Will Prudence Prevail ?

Nov 1, 2002

Following an overwhelming victory, Brazil's President-elect Luiz Inácio Lula da Silva now must show investors he can control spending and inflation, and continue to pay the country's debts.

Luiz Inácio Lula da Silva called his triumphant battle for the presidency the "Peace and Love" campaign, meaning that his fiercely anti-capitalist language had become a thing of the past and that he had chosen the path of moderation and consensus. Brazilians, tired of years of economic stagnation bought his message and gave Lula and his Workers Party (PT) a massive victory in the country's presidential elections at the end of October. The financial markets only began to come round earlier in the month, during the final days of the campaign. Suddenly, it seemed there was peace and love everywhere. Bond prices began retreating, the real started to recover and share prices edged back up. Investors believed that Brazil was oversold, liked some recent economic data and above all, began to be swayed by Lula and his promise that the government would pay all its debts. They paid...

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“The crisis has been a setback for reserve diversification."

Jan Dehn, Ashmore Investment Management