Markets almost collapsed during the 2002 election, when Lula first took power. Less volatility is expected in 2010, and José Serra leads the polls.
Regardless of how well Lula negotiates this years sharp downturn, the next Brazilian president faces significant challenges. José Serra, governor of São Paulo state and senior member of the opposition PSDB, is a frontrunner to win 2010 elections. The tough negotiator and competent economic steward has the hallmarks of a fiscal hawk. But his credentials as a centre-left pragmatist are likely to disappoint those seeking deep reform.
With the exception of president Lula, Serra is probably the most experienced politician in the country, says Timothy Power, a lecturer in Brazilian studies at Oxford University. By the start of the military dictatorship in 1964, he had already been president of the National Union of Students. As an enemy of the military dictatorship he was exiled, thus sharing a history with his main competitor for the presidency, Dilma Rousseff, Lulas chief of staff and front-runner in the Workers Party (PT) to succeed him. These experiences embed Serra firmly in the centre-left.
Serra is also closely associated with his home state. Working as number two to André Montoro, governor of São Paulo state in the mid 1980s, Serra gained a reputation as a narrow advocate of São Paulos industrial interests and had the reputation of being a proxy for [state federation of industries] Fiesp, says Power. That hurt him and he has had to work hard to rid himself of this image, particularly in the Northeast, Power adds.
The second key plank is a background as an academic economist, including a PhD from Cornell University. That gives Serra a much stronger technical background than Lula, but although he is, economically much more literate than Lula, he remains true to Latin American traditions and is a bit old fashioned in his leftist views, says Luciano Dias, political consultant at CAC in Brasilia.
Serra saw in Portuguese conjures up adjectives like authoritarian, abrasive, workaholic, prickly. He is fiercely loyal to friends and unforgiving to enemies. This marks him out from Lula, for whom bonhomie and flexibility are hallmarks.
Serra is not very accessible, says Power, and is one of the few senior politicians he has not met. He frequently appears late for meetings and holds aloof, agrees Christopher Garman, director of the LatAm practice at Eurasia Group in New York.
This streak of authority and individuality marks Serra out from the Brazilian mainstream. He is not the traditional politician crafted from coalition-building, says Garman. Rather, he holds his own very clear views on the economy and management and is a politician only second, he notes.
Serra is committed to his own interests and views regardless of others, adds Murillo de Aragão, director of Brasilia-based political consultancy, Arko Advice. He is said to call people at 2am as a matter of course.
A difficult, distant personality means that while Serra is very much the skilled technocrat, he has none of the ability of Lula to reach out and communicate. Lula talks about the economy in terms of a pregnant woman where the seed takes time to bear fruit. By contrast, Serra discusses GDP, or the importance of investment grade, says Garman.
That may not matter. After all, Brazilians voted twice for the highly technocratic Fernando Henrique Cardoso. And Serra is riding high in São Paulo, which accounts for some 22% of the total electorate, notes Power.
Individualism and unwillingness to compromise have kept Serra from the presidency. He botched a bid in 2002, partly by alienating key allies including the PFL, the main centre-right party (now the Democratic party, DEM). A raid on then-governor of Maranhão state Roseana Sarneys office derailed her bid for the presidency and was attributed to Serras people, leading the PFL to sit on its hands during the 2002 campaign, notes Power.
This time, Serra is building coalitions with key partners, says Aragão, adding that this is essential to win. Tacit support of DEM candidate Gilberto Kassabs bid for mayor of São Paulo aligns Serra and the DEM in São Paulo, he notes.
The move alienated fellow PSDB member Geraldo Alckmin, but he has since been brought back into the fold, says Power. Serra didnt disown Alckmin and didnt support Kassab openly. He signaled his support in subtle ways, then claimed paternity when Kassab was elected, he adds.
By bringing Alckmin into his government, he is healing wounds internally within the PSDB in São Paulo and has the DEM by his side, Aragão notes. He can also reach out to the key swing party, the PMDB.
Next years election is likely to look longer-term than that of 2002. The emergence of a bigger middle class now estimated to account for 52% of the population puts greater emphasis on health and education. These are areas in which Serra has built a strong reputation, both as minister of health, where he was partly responsible for easing restrictions on patented medicines, and in São Paulo, where he focused on building health centers and schools. A technocrat may appeal more this time round than in 2002, analysts believe.
Indeed, if the election does pit Serra against Rousseff, the electorate will have two similar personalities: both centre-left, competent technocrats. For now, Serra has a big advantage, notes Power. More than 70% of the electorate recognize him. Rousseff had recognition levels of less than 10% in a December poll. That matters in a country with low media penetration.
Continuity, Not Progress
Serra would likely prove a competent president, with a strong emphasis on controlling the budget, particularly current expenditure. That would free up funds for infrastructure.
Serras fiscal hawkishness has not always been to the liking of companies based in the state of São Paulo, says Garman. He says Serra has played hardball on taxes with companies in the state, for example renegotiating garbage contracts. This has led him to gain a reputation for being not entirely trustworthy, something that does not appear to have changed his tough policies on exacting taxes from corporates.
If a key Serra goal is to keep a lid on costs, his way of getting there is essentially pragmatic, thinks Dias, and this can look right wing. To help channel more cash into infrastructure, Serra used the federal governments Public Private Partnership (PPP) program. Serra also supported selling state energy company CESP and sold state bank Nossa Caixa to Banco do Brasil to raise money, adds Dias.
But Serra is not a natural privatizer, says Dias. When the proposed sale of CESP ran up against renewal of contract difficulties, Serra dropped it, notes Dias. And the state of São Paulo has been relatively timid in adopting PPPs, with the only use to date confined to contracts for Line 4 of the metro in the capital.
Although a competent manager and a stickler for fiscal discipline, few expect Serra to take on the mantle of big reformer. The twin legal challenges facing Brazil reform of labor and tax law are likely to make for slow progress under a Serra administration, analysts say.
Whoever becomes president, policies will alter very little, analysts say. Even if Serra were to prove more reformist, the Lula government has seen a slow shift to the left in Brazil with the inexorable rise of the PT, the PSDB and the communist party making passage of liberalism through congress difficult.