Part 3 – 2018 Election Series: International Conditions, Economic Voting and the Context of the 2018 Brazilian Presidential Election

This article is part of Brazil Talk’s 2018 Elections Series  and is intended to give our readers a deeper understanding of the Brazilian political system, its complex electoral process and gather diverse perspectives and opinions on what the world should expect from Brazil in the upcoming months and the future of the country at the beginning of 2019. 

By Daniela Campello

[5 min read]

One can hardly understand politics and policymaking in Brazil without considering the boom-bust cycles that are typical of South American economies. Brazil, like most of its neighbors, is a low-savings-commodity-exporting (LSCE) country. As such, its economic performance is highly determined by the behavior of two factors that are beyond government control: the prices of commodities that affect the country’s terms of trade, and U.S. interest rates that largely determine international inflows of capital.

Thus, the most favorable international scenario for Brazil occurs when commodity prices are high and U.S. interest rates are low. In these periods, abundant dollar inflows from trade and finance contribute to faster economic growth with relatively low inflation and boost fiscal expenditures. The worst scenario occurs when the opposite happens – when low commodity prices coincide with the high US interest rates.

The graph below presents the Good Economic Times (GET) index (Campello and Zucco 2016), which summarizes fluctuations in these two variables. The index captures how benign the international scenario is for LSCE countries, with more positive values indicating more favorable conditions. It also provides a background narrative of major economic and political turning points in South American history, such as the oil boom of the 1970s, the debt crisis of the 1980s and the financial crisis of the late 1990s. The figure further reveals the most recent boom-bust cycle in the region, started in 2003 thanks to an unprecedented rise in the prices of primary products related to Chinese fast-growing imports. The boom was briefly interrupted during the 2008 crisis but resumed thanks to even lower international interest rates and a rebound of commodities. It ended as Chinese economic growth eventually slowed down in 2011, leading to a sharp drop in commodity prices.

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Figure 1 – The “Good Economic Times”’ Index

Note: The figure presents the “good economic times’” index, which summarizes the behavior of an aggregated index of commodity price index (UNCTAD) and of U.S. interest rates (10-year Treasury bond). Higher values of the index indicate benign conditions for LSCE economies.

This article discusses four messages that can be learned from the behavior of the GET index, and that help understand the context underlying the Brazilian presidential election of 2018.

  1. The current scenario is in many ways exceptional – The two previous occasions in which there was such a sharp reversal of the GET index coincided with economic downturns that culminated in regime change not only in Brazil but throughout South America. This happened in the mid-1960s, with a military coup that followed the exhaustion of the “easy phase”’ of the import-substitution industrialization model, and in the early 1980s, when the debt crisis precipitated the demise of the military regime. The end of the so-called “commodity super-cycle,” started around 2011, is the third such episode in recent history, which indicates how sensitive the moment is. Reversals in the GET index mark the end of periods of dollar abundance, in which fast economic growth and generous fiscal resources mitigate the distributive conflicts that characterize highly unequal economies like Brazil (Hemisphere 2018). Scarcity strengthens the zero-sum nature of politics – a “shrinking pie” implies that, for some to win, others have to lose – forcing government to pick sides. The current episode led to a sudden drop of president Dilma’s political support, and created the background conditions for her impeachment, due to the dramatic reversal of economic performance and the fiscal crisis that followed. It uncovered distributive conflicts that were heightened by President Temer’s pro-capital-anti-poor agenda, and with which the next administration will have to deal.
  2. Candidates associated with the current administration do not stand a chance – Independently of the policies pursued by the Temer administration, the behavior of the GET points to the unlikelihood of an economic rebound. Knowing that elections in Brazil are referenda on the economy (independently from other reasons that do not pertain to this discussion), candidates associated with the Temer administration should have very poor chances in the next elections.
  3. Candidates associated with the past administration have good prospects – The previous logic also explains the surprisingly consistent support Brazilians still offer to former president Lula, who is currently in prison and unlikely to be able to run for a third presidency. The extremely favorable scenario that prevailed during Lula’s presidencies — the commodity super-cycle that started during his first year in office, and ended after he left — tends to be fully attributed to Lula’s performance as president. His continuous widespread support reflects Brazilians’ expectations that a new Lula presidency will bring back the good old times of the 2000s. How long this effect will last and how easy it will be to transfer Lula’s support to another less-known candidate, however, depends to a large extent on PT’s (The Worker’s Party) decisions in the next couple of months.
  4. The next administration will have a very narrow room to maneuver – The favorable scenario of the 2000s allowed governments to distribute income to the poor without provoking strong reactions from the wealthy. A reversal of this scenario (reflected in the GET),  and the probability of further deterioration due to increasing U.S. interest rates, however, suggest that this window of opportunity has been closed and has few chances of reopening soon. International investors become more sensitive to redistributive policies in “bad times”’ (Campello 2015); in a context of recurring primary budget deficits and growing public debt, this suggests that the new government will be very vulnerable to market sentiment. If a  left-leaning candidate wins, he or she will be highly constrained to meet voters’ redistributive demands, risking a confidence crisis that may further damage the economy. In the scenario of a right-wing president, the furthering of measures like the spending cap — the freezing for the future public expenses in real terms at 2016 levels —, or the enactment of a social security reform that excludes the country’s elites (the judiciary, politicians, the military) may strengthen the already widespread mistrust in politics, with negative consequences for democracy. In either case, the scenario points to difficult years to come.


Campello, Daniela & Cesar Zucco Jr. 2016. “Presidential Success and the World Economy.” The Journal of Politics 78(2):589–602.

Campello, D. (2015). The Politics of Market Discipline in Latin America: Globalization and Democracy. Cambridge: Cambridge University Press.

Hemisphere, I.M.F.W. 2018. Regional Economic Outlook, April 2018, Western Hemisphere Department: Seizing the Momentum. INTERNATIONAL MONETARY FUND.


daniela campeloDaniela Campello is an Associate Professor of Politics in the Brazilian School of Public and Business Administration at the Fundação Getúlio Vargas, in Brazil. Campello received her Ph.D. in Political Science from UCLA and was formerly an Assistant Professor at Princeton University. She is the author of The Politics of Market Discipline in Latin America  (Cambridge University Press, 2015).