Luiz Inacio Lula da Silva, Brazil’s president, is already anticipating the end of his second term in office. Constitutionally barred from running for a third consecutive term, he has picked his chief of staff, Dilma Rousseff, as his successor ahead of the October 2010 elections.
Thanks to renewed economic growth and his own huge personal popularity – which has bounced back to record highs as the impact of the global financial crisis fades – Lula reckoned Rousseff would trounce the opposition candidates.
Aligned against her, in what may yet be a two-horse race, is likely to be Jose Serra, the governor of Sao Paulo, or Aecio Neves, the governor of Minas Gerais. Each belongs to the social democratic party of former president Fernando Henrique Cardoso.
But Rousseff has yet to emerge as a vote winner, in spite of her undeniable competence.
She has built a reputation for efficiency, even though some investors are wary of her strong interventionist style. “She’s a tough character, the way she talks – she always seems inflexible,” says Eduardo Bernini, a former head of an energy company controlled by AES (Eletropaulo), who dealt with her when she was mines and energy minister during Lula’s first term.
“But she likes debating, and she can change her mind if she is presented with strong arguments to do so – even though she would never admit that she has actually changed.”
When Lula lost his right-hand man, Jose Dirceu, who was involved in a political scandal in 2005, he called on Rousseff to assume the key position of civil chief of staff in his government. Lula calls Rousseff, “the mother of PAC” – a reference to his government’s flagship programme to boost infrastructure – and a nickname that might win votes.
Rousseff has also been in a commanding position in the definition of the new regulatory framework for oil exploration, following the discovery of huge reserves in ultra-deep waters.
More recently, to boost her chances, Lula cemented an electoral alliance between his own Workers’ Party (PT) and the centrist party of Democratic Movement (PMDB), a pivotal force in Brazilian politics.
Although Rousseff has risen to political prominence, the former guerrilla turned politician has never contested an election before. She also had to reduce her pre-campaign activities due to treatment for cancer, although doctors say she is now out of trouble.
In policy terms, the Brazilian Social Democratic Party (PSDB) led opposition does not offer a radically different policy mix. “The range of policy disagreement has become narrower. Obviously there can be differences in terms of the priority and the composition of spending. There might be differences in changes in the tax code here and there. But these are normal differences,” says Joydeep Mukherji, primary credit analyst at Standard and Poor’s.
But Lula’s succession plans suffered a series of setbacks in recent weeks. First, he tried hard to convince a political ally, Ciro Gomes, to run for governor in Sao Paulo, instead of entering the presidential race.
But Gomes has not been persuaded. A former finance minister in the 1990s before the launch of the stabilization Real plan, he has joined the small Socialist party (PSB).
In spite of his maverick style, opinion polls show he is nevertheless a popular figure. This has led him and his supporters to think that he may get his best shot next year, after two failed attempts at presidential elections in 1998 and 2002.
Should Rousseff falter, Gomes may assume Lula’s legacy in a hypothetical run-off vote.
‘LULA IN A SKIRT’
Lula’s succession plans suffered another blow when his former environment minister, Marina Silva, left the party in August to join the Greens (PV). She is now expected to run for president against Rousseff.
She may take votes away from Lula’s candidate for several reasons: Silva has credentials in promoting environmental causes, particularly over development in the Amazon rainforest. Moreover, her social background is similar to Lula’s — she is sometimes dubbed as “Lula in a skirt”; if and when she enters the presidential race, Rousseff will not be the only one to go after the feminist vote.
In a positive turn, Lula’s electoral strategy may now include his former finance minister Antonio Palocci after the Supreme Court in August dismissed charges of bank secrecy violation against him; Palocci may yet have a prominent role in Rousseff’s campaign. His political rehabilitation would send investors a positive signal.
Unlike in the 2002 poll, the business community is relaxed ahead of the next Brazilian election. “People who are making investment decisions are looking beyond the election when they are making their business plans, because they are not deeply worried about what happens in that election,” says S&P’s Mukherji.
“That is an important step. The planning horizon for the market in general has become longer term; that is a good sign in terms of long-term growth and stability.”
But Lula may yet have another headache, as Henrique Meirelles, the longest-serving central bank governor in Brazil’s history, has been readying a return to politics.
Meirelles is likely to be a candidate for the government of Goias in central Brazil, meaning he will likely step down at the central bank in March. This may introduce another element of uncertainty in monetary policy management ahead of the elections.
“He will have to be careful not to look like he is campaigning from his current seat,” says John Welch, chief economist at Itau Unibanco’s private banking division.