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AGENDA AND POLITICAL ANALYSIS FOR THE WEEK EXCLUSIVELY FOR ARKO CLIENTS

Year XVII, nº 1310 - Brasília - DF By Murillo de Aragão, Cristiano Noronha and Carlos Eduardo Bellini

Sunday, Oct. 24 – Topics of the week

Dilma extends advantage o neve of election * p. 2

State elections: reelection rate should be of 60% * p. 5

POLITICAL ATMOSPHERE

This is the last week of campaign for president and governor in nine states. Dilma Rousseff and Jose Serra face off in two debates: one on Monday (TV Record) and another on Friday (TV Globo). The free electoral advertising ends on 10/29 and the election takes place next Sunday (10/31). Five presidential polls will be released this week. In the economy, highlight for the minutes of the Monetary Policy Committee and the National Monetary Council meeting.

Debates This week will be held two debates between the candidates for the presidency. The first will be on TV Record, Monday, at 11:00 pm. On Friday, the debate is held by TV Globo, at 10:15 pm.

Presidential polls In last week of the election, five new president polls will have their results published. Vox Populi (data collected on 23 and 24 of October) should be announced today. Tomorrow Datafolha and Sensus could also have their results published. Ibope poll can be published on Wednesday or Thursday, and Datafolha on Friday.

Second round The runoff election for president and governor in nine states (Rondônia, Roraima, Pará, Amapá, Piaui, Paraiba, Alagoas, Goiás and Distrito Federal) takes place on Sunday (10/31) On Friday is the last day for free electoral advertising on radio and television.

Copom On Thursday, the Central Bank publishes the minutes of the meeting of the Monetary Policy Committee held last week, when the college decided to keep the benchmark interest rate at 10.75% per annum. The last meeting of the Monetary Policy Committee this year is scheduled for 7 and 8 of December.

National Monetary Council The Central Bank has sent proposal for regulation of the sector credit cards for the assessing the National Monetary Council, which may manifest itself on the matter on Thursday. The expectation is that the CMN publishes until early November a set of rules to standardize and bring transparency to the tariffs charged by operators of credit cards.

AVALIAÇÃO DO GOVERNO

Managerial Performance - Audit made by the Court of Audit

assigned a "failure" made by the Civil House the responsible for the

collision of two public policies of the Lula government. In the last two years, BNDES has invested

billions in beef processing companies, contributing to the

advance of cattle in the Amazon, contrary to the policy to combat

deforestation.

Fiscal Performance - Revenue hit a record in September and closed

the month with R$ 63.41 billion. Real growth of 17.68% over the same period last year. Although

the government is earning more, the primary surplus is shrinking. Federal debt reached R$ 1.626

trillion.

Political Performance - According to Datafolha, Lula's approval breaks new record: 82%.

Economic Performance - The

economy remained steady for the fifth consecutive month, according

to the Central Bank. The news surprised economists, who

expected increase. Flood of imported and adjustments in inventory are pointed out as

causes.

Social Performance - Unemployment falls to lowest level in eight years. Occupancy went up 0.7% in September unemployment

rate reaches 6.2%.

ARKO ADVICE Political Analysis & Public Policy

Politics

Enviado exclusivamente para Thiago Aragão (Arko Advice)

Brazilian Politics Year XVII, nº 1310 Exclusively for Arko Clients Pg. 2

SHIS – QI 26 – Chácara 18 – Lago Sul – 71670-740 – Brasília – DF Fone: (61) 3248.4968 / Fax: (61) 3248.4399 / e-mail: [email protected] / www.arkoadvice.com.br

Dilma increases lead over Serra on the eve of decisive week of the election With the confirmation of the second round, the PT was prostrate (in the words of party president, José Eduardo Dutra) and the PSDB very motivated. Shortly after the publication of the first surveys after the first round, antagonistic feelings have taken over the two candidates. The PT was surprised and apprehensive and toucans believed in the possibility of an upset.

