Weekly Geopolitical Report – Dilma or No Dilma? (October 13, 2014)

by Kaisa Stucke & Bill O’Grady

During the first round of Brazilian presidential elections on October 5, the incumbent Dilma Rousseff of the Workers’ Party received 42% of the votes while Aecio Neves of the Social Democracy Party received 34%.  Since none of the candidates received more than 50% of the vote, the second round of runoff elections will be held on October 26.  Currently, Rousseff leads the polls, signaling a likely continuation of state-centric policies.

The results from these elections are significant for the Brazilian domestic economy as well as foreign investors.  Whether Rousseff or Neves wins, the next president will inherit a low growth and high inflation environment.  Additionally, the incoming president will have to deal with high government spending while maintaining the high social spending that the ruling party has relied on for populist support.  The growing domestic middle class is demanding an end to corruption and better social services.

Foreign investors are also closely watching these elections as a win for Neves could signal a more market-friendly political environment with better government fiscal responsibility and political transparency.

This week, we will look at the Brazilian presidential elections along with the current political and economic environment in the country.  We will briefly describe the recent political history of the country and look at the specifics of Brazil’s economic development.  As usual, we will conclude with market ramifications.

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