Brazil: election outlook

1. Brazil: election outlook The second round and beyond Christopher Garman Director, Latin America (202) 903 0029 garman@eurasiagroup.net

2. Two messages: • The election will tighten, but Rousseff remains a heavy favorite • Next administration will be marked by a continuity, but there will be some positive and negative surprises

3. Probability of Victory for Government Candidate Source: Clifford Young and Christopher Garman, “The Unpredictability of Pundits and Predictable Elections: Using public opinion to predict political disputes”, WAPOR, 12 May 2010.

6. Voter Demands Source: Ipsos Public Affairs, September 2010

7. Congressional Election Results

8. Two policy drivers that will shape the next administration • The “challenge of abundance” • Politics fundamentally changes when the risk of insolvency is no longer a key concern for investors • The learning curve on the left • Lessons learned in President Luiz Inacio Lula da Silva’s administration extend beyond low inflation • Greater appreciation for the bottlenecks for investments • The left has learned the up-side to developing deeper capital markets • Policymakers learn from the failures of the past (tax reform)

9. A mix of positive and negative surprises • Macroeconomic Policy Outlook • Fiscal Policy: The government will signal a desire to roll back spending, have some mixed success, but fail to fully deliver • Exchange rate and monetary policy: Greater concern on FX appreciation, but less conflict within economic team • Reform outlook • Structural reforms: Tax reform will be the positive surprise • Microeconomic reform agenda: Focus on hurdles to investments and deepening capital markets • Sector specific reform: Oil & gas, mining, utilities, telecommunications, and restrictions on foreign land purchases

10. Rousseff’s Reform Agenda