Political Risk Latin America Blog @PolRiskLatam

Brazil: Why Executives Should Care Who Wins

Posted in News and Articles, Political Risk by politicalrisklatam on October 26, 2010

by Clinton Carter for Latin Business Chronicle, October 25th, 2010.

Why Wall Street doesn’t care who wins Brazil’s watershed elections, but executives should. 

Executives building businesses in Brazil should take note of this Sunday’s presidential election runoff. This election will have a major impact on the ability of multinationals operating in the country to turn GDP growth into profit for their companies.

BRAZIL GROWS WHOEVER WINS

Brazil is about to elect a former communist guerilla, Dilma Rousseff of the Workers Party (PT), to the highest office in the land. There could be no greater demonstration of Brazil’s new status as the country-that-can-do-no-wrong in the eyes of the investment community than the corresponding indifference of capital markets and financial institutions to this political development.

That Dilma will win the presidential runoff is a near certainty, as questions over her view on abortion and new allegations of abuse of power against her are again failing to elicit much more than shrugs and channel surfing from the electorate.

Likewise, investors believe Dilma poses no threat to the growth of the Brazilian economy. The conventional wisdom driving this insouciance holds that Dilma Rousseff and her challenger, José Serra of the PSDB, will follow a similar set of orthodox macroeconomic policies, much as current president Lula da Silva of the PT continued most of the policies established by his predecessor, Fernando Henrique Cardoso of the PSDB.  Serra would, of course, also follow the policy blueprint designed by Cardoso. This framework will ensure relatively low inflation, moderate to high interest rates (though low by historical standards), a stable currency, and capital inflows needed to invest in long term growth. These conditions, in turn, will guarantee macroeconomic stability and growth, and concurrent strong returns from investments in Brazilian debt and equity. (continue reading… )

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