Webcast Recap

Alexander Kazan, Bear Stearns
Aline Machado, TV Câmara
Jeffrey Cason, Middlebury College
Ted Goertzel, Rutgers University

More than 100 million Brazilians went to the polls on Sunday, October 1, to participate in the country's general elections. Contrary to expectations, President Luiz Inácio Lula da Silva did not win reelection in the first round and will face his PSDB challenger Geraldo Alckmin in a runoff election on October 29. Lula received 48.6 percent of valid votes while Alckmin, a former governor of São Paulo State, took 41.6 percent. Elections were also conducted for the Senate and the Chamber of Deputies, state governors and legislatures, shaping Brazilian politics for the next four years. On October 6, the Brazil Institute of the Woodrow Wilson Center analyzed the outcomes of the elections to offer prospects for Brazil's subsequent political and economic developments.

Aline Machado began with an assessment of governability in Brazil in view of the new congressional composition, considering the presidential candidates' capacities to form winning coalitions for their legislative proposals. The election of PSDB Governors José Serra in São Paulo and Aécio Neves in Minas Gerais may prove problematic for Alckmin's campaign. Both are considered the front-runners for the party's presidential candidacy in the 2010 presidential elections and thus see an Alckmin victory as harming their chances (unless Alckmin can convince them that he will approve a constitutional amendment re-barring presidential reelection). In Congress, the effects of the sanguessuga and mensalão corruption scandals have not been as damaging as previously thought, given the reelection of several legislators that were implicated.

One of the principal factors being underestimated by the media, added Machado, is the still high rate of abstention in the Northeast, Lula's electoral stronghold. If voter turnout is increased in this region, more votes will most certainly go to Lula. After having skipped several televised debates before the elections, Lula's participation in debates held before the second round will prove important for influencing voters, as will further information surrounding the origins of the money captured in the recent "dossier" corruption scandal.

Ted Goertzel asked if Lula can be considered Brazil's "Working-Class Robin (or Robbing) Hood," given the popular sentiment of apathy that has characterized recent corruption scandals as a component of politics in the country. Last month, a poll indicated that 44 percent of respondents believed the number of denouncements increased because Lula is the incumbent, 31 percent because he has done more to combat corruption and 19 percent because his administration is more corrupt than past governments. During the final days before the first round, former president Fernando Henrique Cardoso made several unpopular comments about the nation's moral obligation to take a stand and confront corruption issues, but neither the government nor the opposition devoted great amounts of time to discussing the issue.

When looking at the results of the elections, Goertzel explained how Alckmin's surge in support during the final three days indicated a strong shift in voter opinions, as many made corruption their deciding factor at the polls. Yet by breaking the vote down regionally, it becomes clear that Lula's support in the North and Northeast (well over 50 percent) is much stronger than in other regions, because of the electorate's rational decision to vote according to tangible economic benefits. That the strength of these votes came on the basis of the Bolsa Família program indicates that the PT has become a party of "backwardness," channeling money to poorer people through assistencialist welfare programs without truly promoting economic development.

According to Jeffrey Cason, one of the major mistakes made by the Lula campaign was trying to "run out the clock" and play the defensive during the weeks leading up to the election. The vague assertion that "Lula needs [more time] to finish what he started," a lack of new and different ideas from the PT and a near-total lack of ideology and policy debate during the final weeks were further signs that it has become just another Brazilian party like any other. The results on October 1 produced a close election without well-run campaigns, forcing both sides to develop a new strategy for the second round and producing a more likely confrontation.

Again, the analysis of votes leads to two conclusions. On the one hand, Lula's margins of victory in the Northeast were a product of Bolsa Família's success; on the other hand, corruption exacted a greater toll in the Southeast and produced more losses. In the second round, the debate over economic policy and management will be amplified, and both parties will resort to comparisons: while the PT is campaigning against the past, the PSDB will criticize corruption. In sum, one can expect the second round to be a "typical Brazilian election." Though the disappearance of ideological debate is quite surprising, there remains a distinct possibility for change—particularly for garnering the votes needed to change the Constitution. But Alckmin will have to run a much better campaign if he is to triumph.

In order to take stock of financial markets' views of the elections and their possible reactions to either candidate's elections, Alexander Kazan noted the traditional role of Latin American elections as drivers of sentiment. Yet he noted that in Brazil, the present election has produced very little change. In part, this stability is due to structural changes reducing the vulnerability of Brazil's economy. The strong balance of payments and restructuring of debts has led to greater confidence in public sector solvency, and there are no traditional populist candidates shaping the debate.

Prior to October 1, the election never looked competitive, and a first-round victory (ostensibly for Lula) was considered probable: it would mean a stronger mandate and less emphasis on the current corruption scandals. In the present situation before the runoff, the range of possible outcomes is limited, but investors tend to favor Alckmin slightly, in large part because of the "first-term honeymoon" effect as opposed to a weaker second term for Lula. Either man would be faced with a fairly daunting task of reforms as President, especially given the split in Congress—Brazil needs a structural fiscal reform as well as reform of the financial transactions tax. While both candidates have similar ideas on labor reform, neither would be able to push through the notoriously difficult issue of social security reform. While Lula remains the favorite, if Alckmin loses, look for the PSDB to present a more strident opposition than they have during the last four years.

Written by Daniel Budny, 691.4087.