An Update on Brazil's 2014 Presidential Elections - September 2014

Update on Brazil’s 2014 Presidential Election Released September 5th, 2014

THE CLOUDS AND THE BRAZILIAN SKY Few times in history has reality so coldly and cruelly reflected philosophy. In our first analysis of Brazil’s 2014 election, we mentioned the way that former Senator and banker Magalhães Pinto (1909-1996) famously described politics: "politics is like the clouds, you look at them and they appear one way. Look again and they have already changed."

On August 13, on a cloudy, windy day, the Cessna Citation 560 XL aircraft transporting presidential candidate Eduardo Campos (PSB) and members of his staff crashed in a residential area in the city of Santos, located in the state of São Paulo, killing all those aboard.

Campos, who had garnered only 8% of the vote in opinion polls, was not a threat to the reelection of President Dilma Rousseff (Workers Party or PT), or the efforts of opposition candidate Aécio Neves (Brazilian Social Democracy Party or PSDB), in the run-up to the October 5th election. However, Marina Silva (PSB), who was standing for vice-president under Campos, does represent such a threat. The three latest national opinion polls confirm this.

Following the death of Campos, former senator Silva was selected as the PSB's new Presidential candidate, with federal representative Beto Albuquerque, from the state of Rio Grande do Sul, standing as her vice-presidential

candidate. Albuquerque is a politician with links to agribusiness, a long-standing member of the PSB and a supporter of the Campos’ proposals.

Five days after the tragedy, a survey by the respected Datafolha Institute showed that Marina Silva and her party had leaped in the polls, capturing 21% of voting intentions, compared with 36% for Rousseff and 20% for Neves. Analysts attributed this to the fact that emotions are running high, but interest in the incredible story and poll numbers to back it up has continued to grow.

On August 26, the Ibope Institute also confirmed Silva's strong position, calculating that she was expected to attract 29% of the vote, compared with 34% for Rousseff.

If the elections were to go to a second round of voting, which is almost assured at this point, the poll predicted that Silva would win with 45% of the vote, compared to 36% for Rousseff. Neves failed to get past 19%. Another important factor is the low level of negativity Silva attracts at just 10%, while 18% report being opposed to Neves and 36% against Rousseff.

On August 29, new research from Datafolha further reinforced the continued rise of Silva in the polls: President Rousseff and Silva are now tied at 34% and Neves with 15%. In a simulated second round, Silva would win with 50% of the vote to President Rousseff's 40%.

WHO IS MARINA SILVA? Maria Osmarina Marina Silva Vaz de Lima is a black evangelical Christian, a mother to four children, and suffers from frequent health issues. She is internationally known for her stance on the environment, and has a vision for Brazilian development that balances advances in agriculture and hydropower with equivalent social and environmental measures and is widely considered to be conservative in her approach.

She was born in 1958 in Rio Branco, the capital city of the state of Acre, an Amazon region on the border with Bolivia and still one of Brazil's poorest and most underprivileged regions. She comes from a poor family that worked as rubber tappers and was illiterate until the age of 16. She grew up working as a maid and contracted tropical diseases from which she still suffers today. She began her

political career in the 1980s working alongside Chico Mendes, a leader of the rubber tappers in the region.

Silva joined the Workers Part or PT, becoming first a city counselor and state representative and eventually a senator in 1994, winning reelection in 2002. Her main achievement in the capitol of Brasilia was including Brazil in efforts to achieve greenhouse gas emission reduction targets and she found herself lining up against sectors linked to agribusiness. She was appointed Minister of the Environment in 2003 following Luiz Inácio Lula da Silva's election as President and maintained her cordial relationship with the new administration. She remained a member of the cabinet for five years and managed to reduce deforestation and the extent of agricultural advances onto indigenous land.

However, during President Lula's second term, she started to find it more difficult to enact her proposals because of the administration’s liberal energy policies, which focused on building new hydroelectric power stations in the Amazon region in areas occupied by indigenous people and subsistence farmers. She stepped down as minister in 2008 in protest and distanced herself from the PT, canceling her membership the following year.

Both inside and outside the government, she has always been internationally recognized for her stance on environmental issues. She received the "2007 Champions of the Earth" award from the UN, the Duke of Edinburgh medal from the WWF and, during the London Olympics, she carried the Olympic flag during the opening ceremony alongside UN Secretary-General Ban Ki-moon.

After leaving the PT, she was challenged by left-wing groups because of her conservative positions.

For example, she is against decriminalizing abortion. She was also attacked for her alliances with representatives of Brazil's financial elite. In 2010, her running mate was businessman Guilherme Leal, owner of the Natura cosmetics company, who is ranked 29th on the Forbes list of Brazilian billionaires, with a fortune worth $1.8 billion.

However, his company is one of the most committed businesses to sustainable development in Brazil.

