approval rating of 80 per cent.
But with 99 per cent of the vote counted Ms Rousseff, a stern technocrat, had only 47 per cent, short of outright victory. Her biggest rivals, José Serra of the centrist PSDB, had 33 per cent and Marina Silva of the Green party had 19 per cent. Ms Rousseff needed 50 per cent plus one vote to avoid a run-off.
A corruption scandal that unseated her former right-hand woman has dented Ms Rousseff’s lead over the past fortnight.
The result will be a stunning blow to Mr Lula da Silva who made securing his succession the priority of his last year in power. “A vote for Dilma is a vote for me,” he had said on Friday.
The second round promises to be a gruelling campaign. Ms Rousseff will be forced into a direct confrontation with Mr Serra, something both candidates have so far avoided.
Mandatory voting for 131m people
● Brazil is the world’s fourth most populous democracy. Sunday’s vote was the sixth direct presidential election since military rule ended in 1985
● The vote was also the first election since the end of military rule in which Luiz Inácio Lula da Silva was not a candidate
Brazil is the world’s eighth-largest economy, with a gross domestic product of about $1,600bn
● Voting is mandatory for citizens over the age of 18
● About 131m of the 190m population are eligible to vote
● In addition to the president, the following posts are up for election: 27 state governors; all 513 representatives in the chamber of deputies; two-thirds of the 81-seat senate; and 1,059 representatives to state assemblies
● With the exception of a few remote polling stations, votes are cast electronically and can be tallied quickly
For most of the past four months, since her candidacy was officially declared, Ms Rousseff has been content to bask in Mr Lula da Silva’s popularity. Meanwhile, Mr Serra has failed to present either a critique or an alternative to the president’s powerful mixture of tight monetary policy and generous social spending.
Business leaders, the natural constituency of the former governor of São Paulo, have griped about the growing role of the state in Brazil’s economy, championed by Ms Rousseff, and the need for fiscal and other market-friendly reforms, while complaining about his reluctance to take the initiative.
In a televised debate before the poll Mr Serra ducked the chance of direct exchanges with Ms Rousseff in a lacklustre performance.
Political analysts said it would be impossible to avoid a potentially bruising confrontation in a run-off between two candidates.
Furthermore, the second round will boost the standing of Ms Silva, Mr Lula da Silva’s former environment minister and no relation, who resigned first from his government and then from his party after public disagreements with senior ministers, including Ms Rousseff.
Merval Pereira, a political commentator, had said the second round could see Ms Silva in the role of kingmaker and that her support had already been courted by senior figures in Mr Serra’s party, including Fernando Henrique Cardoso, the former president.
Investors have to date largely ignored the election, believing it to be a non-event on the assumption that neither Ms Rousseff nor Mr Serra would deviate much from the orthodox macroeconomic policies pursued by Mr Lula da Silva and Mr Cardoso over the past 16 years.
Analysts have believed that, even if Ms Rousseff failed to win on Sunday, she would go on to victory in the second round – an assumption that now looks questionable.
Saturday, October 2, 2010
Brasil's Red Hot Bond Market
Feature | SATURDAY, OCTOBER 2, 2010
Brazil's Red-Hot Bond Market
By KENNETH RAPOZA | MORE ARTICLES BY AUTHOR
With double-digit yields, Brazil's government bonds are drawing strong interest from investors around the world. Time to jump in?
BRAZILIAN STOCKS have been something of a disappointment this year, up just 1% and lagging behind the Dow Jones Emerging Markets Index. But the country's bonds are another story. They have been sizzling, helping to keep Brazil a favorite of global investors.
International bond-fund managers this year put at least $5.2 billion into all classes of Brazilian bonds as of Sept. 22, up from the previous record of $2.05 billion set in 2009, according to investment data firm EPFR Global in Cambridge, Mass. Brazil accounts for a little more than 10% of the record $34 billion inflow into dedicated emerging-market bonds.
And here is the best part: There is no sign that the market is overheating. Demand remains especially strong from investors in countries like Japan, where interest rates are below 1%.
Within Brazil's fixed-income universe, the $900-billion local government-bond market is a favorite, with a yield of about 11.33% for one-year bonds. With a little cooperation from the economy, these securities could deliver double-digit returns for some time.
Brazil's government debt is investment grade, with relatively little credit risk. The greater dangers would be a rise in inflation—now at about Brazil's targeted annual level of 4.6%—or a drop in the value of the real.
