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Fears Of Market Plunge After Dilma Rousseff Re-Election

Published 10/27/2014, 08:44 AM
Updated 10/27/2014, 09:00 AM
Fears Of Market Plunge After Dilma Rousseff Re-Election

Fears Of Market Plunge After Dilma Rousseff Re-Election

By Cristina Silva - Brazil's financial markets are expected to plunge Monday after President Dilma Rousseff narrowly won a second term Sunday against pro-business rival Aecio Neves. Rousseff's economic policies have been loudly criticied by Brazilian business leaders since the country entered a technical recession earlier this year.

The London-listed Brazil MSCI i-shares ETF hit seven-month lows on Monday, while the Tokyo-listed Ibovespa exchange traded fund fell almost 7 percent, according to Reuters. Under Rousseff, the real weakened 4.72 percent against the dollar this year and inflation is high. She won 51.6 percent of votes in Sunday's runoff election against Neves, who won 48.4 percent support in Brazil's tightest, most divisive election in more than three decades. Brazil's business leaders backed Neves, but Rousseff's social justice policies that have lifted millions of Brazilians out of poverty helped her stay in office. Ideli Salvatti, one of Rousseff's top ministers, said the government would seek to lead "a national reconciliation process given how tight the result was."

During his campaign, Neves called for tax reforms and less government bureaucracy. But Rousseff, 66, has said such policies would lead to high unemployment and stagnant wages. "Growth in Ms. Rousseff's first term in office was already the weakest under any president since the early 1990s and, in the absence of a major shift in policy in her second term, we expect more of the same over the next four years. Stocks, bonds and the currency are likely to fall when financial markets open later today," said Neil Shearing, chief emerging markets economist at Capital Economics, in a report.

© Reuters. Brazil's President and Workers' Party (PT) presidential candidate Dilma Rousseff celebrates during a news conference after disclosure of the election results, in Brasilia October 26, 2014.

Some financial analysts, however, said it is unfair to blame Rousseff for Brazil's economic woes. Bill Adams, senior international economist at PNC Financial Services, told CNBC on Monday: "Brazil is coming out of a recession that was due to high inflation, low commodity prices and general industrial uncompetitiveness. I don't think there's very much a government could have done to affect that."

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