POLITICAL OUTLOOK

With the economy rebounding from last year’s downturn, employment levels and real incomes growing strongly and a highly popular outgoing president campaigning vigorously in favour of its candidate, the ruling leftist Partido dos trabalhadores (PT) looks likely to secure a third them in the October 2010 presidential election. Despite tensions created in the alliance between the PT and the centrist partido do movimiento democratic brasileiro PMDB by a revived dispute over the distribution of oil royalties among Brazilian states, the electoral dynamics are expected to continue to favour the PT’s candidate, Dilma Rousseff, who has been closing the gap on jose serra, the opposition candidate from the partido da social …ver más…

Partly owing to Brazil’s historical non-interference, contradictions in Lula’s efforts to exert greater regional leadership are apparent-accommodating the erosion of democracy in Venezuela and failing to take a critical position against human rights abuses in Cuba, while interfering in Honduras’s internal affairs following its June 2009 coup. A Serra government would align foreign policy more closely with western interests and would be less tolerant of the regional influence of Venezuela’s president, Hugo Chavez.

ECONOMIC POLICY OUTLOOK
POLICY TRENDS
Federal government interference in economic management is set to increase in 2010- 2011 under either a Rousseff or a Serra government, but the shape this would take would vary depending on who wins. However, the economist intelligence unit expects that both Ms Rousseff and Ms Serra would avoid measures that jeopardize macroeconomic stability. Ms Rousseff would almost certainly keep orthodox macroeconomic policies in place, but under her the drift to a more statist development model initiated during Lula’s second term would continue, with higher state intervention and participation in productive sectors such as energy and telecommunications. Ms Serra would be likely to espouse more of a role for the private sector in productive sectors, while developing a more active industrial policy strategy through targeted lending by