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Monday, November 1, 2010

Brazil now.

As widely predicted in the pre-election polls, it was announced in the late hours of Sunday 31st October that Dilma Rousseff of the Workers’ Party (Partido dos Trabalhadores) will be the new President of Brazil.
With a background as an economist, she was a socialist and formed a fundamental part in the fight against military dictatorship in the 1970s.  Her mainstream political career truly began after this period in the state of Rio Grande do Sul where she helped create the Democratic Labour Party (Partido Democrático Trabalhista) and subsequently became Treasury Secretary until the year 2000, when she joined the Workers’ Party.  Lula da Silva appointed her Minister of Energy in 2002 and, as a result of the resignation José Dirceu due to a corruption scandal, she became Chief of Staff in 2005 until March of this year when her run for presidency was announced.
As a result of taking over the mantel of da Silva, who leaves office with an unprecedented approval rating of 81 percent, she has been referred as the future ‘automatic pilot president’ and ‘Lula with a skirt’ by media pundits – something which has denied vehemently.  Regardless of this, Rousseff will now preside over a country that has made some notable achievements since the last change of power which will serve to solidify the business / investment environment of the country – examples include the creation of over 15 million jobs (particularly in the less wealthier north-east regions); the removal of 13 million people from absolute poverty; social and housing programmes; the ever-rising middle class with over 30 million joining the class C amongst others.  Whilst many debate that Lula too entered into power at the right on the back of former president Fernando Henrique Cardoso’s successful policies – the above facts must be commended.  Nevertheless, Rousseff will not be out her challenges such as necessary improvements required to the country’s education system; improving infrastructure and the encouragement of further innovation (Brazil is lagging considerably behind many of its emerging economy counterparts including China and India).
Investors and business  owners in the country have not seen a great deal of change in the marketplaces across the country despite the election decision being postponed earlier in October – indeed, private equity and M&A activity has continued to grow, contrary to what was previously the case in the build up to an election in Brazil.  Her pledges with regards to the Brazilian economy of relevance to real estate investors are as follows:
  • the continuation of social welfare and housing programmes such as the ‘Bolsa Família’ and the ‘Minha Casa, Minha Vida’ housing programmes (phase 2 is currently in the pre-launch stages);
  • a more flexible state sector, while actively supporting private enterprise (something of which has been questioned by economic commentators);
  • reduce the inflation by half a percentage point to 4 percent by 2012 – although she has emphasised the need for this to be done in a careful and gradual manner;
  • increase national savings levels;
  • reduce public sector wage levels;
  • maintain central bank autonomy, which has proven to be a success;
  • rid the country of extreme poverty by 2016;
  • cut the state spending to enable the interest rates to be reduced in the coming years;
  • impose additional taxes on capital inflows, to limit currency overvaluation (something of which Central Bank chief Henrique Meirelles recently stated as ‘a possibility’).

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