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By Oren Laurent
President, Banc De Binary
Sunday’s passionately contested Presidential election in Brazil was won by the slimmest margin the country has seen since 1945. With just 51.6% of the vote, current Workers’ Party President, Dilma Rousseff, was re-elected over the centrist candidate Aecio Neves, in a divisive vote that pitted the country’s poor against conservatives frustrated with the stalling economy.
While the half of the population who have benefited from Rousseff’s social benefits are rejoicing, many investors are dismayed at the outcome. Brazil’s first female President successfully expanded welfare programmes and achieved near record-low levels of unemployment, but she couldn’t stop the economy falling into recession in the first half of 2014; many analysts anticipate no growth this year.
Such is the power of pessimistic investor sentiment, when opinion polls pointed in Rousseff’s favour in the run up to the election, Brazil’s stock market and currency took a hit. The country’s main index, the Ibovespa, which has lost 25% since she came to power, fell 6.8% last week.
Although two third of Brazilians polled were in favour of change, and millions joined last year’s street protests, Naves failed to persuade the majority that he was the right leader for reform. So, can Rousseff save the world’s seventh-largest economy and prove her critics wrong? Can she put right stalling growth? Accepting victory, she acknowledged the challenge to unify the country, “Sometimes in history, narrow results produced much stronger and faster changes than very wide victories… I want to be a much better president than I have been up to now.”
Rousseff is acutely aware that she has secured victory by the thinnest possible thread and that Brazilians are now looking to her to prove her worth. In the past, she has blamed Brazil’s recession on the global slowdown, but now it would be more appropriate to take responsibility.
Yes, the prices of commodities, accounting for about half of the country’s exports, are down globally, but that alone does not explain why Brazil has fared worse than the other BRIC countries and Latin America’s second biggest economy, Mexico. In reality, the business climate and investor confidence are also affected by the rigid labour rules and complex tax system, complete with corruption and underdeveloped public infrastructures.
Only with a sense of responsibility can action and change follow. Rousseff has promised to fight inflation and corruption, and to take measures to boost growth. She will also appoint a new Finance Minister to oversee the economy. The next quarter will set the scene for her second term in office. Will the President’s policies prove that she is as committed to fiscal progress as she says? Cautious investors will certainly be debating this as they speculate about Brazil’s 2015 outlook.
