Partnership could create bridges in Congress but is unlikely to be a deciding factor in the election
Firms should closely monitor upcoming announcements, particularly as former President Luiz Inacio Lula da Silva announces his likely pick for minister of finance and priority reforms (likely including changes to existing fiscal anchors and labor reform). These announcements will provide insight into whether the presidential candidate will maintain a conciliatory tone and willingness to compromise with center-right parties. MNCs should expect political uncertainty to weigh on the BRL during H2. In the medium term, Brazil’s long-term investment attractiveness will depend on the next administration’s ability to tackle fiscal consolidation.
Former São Paulo governor Geraldo Alckmin (PSB) was formally nominated as vice president in the slate of former President Lula (PT). The PT’s national directorate voted 68 to 16 to approve Alckmin on the Lula ticket. Alckmin, whose administrations in São Paulo were marked by spending cuts and expenditure control, will serve as a seal of moderation and reassure economically liberal voters concerned with risks of a strongly left-wing Lula presidency. President Jair Bolsonaro hasn’t yet announced his vice president pick, which will likely be army general and former Defense Minister Walter Souza Braga Netto.
The VP pick represents the PT’s biggest swing to the right and signals a strategy hoping to ease investor concerns, build a more centrist platform, and improve governability prospects in the event of a win. Just as Economy Minister Paulo Guedes did for Jair Bolsonaro, Alckmin offers a kind of seal of moderation. By joining forces with Alckmin, Lula shows his willingness to move toward the center, reassuring economically liberal voters concerned with the risks of a strongly left-wing Lula presidency. Secondly, the alliance will enable Lula to pick up crucial votes in the more affluent southern states, where he has traditionally been weakest, to add to those in the poorer northeastern states, his bastion of support. While the union will give Lula support in São Paulo, according to polling by Quaest/Genial on a national level, 64% of voters say that the partnership neither increases nor decreases their intention to vote for Lula. Therefore, the move will primarily provide governability benefits in the event of a win. Alckmin’s presence in the government could create bridges in the National Congress with sectors that typically would oppose a PT government, an essential step in helping secure support for potential reforms.
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