At the end of the second week of the campaign in October and the beginning of the third, three main institutes (Vox Populi, Ibope and Datafolha) showed that Dilma had extended her lead over Serra to somewhere between 11 and 12 percentage points. Sensus showed only a very narrow advantage (5.6 points). This new framework has helped reverse the feelings of the two campaigns. The PSDB was clearly shaken by the poll results and the PT started to breathe easier. Dilma’s increased advantage can be credited to a combination of factors. 1. Reduction of the president’s criticism of the press 2. Lula’s greater involvement in Dilma’s electoral propaganda 3. Lula's participation alongside Dilma in rallies in states 4. Letter addressed to the religious, where Dilma is against abortion 5. Growth among voters of Marina Silva. For Serra, the second week of the campaign was bad. First, the Jornal Nacional news program has covered allegations surrounding Paulo Preto and the diversion of resources to the Serra campaign. Then there was the complaint - published in Folha de São Paulo that Serra’s wife had an abortion; then the production of leaflets in São Paulo by people linked to the PSDB addressing religious issues against Dilma. Not even the greater

involvement of Aécio Neves in Minas Gerais and Geraldo Alckmin in São Paulo, has resulted in increased votes for Serra in the Southeast. Dilma enters the final week of campaigning with momentum in the polls. Serra, in turn, enters a downward spiral. As often happens in presidential elections in Brazil, whoever wins the first round tends to win in the second. Whoever leads the beginning of the campaign tends to win the race. All indications are that these trends will prevail once again. Thus, Dilma preserves her status as favorite. For the election to turn in favor of the opposition, there must be a combination of negative factors for the PT candidate, for example, the emergence of a serious new suit involving the government, high abstention in the North and Northeast, and/or a terrible performance in the last debate scheduled for TV Globo on 29/10.

Balance of negative news should not benefit Dilma nor Serra In the last week of campaigning, the major weekly magazines mostly addressed negative aspects of Dilma Rousseff (PT) and José Serra (PSDB). Veja published a cover story denouncing Gilberto Carvalho, chief of staff to President Lula and Dilma Rousseff for allegedly trying to use the Justice Department to produce dossiers. The article gives suggestions, but is weak in proving the veracity of the claims. IstoÉ, in its main story, criticized the campaign of José Serra, accusing it of "appealing to religious prejudice and defamation." The magazine also addressed allegations involving Paulo Preto, who raised at least R$ 4 million for the election campaigns of 2010, but the money did not reach Serra’s committee. Carta Capital gave prominence to a story on the case of journalist Amaury Ribeiro Junior, charged with ordering the breach of confidentiality of toucans in favor of Aécio Neves. Unlike these three magazines, Época chose to highlight a comparison of the proposals of Dilma and Serra.

Conjuncture Analysis



It is likely that the negative stories against the PSDB and the PT did not produce significant changes in voting intentions expressed by voters in recent polls. As the negative press in the print media was balanced (Veja addresses the negative aspects of the Lula government and Dilma, but Istoé and Carta Capital do the same for Serra), one can consider that the government's candidate has not suffered in recent days of the campaign.

Abstention is higher in states where there will be no second round Abstention is a concern of Dilma Rousseff (PT) and José Serra (PSDB) for the second round of presidential elections. Dilma wants to prevent voters from the North and Northeast regions where she is stronger, from not voting. This is a phenomenon that can occur mainly in the states of these two regions where the gubernatorial election was decided in the first round, creating a natural demobilization. Serra, in turn, is concerned with the abstention in South and Southeast. Although it is smaller than in the North and Northeast, the PSDB fears, especially in São Paulo and Minas Gerais states where toucans seek to balance the advantage that Dilma gains in the Northeast, increased abstention due to possible trips that the middle class can take to enjoy the weekend of the November 2 holiday. According to research conducted by Arko Advice based on the elections of 2002 and 2006, the abstention is higher in states where the election for governor is defined in the first round. In 2002, 13 states set their governors in the first round. In all, there was an increase of 26.03% mean abstention from first to second round. In 2006, 17 states elected their governors in the first round. In all, the abstention also increased (average of 21.78%).

Elections decided in the first round

Year States States where abstention grew

Average increase

2002 13 13 26.03%

2006 17 17 21.78%

In the North, in 2002, abstention increased from 21.11% to 30.76% from first to second round. In the Northeast, from 21.50% to 27.45% in the Midwest from 19.63% to 25.34% in the Southeast, 15.88% to 18.23% and 16.18% to 18.53% in the South. In 2006, the abstention from first to second round in the North rose from 17.40% to 24.55%, in the Northeast, 17.45% to 21.05%, in the Midwest from 17.94% to 20.43%, in Southeast, 16.64% to 18.42% and in the South, 14.65% to 16.07%. In states where there was a second round, abstention also increased from first to second round. However, in percentage terms, it was lower than that recorded in the states where the election was decided in the first round. In 2002, there was a second round in 14 states. In 13 of them abstaining average rose 19.65%. In 2006, there were 10 states in the second round with an average increase of 18.80%.

