Brazilians won’t vote for change in their presidential election

By Ian Bremmer

Brazil’s development as an emerging market power reached a crucial moment in October 2002, when voters chose Luiz Inacio Lula da Silva as their president. Just as only Nixon could go to China, only a president widely considered a “leftist” could have helped forge a consensus across Brazil’s political spectrum in favor of disciplined macroeconomic policy and greater openness to foreign investment. Lula, a former labor negotiator, has given Brazil a new self-confidence at home and abroad, and his government’s approval ratings have climbed above 80 percent.

So it’s a little curious that polls also show Lula’s chief of staff and preferred successor, Dilma Rousseff, trailing far behind Sao Paolo state governor Jose Serra in the race to replace him next October. According to latest figures from Ibope, a respected Brazilian polling firm, 34 percent of respondents say they plan to vote for Serra. Just 15 percent pledge to vote for Dilma, who has recently struggled through a spate of bad publicity and a serious cancer scare. She’s never run for office, lacks Lula’s charisma, and must hold together a fragmented coalition.

Don’t bet against her, though. First, elections are a year away. Dilma hasn’t yet fully emerged from Lula’s shadow, and Brazilians are only now learning to place the face with the name. Next year’s vote is liable to be a referendum on how Brazil is doing, and as the official candidate of Lula’s government, she’s very likely to be the campaign’s primary beneficiary from a strong post-financial crisis economic recovery. Consumer confidence is already improving, despite a year of flat growth. When the economy really begins to pick up steam next year, Lula’s government will smell like roses. A vote for Serra will be a vote for change. But by next fall, Brazilians are more likely to embrace a favorable status quo. Finally, Lula has barely begun to sing Dilma’s praises. His support will likely make an enormous difference. 

To be sure, Serra won’t be easy to beat. Widely known and well-liked, he’s built a reputation as a hard-working and capable public servant. His expertise on issues that Brazil’s growing middle class cares about, like health care, is formidable. As governor of Sao Paulo state, he has a strong base of popular support. There’s also a potential wildcard in the race. Ciro Gomes, leader of Brazil’s socialist party (PSB), who is at 17 percent in the Ibope poll, could throw his hat in the ring, undermining Dilma by dividing the left. But he won’t take the leap unless Dilma looks especially weak early next year. By then, Brazil’s economy, Dilma’s broader name recognition, and Lula’s backing will probably have already begun to boost her candidacy. Even if Gomes runs, he’s not going to go after Dilma. He knows he will have no role in a Serra government but that he might win new influence if Dilma becomes president. That’s why he’s much more likely to go gunning for Serra.

Why should outsiders care who wins? When it comes to macroeconomics, Lula has sharply reduced the gap between left and right. Dilma would likely rely on many of the same market-friendly faces and disciplined economic policies that have helped Lula bridge that divide. But the outcome will matter a lot for the future of key sectors of the economy. A Dilma government will push hard to strengthen key Brazilian state-owned enterprises and develop industrial policy.

More important from a market perspective, the election outcome will shape the way Brazil’s government approaches development of one of the world’s largest new crude oil discoveries in recent years. Best estimates place Brazil’s proven oil reserves at about 14 billion barrels. According to Dilma, the so-called pre-salt oil region off Brazil’s southern coast could hold anywhere from 25 to 100 billion barrels, more than enough to transform the country into a major international oil exporter. With new wealth to manage, Brazilian lawmakers have begun debating a proposal to rewrite the law governing oil development.

If Serra wins, he’s likely to quickly approve auctions allowing energy multinationals to acquire new exploration and production rights to maximize revenues for the state. A Dilma government will want to maintain maximum control of the oil sector, keeping state-owned Petrobras in charge of operations. Given that Petrobras is already struggling to develop its existing concessions, this move would significantly delay Brazil’s ability to move large quantities of crude oil from the seabed into production, with long-term consequences for Brazil’s revenue and for global oil markets.

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