If investors in the U.S. and other countries with weak economies pull back from investing in projects in Brazil, the currency clearly would take a hit.
Some savvy investors think the risks are manageable. They see a stable local economy growing at 7%, and a strong financial position, with the country's cash reserves exceeding what it owes in interest on its debt to foreign countries.
"Our investors are very happy buying 11% government bonds and taking the risk on the real," says Alexander Gorra, head of international sales of BNY Mellon ARX in Rio de Janeiro. "The risk could mean a bigger payout if the real strengthens or stays steady."
The risk of a steep devaluation is low, says Sara Zervos, manager of the $13.4 billion Oppenheimer International Bond Fund (ticker: OIBAX). She expects the real to end the year stronger, at the equivalent of $1.65, up from a recent $1.67.
"My thinking on Brazil bonds is that everybody likes them, everybody wants them, and there's a food fight whenever there's an issue," says Zervos.
Record Breaker
International bond-fund managers are pouring money into Brazil's bonds
In fact, the market easily absorbed a recent $550-million issue.
The easiest way for individual investors to buy Brazil bonds is through a growing number of emerging-market bond funds and some dedicated offshore Brazil bond funds, such as Deutsche Bank's Brazil Bond Basket 2014 for high-net-worth individuals.
Oppenheimer launched its first emerging-markets bond fund, the Oppenheimer Emerging Markets Debt fund (OEMAX) on June 30 for the retail market. Brazil accounts for 15% of Oppenheimer's emerging-market debt, with real-denominated bonds accounting for around 60%, nearly all of it government issues. A month after that fund launched, Van Eck unveiled its latest exchange-traded fund for emerging-market bonds, the Market Vectors Emerging Markets Local Currency Bond (EMLC).
BlackRock has its three-year-old ETF called the iShares JP Morgan Emerging Markets Bond Index fund (EMB). EMB is up 9.3% through Sept. 30. Outside of the retail sector, institutional investors and sovereign-wealth funds from Europe to Japan have their own Brazil-dedicated bond funds.
"There is a lot of appetite these days for local bonds," says Olivier Ginguene, portfolio manager at Pictet Asset Management in Geneva. "There's value there and the currency risk is stable."
THE OVERSEAS MARKET for Brazilian government bonds— offering the country's bonds in the U.S. and elsewhere— may be almost fully valued. Yields have fallen close to those of U.S. Treasuries, as investors scramble for a piece of the action.
Brazil's 2021 overseas bond was yielding around 3.78% recently, with a spread of 129 basis points, or 1.29 percentage points, over Treasuries. A year ago, the same bond yielded 183 basis points above Treasuries.
The Bottom Line
With the Brazilian economy growing at 7% and inflation at target levels, locally traded government bonds look attractive. But Brazil bonds traded overseas look pricey.
On the corporate-debt side, mining company Vale (VALE) sold $1.75 billion in overseas bonds Sept. 8, yielding just 4.6% with a spread of 210. Two days later, Vale's 10-year was lower at 4 5/8% with a spread of 175 over Treasuries. Demand for Brazilian bonds has kept up with supply.
"This market becomes a bubble when you start seeing corporate-debt spreads closer to what we are seeing for the sovereigns," says Michael Roche, an emerging-markets strategist at MF Global in New York. The spread on Brazil corporate debt over Treasuries, as registered by the JP Morgan Corporate Emerging Markets Bond Index, was recently 330 basis points.
As a result of all this, foreign investors account for nearly 10% of Brazil's local government bond market, says Paulo Valle, the sub-secretary of public debt at the Brazilian National Treasury. That's up from 0.7% in 2005, leaving some investors to wonder if it might be getting too late to get in on the action, especially in light of the jump in stocks just this past week.
Take heart, it probably isn't too late, at least in the local government-bond sector. Those double-digit yields look unlikely to vanish anytime soon.
KENNETH RAPOZA, a free-lance writer, covers Brazilian markets.
E-mail: editors@barrons.com
EMAILPRINTREPRINTS
Brazil's Red-Hot Bond Market
By KENNETH RAPOZA | MORE ARTICLES BY AUTHOR
With double-digit yields, Brazil's government bonds are drawing strong interest from investors around the world. Time to jump in?
BRAZILIAN STOCKS have been something of a disappointment this year, up just 1% and lagging behind the Dow Jones Emerging Markets Index. But the country's bonds are another story. They have been sizzling, helping to keep Brazil a favorite of global investors.