Elections defined in the second round

Year States States where abstention increased

Average increase

2002 14 13 19.65%

2006 10 10 18.80%

Can more abstention in the north and northeast compared to the south and southeast could help Jose Serra? Yes, however this will only cause impact on the election board if the advantage of Dilma Rousseff is narrow (about 4%). On the one hand, Dilma must contain the abstention in the North and Northeast, and on the other Serra has the challenge of reducing abstention in São Paulo, Minas Gerais, Paraná and Santa Catarina, states where the opposition candidate hopes to have a good advantage over his opponent. In these states, the average abstention in the first round of 2002 was 15.68%. In the second round, 17.36%. In 2006, the average increase in the first round was 15.80% and in the second, 17.18%. Another important issue is that although the total abstention in the first round of 1998 (21.5%) compared with 2002 (17.7%) and 2006 (16.7%) fell, it grew again in 2010 (18,12 %).



As traditionally there is more abstention in the second round, it is possible that the percentage on the 31st will reach a new record high.

The scenario of the second round disputes Next Sunday (31), governors will be elected or re-elected in nine states: Alagoas (AL), Amapá (AP) Federal District (DF), Goiás (GO), Pará (PA), Paraíba (PB), Piauí (PI ), Rondônia (RO), Roraima (RR). In these precincts, based on the latest research available, the scenario is as follows: AL: According to Ibope (17 to 19.10), the governor and candidate for reelection, Teotonio Vilela Filho (PSDB) has 48% against 40% of Ronaldo Lessa (PDT). In the first round, Vilela got 39.6% of valid votes and Lessa got 29.2%. The opposition candidate supports José Serra (PSDB) and Lessa is with Dilma Rousseff (PT). Teotonio Vilela has slight favoritism. AP: According to Ibope (15 to 17.10), Camilo Capiberibe (PSB) has 53% and Lucas Barreto (PTB) appears with 46%. In the first round, Lucas had 28.9% of valid votes and Capiberibe got 28.7%. Both candidates support Dilma. The candidate of the PSB is the favorite. This election is unique in that the second round might be a turning point. DF: According to Datafolha (20 to 21:10), Agnelo Queiroz (PT) has 53% and Weslian Roriz (CSF) appears with 31%. In the first round, Agnelo got 48.4% of the votes and Roriz had 31.5%. Candidates support, respectively, Dilma and Serra. Agnelo Queiroz is the favorite and should best his opponent with ease. GO: According to Datafolha (20 to 21:10), Marconi Perillo (PSDB) has 48% and Iris Rezende (PMDB) appears at 44%. In the first round, Marconi received 46.3% of the votes and Iris got 36.4%. The PSDB candidate supports José Serra, while the PMDB candidate is with Dilma Rousseff. Slight favoritism for Perillo. PA: According to Ibope (13 to 15.10), Simão Jatene (PSDB) has 53% to 36% of the governor and candidate for reelection, Ana Julia Carepa (PT). In the first round, Jatene got 48.9% of valid votes and Ana Julia had 36.1%. The PSDB candidate supports Serra and the PT candidate supports Dilma. Simão Jatene is the favorite.

PB: According to Ibope (12 to 14.10), Ricardo Coutinho (PSB) has 57% to 43% of the governor and candidate for reelection, José Maranhão (PMDB). In the first round, Coutinho got 49.7% of the votes and 49.3% went to Maranhão. Both candidates support Dilma. The representative of the PSB is the favorite. PI: According to Data AZ (14 to 17.10), the governor and candidate for reelection, Wilson Martins (PSB), has 55% against 45% for Silvio Mendes (PSDB). In the first round, Martins had 46.7% of the votes and Mendes got 30.1%. The socialist supports Dilma and the toucan is with Serra. Wilson Martins is the favorite. RO: According to Ibope (15 to 17.10), Confucio Moura (PMDB) has 58% against 42% of the governor and candidate for reelection, João Cahulla (PPS). In the first round, Confucio won 44% of the votes against 37.1% of Cahulla. Both candidates support Dilma Rousseff. Confucio Moura is the favorite. RR: According to Ibope (15 to 17.10), Neudo Campos (PP) has 55% against 45% of the current governor and candidate for reelection, Anchieta Júnior (PSDB). In the first round Neudo got 47.6% of valid votes and Anchieta got 45%. Candidates support, respectively, Dilma and Serra. Neudo Campos is the favorite.

