Political Risk Analysis - Quick View: Lula Not Yet Out - MAR 2018

The Latest: On January 24, a Brazilian federal appeals court unanimously upheld former President Luiz Inacio Lula da Silva's conviction on corruption charges and increased his prison sentence from nine years to approximately 12 years.

Implications: The court's decision supports our view that Lula will not be able to contest the October general election. Under laws passed during his tenure, Lula's conviction makes him ineligible to run for public office. Financial markets have reacted favourably and are likely to remain buoyant, as the ruling reduces risks to policy continuity ahead of the election. Lula has consistently led early polling by campaigning against the economic reforms pursued by President Michel Temer.

What's Next: Lula's fate is not yet sealed. His left-wing Partido dos Trabalhadores (PT) is reportedly set to formally announce his presidential candidacy on January 25, and he will pursue appeals to higher courts to overturn his disqualification. His significant public support suggests that protests are likely over the coming weeks and raises the possibility that courts will deem his disqualification too disruptive to the electoral process. Prolonging his appeals process would likely bolster support for the PT, which could make it easier for Lula to bolster an alternative candidate in the event his appeals ultimately fail.

Ruling Boosts Equities To New Heights
Brazil - IBOV Equities Index (Monthly)
Source: Bloomberg, BMI

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