International bond-fund managers this year put at least $5.2 billion into all classes of Brazilian bonds as of Sept. 22, up from the previous record of $2.05 billion set in 2009, according to investment data firm EPFR Global in Cambridge, Mass. Brazil accounts for a little more than 10% of the record $34 billion inflow into dedicated emerging-market bonds.
And here is the best part: There is no sign that the market is overheating. Demand remains especially strong from investors in countries like Japan, where interest rates are below 1%.
Within Brazil's fixed-income universe, the $900-billion local government-bond market is a favorite, with a yield of about 11.33% for one-year bonds. With a little cooperation from the economy, these securities could deliver double-digit returns for some time.
Brazil's government debt is investment grade, with relatively little credit risk. The greater dangers would be a rise in inflation—now at about Brazil's targeted annual level of 4.6%—or a drop in the value of the real.
If investors in the U.S. and other countries with weak economies pull back from investing in projects in Brazil, the currency clearly would take a hit.
Some savvy investors think the risks are manageable. They see a stable local economy growing at 7%, and a strong financial position, with the country's cash reserves exceeding what it owes in interest on its debt to foreign countries.
"Our investors are very happy buying 11% government bonds and taking the risk on the real," says Alexander Gorra, head of international sales of BNY Mellon ARX in Rio de Janeiro. "The risk could mean a bigger payout if the real strengthens or stays steady."
The risk of a steep devaluation is low, says Sara Zervos, manager of the $13.4 billion Oppenheimer International Bond Fund (ticker: OIBAX). She expects the real to end the year stronger, at the equivalent of $1.65, up from a recent $1.67.
"My thinking on Brazil bonds is that everybody likes them, everybody wants them, and there's a food fight whenever there's an issue," says Zervos.
Record Breaker
International bond-fund managers are pouring money into Brazil's bonds
In fact, the market easily absorbed a recent $550-million issue.
The easiest way for individual investors to buy Brazil bonds is through a growing number of emerging-market bond funds and some dedicated offshore Brazil bond funds, such as Deutsche Bank's Brazil Bond Basket 2014 for high-net-worth individuals.
Oppenheimer launched its first emerging-markets bond fund, the Oppenheimer Emerging Markets Debt fund (OEMAX) on June 30 for the retail market. Brazil accounts for 15% of Oppenheimer's emerging-market debt, with real-denominated bonds accounting for around 60%, nearly all of it government issues. A month after that fund launched, Van Eck unveiled its latest exchange-traded fund for emerging-market bonds, the Market Vectors Emerging Markets Local Currency Bond (EMLC).
BlackRock has its three-year-old ETF called the iShares JP Morgan Emerging Markets Bond Index fund (EMB). EMB is up 9.3% through Sept. 30. Outside of the retail sector, institutional investors and sovereign-wealth funds from Europe to Japan have their own Brazil-dedicated bond funds.
"There is a lot of appetite these days for local bonds," says Olivier Ginguene, portfolio manager at Pictet Asset Management in Geneva. "There's value there and the currency risk is stable."
THE OVERSEAS MARKET for Brazilian government bonds— offering the country's bonds in the U.S. and elsewhere— may be almost fully valued. Yields have fallen close to those of U.S. Treasuries, as investors scramble for a piece of the action.
Brazil's 2021 overseas bond was yielding around 3.78% recently, with a spread of 129 basis points, or 1.29 percentage points, over Treasuries. A year ago, the same bond yielded 183 basis points above Treasuries.
The Bottom Line
With the Brazilian economy growing at 7% and inflation at target levels, locally traded government bonds look attractive. But Brazil bonds traded overseas look pricey.
On the corporate-debt side, mining company Vale (VALE) sold $1.75 billion in overseas bonds Sept. 8, yielding just 4.6% with a spread of 210. Two days later, Vale's 10-year was lower at 4 5/8% with a spread of 175 over Treasuries. Demand for Brazilian bonds has kept up with supply.
"This market becomes a bubble when you start seeing corporate-debt spreads closer to what we are seeing for the sovereigns," says Michael Roche, an emerging-markets strategist at MF Global in New York. The spread on Brazil corporate debt over Treasuries, as registered by the JP Morgan Corporate Emerging Markets Bond Index, was recently 330 basis points.