PSDB, PMDB and PSB will vie for the largest number of governors This was revealed by research from Arko Advice. In the first round, the PMDB won in four states as well as the PSDB. The PSB emerged victorious in three. In the second round, the PMDB is a favorite in Rondonia, but also has competitive candidates in Goiás and Paraíba. The toucans are leading Alagoas, Pará and Goiás, while in Piaui, they have a chance. If they win them all, the PSDB can reach seven governors. The PSB can elect six if it wins in Amapa, Paraiba and Piaui.



Party Number of

current governors

Elected in 1st round

After 2nd round (prediction)

Minimum Maximum

PMDB 9 4 5 6

PSDB 6 4 6 7

DEM 0 2 2 2

PT 4 4 5 5

PSB 4 3 6 6

PP 2 0 1 1

PMN 1 1 1 1

PPS 1 0 0 0

Total 27 18 - -

State elections: reelection rate should be 60% In this second round, six governors vie for re-election: Teotonio Vilela Filho (PSDB), Alagoas, Ana Julia Carepa (PT), Pará, João Cahulla (PPS) in Rondonia, José Maranhão (PMDB), Paraiba, Anchieta Júnior (PSDB), Roraima, and Wilson Martins (PSB), Piauí.

According to a survey conducted by Arko Advice based on the available research, Vilela and Martins should be reelected. The index of re-election in the second round should be 33.33% (in the first round it was 50%). Taking into account that 10 governors were reelected in the first round and two more should emerge victorious in the second, the rate of re-election this year could be 60%. 1998 2002 2006 2010

Reelection 19 15 19 20

Reelected 12 10 13 12*

% 63.15% 66.66% 72.22% 60%

*Projection takes into account the 10 governors that have been reelected in the first round and the good chances that Teotônio Vilela Filho (PSDB) and Wilson Martins (PSB) will be reelected.

It is noteworthy that despite the favorable scenario for continuity, the rate of re-election in 2010 (60%), although high, should be the lowest in the last 12 years.



Political Agenda for the Week

MONDAY (10/25)

TV Record holds debate between the presidential candidates contesting in the second round.

Planned announcement of Vox Populi poll on presidential succession.

The Secretary of Foreign Trade of the Ministry of Development, Industry and Foreign Trade (MDIC), Welber Barral, announces revision of export target for 2010. The current goal is US$ 180 billion.

Central Bank announces Foreign Direct Investment in September.

Henrique Meirelles gives a speech during lunch with the American Society and the Council of the Americas, in New York. On the same day has meetings with investors in the city.

TUESDAY (10/26)

Datafolha begins presidential poll. Results may be released late on Tuesday or Wednesday.

Expected release of CNT / Sensus poll on presidential succession.

WEDNESDAY (10/27)

The Federal Supreme Court rules appeal by Federal Congressman Jader Barbalho (PMDB-PA), against the decision of the Supreme Electoral Tribunal (TSE) that denied his application for registration to the Senate based on the Law of Clean Record.

IBGE releases Business Demography Study in 2008.

THURSDAY (10/28)

TV Globo holds debate among candidates running for state government in the second round.

Ibope poll on presidential succession can be announced.

Treasury publishes the result of central government in September.

Central Bank publishes the minutes of the last meeting of the Monetary Policy Committee of the Central Bank.

Meeting of the National Monetary Council (CMN) can discuss regulations for the sector of credit cards.

Disclosure of the IGP-M in October.

FRIDAY (10/29)

TV Globo holds debate between the presidential candidates contesting in the second round.

Datafolha poll on presidential succession can be announced.

Last day of election advertising on radio and TV.

The Central Bank announces results for the consolidated public sector in September.

IBGE releases Technological Innovation Research related to 2008.

The Department of Commerce releases GDP (annualized) in the 3rd quarter of the year.

SUNDAY (10/31)

Second round of the election for president and governor in nine states.

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