Whoever wins the Brazilian presidential elections will have to accommodate a powerful legislature dominated by left of center parties, opposed to macroeconomic adjustment and proposals to attract foreign investment. Although the incumbent Worker's Party lost seats in the legislature, the left is still in power.
On the surface, Brazil's incumbent PT (Worker's Party) is against the ropes. They lost 18 seats in the lower legislative chamber and their presidential candidate, Dilma Rousseff, is head to head in the polls with the business-friendlier presidential candidate Aecio Neves (PSDB, or social democratic party).
Many are hopeful that Neves will win the upcoming runoff elections on October 26. Mr. Neves has pledged to address Brazil's macroeconomic imbalances with IMF-approved orthodox policies as well as emphasize better business conditions for both local and international companies.
Despite the recent optimism surrounding the Neves campaign, there remain three tall political hurdles to overcome to create a more stable investment environment.
First, Neves will have to face a constitutionally powerful Brazilian legislature dominated by left of center interests as well as leftist governors in strategic departments that would oppose business reform at the state level.
Second, if he wins, he will also have to govern with a coalition involving leftist interests, which would restrain any effort to implement a business-oriented development trajectory.
Finally, Neves has received the full endorsement of the Brazilian Socialist Party (PSB), which comes with strings attached. The PSB approval ties Neves' hands and forces his party to continue focusing on social programs rather than prioritizing the investment climate.
It should also be noted that although the Social Democrats are business-friendlier than the Worker's party, they still prioritize improving Brazil's social reality over concentrating on the ease of doing business in Brazil.
Legislative makeup
The bicameral Brazilian legislature is composed of the Chamber of Deputies, whose members are elected by proportional representation, and the Federal Senate, whose members are elected by a "first past the post" plurality system. Following the recent October 5 elections, both chambers are dominated by a wide combination of left of center parties, many of which will cement an ideological opposition to any macroeconomic adjustment proposal by the national executive branch.
The constitutionally powerful Brazilian Federal Senate's role in creating fiscal policy and oversight capacity could also block economic liberalization measures. Article 52 of the Brazilian Constitution of 1988, for example, charges the Federal Senate with approving foreign financial transactions, including those that involve states and municipalities as well as establishing limits for the total public debt.
The figures above demonstrate that left of center parties still dominate both chambers. This includes the Brazilian Democratic Movement Party (PMDB), a large centrist party that has shifted decisively to the left during the Luiz Inácio Lula da Silva years. The PMDB endorses Rousseff and constitutes the largest and therefore indispensable part of the incumbent coalition. Although the PT lost seats in both chambers, its incumbent coalition with PMDB and several other Lulista parties - parties that threw their support behind former PT president Lula - have secured an absolute majority in parliament.