As a result of all this, foreign investors account for nearly 10% of Brazil's local government bond market, says Paulo Valle, the sub-secretary of public debt at the Brazilian National Treasury. That's up from 0.7% in 2005, leaving some investors to wonder if it might be getting too late to get in on the action, especially in light of the jump in stocks just this past week.
Take heart, it probably isn't too late, at least in the local government-bond sector. Those double-digit yields look unlikely to vanish anytime soon.
KENNETH RAPOZA, a free-lance writer, covers Brazilian markets.
E-mail: editors@barrons.com
EMAILPRINTREPRINTS
Drug Mules At The Sao Paulo Airport
Drug mules at São Paulo airport
Words and photographs by Jackie Dewe Mathews
Published: September 10 2010 18:59 | Last updated: September 10 2010 18:59
More than 70,000 people a day pass through Brazil’s São Paulo Guarulhos International airport. And every day, five of them are arrested for drugs trafficking. Many of them are women; drug mules taking their chances at what has become the main exit point for people carrying cocaine from South America to the rest of the world. With flight connections to 53 countries, the airport is well positioned to supply the increasing global demand for cocaine.
EDITOR’S CHOICE
Books: Geoffrey Robertson’s ‘The Case of the Pope’ - Sep-10
The papal hijacking of Cardinal Newman - Sep-10
The music industry’s new business model - Sep-10
Less than a decade ago, only 40 foreign women were imprisoned in the entire state of São Paulo. But the number of arrests of foreign women has risen so dramatically that all such prisoners have moved to the São Paulo Capital Penitentiary for Women, where, at more than 400, they account for more than half the prison’s population. Many of them have been charged with – or convicted of – acting as drugs mules.
The largest contingent comes from South Africa, where an existing drugs problem, alongside a massive gulf between rich and poor, has created an environment in which women are prepared to take huge risks in order to earn quick money. If they are caught, they face prison terms of between three and 15 years, with the right to just two phone calls a year.
Brazil’s penal system is slow and cumbersome – it can take up to six months after an arrest for a court hearing and up to a year for sentencing. The law against drug trafficking is so vague that sentencing often depends on the judge’s mood.
The other jet set
123456789
'They assured me everything would be fine because they had a good relationship with the police at the airport in Brazil'
This Portuguese girl, married and with a good job, was tricked by a friend into taking her place as a drug mule on a trip to Brazil. Stopped and searched at the airport, she said that when her friend asked for help she couldn’t say no. She has been in prison – where she has been given work cleaning the schoolroom – for ten months and is still awaiting her sentence
Prisoners are entitled to conditional freedom or parole at the two-thirds point of their sentence, when they are free to leave the prison. But they must remain in Brazil, where life can be dangerous for a foreigner with no place to stay, no work permit, or family to help them. In 2006, Catholic nuns set up a shelter for women finishing their sentences. They soon found that because many of the foreign prisoners couldn’t afford flights home, some of them were driven to become mules again in order to pay for their trip.
Few of the women in prison for drug trafficking have ever committed a crime before. Far from being calculated serial offenders, most of them were driven by extreme poverty to take what they intended to be a one-off risk. Traffickers, skilled in identifying desperate women, promised many of them that they had good relationships with police and airport officials and that nothing could go wrong.
The alarming truth, though, is that many of these women were never meant to succeed. The traffickers themselves often tip off the police about a mule – while arresting her, their attention is steered away from the more lucrative load that is being smuggled through by someone else on the same flight.
But the women keep on coming, drawn by promises of between £500 and £6,000 – life-changing sums for many – for carrying anything between half a kilo and 12kg.
“You cannot say anyone who does this is a greedy woman or a cheap woman,” said a South African woman being held at São Paulo Capital Penitentiary. “If you look at the women here and you listen to their stories, you will see that these are mothers, sisters and wives. People that had decent lives. Circumstances drove them to do this.”
What’s your view? To comment on this feature please e-mail the FT Weekend Magazine at ftweekendmagazine@ft.com
Words and photographs by Jackie Dewe Mathews
Published: September 10 2010 18:59 | Last updated: September 10 2010 18:59
More than 70,000 people a day pass through Brazil’s São Paulo Guarulhos International airport. And every day, five of them are arrested for drugs trafficking. Many of them are women; drug mules taking their chances at what has become the main exit point for people carrying cocaine from South America to the rest of the world. With flight connections to 53 countries, the airport is well positioned to supply the increasing global demand for cocaine.
