Challenges Ahead for Brazil in Post-Lula Era

Challenges Ahead for Brazil in Post-Lula Era

Dilma Rousseff won Brazil's recent presidential elections handily, benefitting from both the enthusiastic backing of the enormously popular incumbent, Luiz Inácio Lula da Silva, and from the mobilization of historically disadvantaged voters excited by identification with a woman candidate. Despite some nasty exchanges with her second-round opponent, José Serra of the Social Democratic Party, the campaign was characterized by the lack of a clear programmatic separation between the two candidates. Although markets moderately preferred Serra, a casual observer might be excused for failing to see much daylight between the two.

The fact that the two leading candidates for office differed little in their policy prescriptions is a reflection of Lula's successes since 2003. Moderate-to-strong economic growth, low inflation, historic levels of access to consumer credit and the immensely popular Bolsa Família cash-transfer program all contributed to rising incomes. As a result, roughly 30 million people joined the ranks of the middle class, while inequality and poverty rates declined, as tens of millions more Brazilians were lifted out of abject poverty. The indigence rate in the country fell from more than 30 percent of the population to roughly 15 percent. Not surprisingly, the solid performance contributed to a strong sense of optimism about the country's future.

The optimism is understandable and has solid foundations. Brazilian commodity-export performance continues to be strong. Public debt, both foreign and domestic, is down dramatically, and the resulting capacity of the state to spend helped cushion the country against the global economic shock and maintain a strong fiscal stimulus program to overcome it. The projected growth and unemployment rates for 2010 and 2011 point to continued strength. The Pre-Salt offshore oil discovery and recent legislation to cement Petrobrás' hold on the newly discovered fields promises substantial future revenues to finance state investment and social-policy spending. Finally, hosting the 2014 World Cup and the 2016 Olympics are reflections of Brazil's new international prominence and additional sources of pride.

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