Brazil

2014

Today, some of the attacks from her detractors are focused on the relationship between her campaign staff and Maria Alice Setubal, known as “Neca,” one of the heirs to the Itaú-Unibanco financial conglomerate, which is Latin America's largest privately held bank. On economic issues, she has developed a relationship with marketoriented economists who are critical of state intervention, such as Andre Lara Resende (former chairman of the BNDES during the Fernando Henrique Cardoso administration), Eliana Cardoso (formerly of the World Bank) and Eduardo Giannetti da Fonseca, who is noted in academic circles for his liberal ideas. Internally, she also faces resistance from elements in the PSB party which believe that her political background is not compatible with the policies supported by Campos.

WHAT TO EXPECT FROM MARINA SILVA Based on recent poll results, the average Brazilian voter does not currently see any contradictions in Marina Silva's positions or have concerns about the issues mentioned by her adversaries. Analysts expect President Rousseff and Neves to use some of their free-to-air party political broadcasting time on radio and TV, which began on August 19 and runs until October 2, to attack the candidate as she makes significant gains in the polls.

In the area of campaign advertising, the former senator is at a disadvantage – President Rousseff enjoys 22 minutes and 48 seconds of air time daily, Neves has 9 minutes and 10 seconds, while Silva has just 4 minutes and 6 seconds.

The airtime is determined by a law that links it to the parties share of representatives in congress in Brazil.

The former senator's campaign is therefore expected to make widespread use of social media like Facebook and Twitter, which are the most popular social networks in Brazil, in order to promote her proposals. In an article published in the “Valor Econômico” newspaper, political

scientist Alberto Carlos de Almeida pointed out the difficulties that Marina Silva's adversaries will have in undermining her, given her humble background and life story, with the author referring to her as "Lula in a skirt."

In 2010, the 19.6 million votes Marina Silva received during her first candidacy for President came from voters who were unhappy with the PT and PSDB parties, mainly from younger sections of the population. During those elections, people did not push her for specifics of her economic proposals, which now could be critical for the candidates since Brazil’s economy is on the verge of being labeled as in recession and may end the year at less than 1% growth, together with inflation at more than 6%.

In an interview published in the “Folha de São Paulo” newspaper, economist Giannetti da Fonseca, a close advisor to Silva, admitted that the three pillars of the current economic policy – a floating exchange rate, inflation targets and fiscal discipline – will be maintained, and he also voiced support for an independent Central

Bank. In the run-up to the elections, the candidate's economic team will be holding meetings with various business groups, particularly Brazilian and foreign investors, to explain Silva's proposals for tax and administrative reforms. The biggest challenge is

assuaging concerns in the agriculture sector, especially among livestock breeders and soybean growers, about the candidate's position, which is to respect the law and abide by any outstanding commitments.

FINAL THOUGHTS If Marina Silva's rise in the opinion polls continues and she faces President Rousseff in the second round election, scheduled for October 26th, the polls show that Brazilian voting traditions may change radically. Since 1989, when direct elections for the Brazilian presidency were reinstated, the winner has always been the person leading the polls at the beginning of the free political advertising broadcast season, which just started. Though slipping in the polls, Neves could still be a wildcard, as he has significant support in populous states including São Paulo, Minas Gerais and Paraná. However, when looking at the sentiments today most believe the the possibility of Silva losing support and Neves rising in the polls, which was probable prior to Campos' death, is remote. Even though this could happen, Neves' economic proposals do not differ significantly from those presented by Marina Silva's team, as Neves' economic coordinator is economist Armínio Fraga, a former chairman of the Brazilian Central Bank and a staunch supporter of the market economy.

As far as president Rousseff is concerned, she is expected to try and further strengthen her support among the

poorer sections of society that benefit from social support programs like the national “bolsa familia” (Family Benefit) that provides monthly payments to low income families. The PT is particularly concerned about Marina Silva's growth in regions such as São Paulo and the Federal District, where the former minister has already overtaken President Rousseff in the polls.

With these developments, one can clearly see how the clouds have shifted in Brazil's Presidential election this October. The wind is clearly blowing in favor of Marina Silva. With the exception of agribusiness, the positive reaction from the business community and financial markets to Silva's recent public statements can only help further. If these trends continue, Silvia will easily force a second round vote with President Rousseff with broad support to challenge the status quo in the country. With a Silva administration, some are predicting a "new way" in Brazil's political dynamic, breaking the current power struggle that has been unfolding for the last 20 years between the PT and PSDB parties.

Analysis by: Paulo Andreoli, Chairman MSLGROUP Latin America and Roseli Loturco, Public Affairs Consultant, Publicis Consultants Brasil

MSLGROUP Latin America contact: Josh Shapiro, josh.shapiro@mslgroup.com