EDITOR’S CHOICE
Books: Geoffrey Robertson’s ‘The Case of the Pope’ - Sep-10
The papal hijacking of Cardinal Newman - Sep-10
The music industry’s new business model - Sep-10
Less than a decade ago, only 40 foreign women were imprisoned in the entire state of São Paulo. But the number of arrests of foreign women has risen so dramatically that all such prisoners have moved to the São Paulo Capital Penitentiary for Women, where, at more than 400, they account for more than half the prison’s population. Many of them have been charged with – or convicted of – acting as drugs mules.
The largest contingent comes from South Africa, where an existing drugs problem, alongside a massive gulf between rich and poor, has created an environment in which women are prepared to take huge risks in order to earn quick money. If they are caught, they face prison terms of between three and 15 years, with the right to just two phone calls a year.
Brazil’s penal system is slow and cumbersome – it can take up to six months after an arrest for a court hearing and up to a year for sentencing. The law against drug trafficking is so vague that sentencing often depends on the judge’s mood.
The other jet set
123456789
'They assured me everything would be fine because they had a good relationship with the police at the airport in Brazil'
This Portuguese girl, married and with a good job, was tricked by a friend into taking her place as a drug mule on a trip to Brazil. Stopped and searched at the airport, she said that when her friend asked for help she couldn’t say no. She has been in prison – where she has been given work cleaning the schoolroom – for ten months and is still awaiting her sentence
Prisoners are entitled to conditional freedom or parole at the two-thirds point of their sentence, when they are free to leave the prison. But they must remain in Brazil, where life can be dangerous for a foreigner with no place to stay, no work permit, or family to help them. In 2006, Catholic nuns set up a shelter for women finishing their sentences. They soon found that because many of the foreign prisoners couldn’t afford flights home, some of them were driven to become mules again in order to pay for their trip.
Few of the women in prison for drug trafficking have ever committed a crime before. Far from being calculated serial offenders, most of them were driven by extreme poverty to take what they intended to be a one-off risk. Traffickers, skilled in identifying desperate women, promised many of them that they had good relationships with police and airport officials and that nothing could go wrong.
The alarming truth, though, is that many of these women were never meant to succeed. The traffickers themselves often tip off the police about a mule – while arresting her, their attention is steered away from the more lucrative load that is being smuggled through by someone else on the same flight.
But the women keep on coming, drawn by promises of between £500 and £6,000 – life-changing sums for many – for carrying anything between half a kilo and 12kg.
“You cannot say anyone who does this is a greedy woman or a cheap woman,” said a South African woman being held at São Paulo Capital Penitentiary. “If you look at the women here and you listen to their stories, you will see that these are mothers, sisters and wives. People that had decent lives. Circumstances drove them to do this.”
What’s your view? To comment on this feature please e-mail the FT Weekend Magazine at ftweekendmagazine@ft.com
Friday, October 1, 2010
Preisdent Lula And Dilma Rousseff
The handover
Lula gave Brazil continuity and stability. Now he needs to give his successor independence
Sep 30th 2010
THINK back eight years, when the prospect of Luiz Inácio Lula da Silva, leader of the left-wing Workers’ Party becoming president of Brazil, the world’s fourth most populous democracy, caused panic in financial markets. With Lula now preparing to step down after two terms, Brazilians seem poised to elect his chosen successor, Dilma Rousseff. She is at least as left-wing as he is. But the markets’ mood could hardly be more different. By way of a pre-election boost, Lula even travelled to São Paulo’s stock exchange to hail a $67 billion share issue by Petrobras, the national oil company, to raise funds to develop Brazil’s vast new deep-sea fields.
Brazil’s circumstances and its standing in the world have been transformed during Lula’s presidency and mostly for the better (see article). Poverty has fallen and economic growth has quickened. Brazil is enjoying a virtuous circle: soaring Asian demand for exports from its farms and mines is balanced by a booming domestic market, as—partly thanks to better social policies—some 20m new consumers have emerged from poverty. No wonder foreign businesses are piling in, while a swelling group of Brazilian multinationals is expanding abroad.
Thanks to his tactile charm and impoverished origins, Lula has been an extraordinary salesman for this transformation. He embodies the fairer, more inclusive democracy he has helped to create. His popularity rating stands close to 80%. Barack Obama called him “the most popular politician on earth”. Yet his biggest achievement is not to make his countrymen love him, but to give them continuity. The platform for Brazil’s take-off was laid by the liberalising reforms and inflation-busting policies of his predecessor, Fernando Henrique Cardoso. Lula kept these in place when many in his party wanted to scrap them, consolidating economic and political stability.
