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Estadao, Brazil

Uncertainty Persists with Obama’s Victory

By Fernando Dantas

Translated By Jane Dorwart

9 November 2012

Edited by Heather Martin

Brazil - Estadao - Original Article (Portuguese)

The re-election of Barack Obama was discretely celebrated by the Brazilian government and was also welcomed by the majority of citizens of this country who follow and take an interest in U.S. politics. With the radicalism cultivated by the Republican Party since George W. Bush's government — which erupted in a more extreme form with the rise of the popular tea party movement — what remained of the sympathy for the American right wing in Brazil and in most of the world evaporated.

However, in concrete terms, the election of Obama will not necessarily bring benefits to Brazil. As the economist and consultant Alexandre Schwartsman points out, the Obama victory represents a relief "much more by what he will not do than by what he will do."

Schwartsman refers to elements of the electoral platform of the Republican candidate, Mitt Romney, which gave chills to many economists. "Obama will conduct himself as he has been conducting himself in the past and will not be doing anything barbaric such as cutting taxes and increasing military spending, nor will he, on his first day, label China as a currency manipulator," he said. These measures, espoused by Mitt Romney, would have caused quakes in the U.S. economy and certainly would have an impact on the whole world, including Brazil.

In fact, the crucial issue facing us right now that dominates the attention of financial markets and economists is called the fiscal cliff — a series of tax increases and public spending cuts that will automatically be activated before the end of the year. With the U.S. economy still quite ailing and a recuperation full of ups and downs, a sudden fiscal contraction could throw the country once again into a recession or at least might make the recovery even weaker.

In the face of the chess-like political and economic complexity of the fiscal cliff, analysts are divided over the significance of the Barack Obama victory. Schwartsman, for example, thinks with respect to resolving this problem the election of Obama might be a little worse.

"It is that I tend to think that the Democrats would not do to Romney what the Republicans are doing with Obama," he says.

He is referring to the intransigence at the time of negotiation, which is exactly what might happen if the fiscal cliff materializes, since if the government had a consensus that guaranteed a majority in the two chambers of Congress, it would be possible to bring about a smoother fiscal adjustment. With the results of the election, the House remains with a Republican majority and the Senate with a Democratic majority.

For the economist and consultant Monica Baumgarten de Bolle, the fiscal cliff, in final analysis, simply must not happen. (Schwartsman also believes that it will be avoided at the last minute).

Nevertheless, she thinks that the results of the election, which maintain a divided Congress, could be something negative for Brazil. For her, if the Republicans dominated the two houses of Congress, it would be bad for the Obama administration, but at least the economic policy might play out and result in spending cuts. As things are, she continues, there will remain a great ambiguity and lack of direction in U.S. economic policy, which will have negative impacts on a still frail economy, even after the bridging of the fiscal cliff.

This uncertainty, in turn, is part of the bad international picture which is hindering a return of the Brazilian economy, especially investments, in the view of economists.

Brazilian Tony Volpon of Nomura agrees and thinks that the great negative surprise in Brazil is just the bad performance of investments.

"We have the lowest interest rates in history, ample credit in the public sector, an exchange rate that has improved, good salaries and low unemployment — this shows that the disappointment in investments is not a problem of demand, but of what is offered," says Volpon.

The economist Volpon is more pessimistic than Schwartsman and Monica about the fiscal cliff of the U.S. He notes that there is already an aggressive tone among the Republican representatives in Congress after Obama's re-election was confirmed over the possibility of a negotiation.

"It is a super-dangerous situation, full of risk, one that will have much bluffing and much violent rhetoric; perhaps there will be a last-minute agreement, but one must not bank on this," he analyzed.

In relation to Brazil, Volpon also thinks that the international uncertainties are hurting investment returns. But he notes that there is a domestic component of uncertainty with the economic hyperactivity of the government, which is confusing investors and, in some cases, causing direct losses, such as the loss of value of electrical businesses following the launching of a package of cost reductions in energy.



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