Brazil: Dilma Rousseff Needs To Embrace Market Economics

Brazilian president-elect Dilma Rousseff enters her second term following last Sunday's tight election. A leftist, Rousseff's victory was cheered by the Worker's Party she represents.

Sunday's election was one of the tightest contests in more than a decade for Brazil. President Rousseff won 51% of the vote, which is a reflection of polarity within the country. Her challenger, conservative Aecio Neves, captured almost 49% of ballots cast.

Brazil is an interesting story for investors, but it will require president Rousseff to recognize the economic issues beyond her socialist platform. She has been a champion to the middle class as a mechanism to eliminate poverty.

However, Rousseff's left-of-center social mandates have been costly. Weak export demand and declining commodity prices have not helped matters either. Rousseff also inherited the populist legacy of her predecessor, Luiz Inacio Lula de Silva. Lula was president of Brazil from 2003-2011.

Like Rousseff, Lula was a leftist, and many investors feared Lula's socialist politics as a significant threat to market economics.

Ironically, President Lula surprised investors during his first term by embracing market-friendly economic policies. Lula recognized that Brazil's future prosperity would require capitalizing on Brazil's natural resources and industrial base. The key to reaching this objective would be export demand and a stable currency (the real).

Lula never shied away from his liberal "roots," but he realized the need to gain the market's confidence. Under Lula, Brazil grew to become the world's eighth-largest economy.

It was during Lula's second term, that his growth acceleration initiatives shifted to domestic investment programs. Primary objective was to develop the country's infrastructure. It was an important social program to benefit Brazilians and it would help maintain trends of increasing foreign capital investments into the country.

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The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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