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Hand in hand at the hustings
It is heartening, then, that the election campaign has confirmed a broad consensus on economic and social policy. But there are still big risks ahead, for Lula has left some troubling problems unsolved, and it is not clear whether Ms Rousseff has the strength or desire to tackle them.
As Lula’s chief of staff, Ms Rousseff showed herself to be a capable and forceful administrator. She is a tough and courageous woman: as a young leftist militant, she survived torture at the hands of a military regime, and she came through a battle with lymphatic cancer last year. But she has never before held elected office. If she is victorious, it will be thanks not to her personality or achievements, but to Lula’s astounding popularity and tireless presence at her side during the campaign (often in violation of electoral law).
Against this, her rivals have struggled. José Serra, until recently the governor of São Paulo, is an experienced and competent politician from Mr Cardoso’s party. But his campaign has been woeful. Marina Silva, a former environment minister, espouses many good and thoughtful policies, but her Green Party is new and small. Until a fortnight or so ago, Ms Rousseff seemed assured of outright victory on October 3rd. Then allegations surfaced that her successor as Lula’s chief of staff was involved in influence-peddling. Though unproven, this scandal may do enough damage to push Ms Rousseff into a run-off election in a month’s time, though it is hard to imagine that she will not, in the end, win.
Let her go
That Ms Rousseff is so dependent on Lula’s patronage is a shame, for Brazil needs a strong and independent leader. Success has bred an atmosphere of hubris in Brasília. With the outlook for the world economy so uncertain, that is potentially dangerous. Despite the country’s achievements, there are three difficult sets of issues that—assuming she wins—Ms Rousseff will have to deal with.
The first is corruption. The opposition claims that Brazil’s new-found oil wealth will foster the elected authoritarianism that grew up in Mexico under the Institutional Revolutionary Party. That looks, for the moment, like an exaggeration; but it is true that the Workers’ Party has come to see public office as a perquisite and has a troubling tendency to bloat the federal bureaucracy with political appointees. Fortunately Brazil has a fiercely independent judiciary and media. But Ms Rousseff needs to make a clear commitment to clean government.
The second concerns the role of the state in the economy. This has expanded in Lula’s second term, and not only because of the world recession. The government has ill-advisedly given Petrobras a monopoly over developing the new oilfields, and used the share issue to raise its controlling stake in the company. It has lavished cheap loans on firms that it sees as national champions, partly to counteract the strength of the real. But these policies are driving up public debt even as the economy grows. They also crowd out much-needed spending on infrastructure, sanitation, education and innovation. And they do nothing to bring down high interest rates. The next government should aim speedily to eliminate the budget deficit. Better still would be an effort to reform the tax system and relax labour laws that still hold back the economy.
The third test for Ms Rousseff will be in foreign policy. Lula’s activism brought benefits to Brazil. But his penchant for autocrats—such as the Castros in Cuba, Venezuela’s Hugo Chávez and Iran’s Mahmoud Ahmadinejad—damaged the country’s reputation as a force for good. The next government will face a particular test in South America, where Brazil has at last become the main engine for regional growth. Mr Chávez’s star is waning (see article), but it is far from clear that he will relinquish power voluntarily if defeated in two years’ time. Brazil should use its clout to ensure that he does.
That most of these problems are perfectly manageable shows how far Brazil has come. Whether, and at what pace, the country solves them will depend on Ms Rousseff’s political skills. For her to acquire the authority to do the job properly, she needs to emerge from Lula’s shadow. As his final gift to his country, he should let her do that.
Leaders
Lula gave Brazil continuity and stability. Now he needs to give his successor independence
Sep 30th 2010
THINK back eight years, when the prospect of Luiz Inácio Lula da Silva, leader of the left-wing Workers’ Party becoming president of Brazil, the world’s fourth most populous democracy, caused panic in financial markets. With Lula now preparing to step down after two terms, Brazilians seem poised to elect his chosen successor, Dilma Rousseff. She is at least as left-wing as he is. But the markets’ mood could hardly be more different. By way of a pre-election boost, Lula even travelled to São Paulo’s stock exchange to hail a $67 billion share issue by Petrobras, the national oil company, to raise funds to develop Brazil’s vast new deep-sea fields.
Brazil’s circumstances and its standing in the world have been transformed during Lula’s presidency and mostly for the better (see article). Poverty has fallen and economic growth has quickened. Brazil is enjoying a virtuous circle: soaring Asian demand for exports from its farms and mines is balanced by a booming domestic market, as—partly thanks to better social policies—some 20m new consumers have emerged from poverty. No wonder foreign businesses are piling in, while a swelling group of Brazilian multinationals is expanding abroad.
Thanks to his tactile charm and impoverished origins, Lula has been an extraordinary salesman for this transformation. He embodies the fairer, more inclusive democracy he has helped to create. His popularity rating stands close to 80%. Barack Obama called him “the most popular politician on earth”. Yet his biggest achievement is not to make his countrymen love him, but to give them continuity. The platform for Brazil’s take-off was laid by the liberalising reforms and inflation-busting policies of his predecessor, Fernando Henrique Cardoso. Lula kept these in place when many in his party wanted to scrap them, consolidating economic and political stability.
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Hand in hand at the hustings
It is heartening, then, that the election campaign has confirmed a broad consensus on economic and social policy. But there are still big risks ahead, for Lula has left some troubling problems unsolved, and it is not clear whether Ms Rousseff has the strength or desire to tackle them.
As Lula’s chief of staff, Ms Rousseff showed herself to be a capable and forceful administrator. She is a tough and courageous woman: as a young leftist militant, she survived torture at the hands of a military regime, and she came through a battle with lymphatic cancer last year. But she has never before held elected office. If she is victorious, it will be thanks not to her personality or achievements, but to Lula’s astounding popularity and tireless presence at her side during the campaign (often in violation of electoral law).
Against this, her rivals have struggled. José Serra, until recently the governor of São Paulo, is an experienced and competent politician from Mr Cardoso’s party. But his campaign has been woeful. Marina Silva, a former environment minister, espouses many good and thoughtful policies, but her Green Party is new and small. Until a fortnight or so ago, Ms Rousseff seemed assured of outright victory on October 3rd. Then allegations surfaced that her successor as Lula’s chief of staff was involved in influence-peddling. Though unproven, this scandal may do enough damage to push Ms Rousseff into a run-off election in a month’s time, though it is hard to imagine that she will not, in the end, win.
Let her go
That Ms Rousseff is so dependent on Lula’s patronage is a shame, for Brazil needs a strong and independent leader. Success has bred an atmosphere of hubris in Brasília. With the outlook for the world economy so uncertain, that is potentially dangerous. Despite the country’s achievements, there are three difficult sets of issues that—assuming she wins—Ms Rousseff will have to deal with.
The first is corruption. The opposition claims that Brazil’s new-found oil wealth will foster the elected authoritarianism that grew up in Mexico under the Institutional Revolutionary Party. That looks, for the moment, like an exaggeration; but it is true that the Workers’ Party has come to see public office as a perquisite and has a troubling tendency to bloat the federal bureaucracy with political appointees. Fortunately Brazil has a fiercely independent judiciary and media. But Ms Rousseff needs to make a clear commitment to clean government.
The second concerns the role of the state in the economy. This has expanded in Lula’s second term, and not only because of the world recession. The government has ill-advisedly given Petrobras a monopoly over developing the new oilfields, and used the share issue to raise its controlling stake in the company. It has lavished cheap loans on firms that it sees as national champions, partly to counteract the strength of the real. But these policies are driving up public debt even as the economy grows. They also crowd out much-needed spending on infrastructure, sanitation, education and innovation. And they do nothing to bring down high interest rates. The next government should aim speedily to eliminate the budget deficit. Better still would be an effort to reform the tax system and relax labour laws that still hold back the economy.
The third test for Ms Rousseff will be in foreign policy. Lula’s activism brought benefits to Brazil. But his penchant for autocrats—such as the Castros in Cuba, Venezuela’s Hugo Chávez and Iran’s Mahmoud Ahmadinejad—damaged the country’s reputation as a force for good. The next government will face a particular test in South America, where Brazil has at last become the main engine for regional growth. Mr Chávez’s star is waning (see article), but it is far from clear that he will relinquish power voluntarily if defeated in two years’ time. Brazil should use its clout to ensure that he does.
That most of these problems are perfectly manageable shows how far Brazil has come. Whether, and at what pace, the country solves them will depend on Ms Rousseff’s political skills. For her to acquire the authority to do the job properly, she needs to emerge from Lula’s shadow. As his final gift to his country, he should let her do that.
Leaders
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