Political Risk Analysis - Quick View: Lula's Chances Diminish But Outsider Threat Remains - SEPT 2017

The Latest: On July 12, former Brazilian President Luiz Inacio Lula da Silva was sentenced to nine and a half years in prison on corruption charges. Lula, who also faces at least four separate corruption cases, was convicted of receiving bribes worth approximately USD1.1mn from the construction company OAS in the form of a luxury seaside apartment.

Implications: Lula's conviction substantially reduces the likelihood that he will be able to stand as a candidate for the presidency next year, but does not eliminate the possibility. Lula will remain at liberty, and legally eligible to run for office, pending an appeal. Legal experts believe the appeal could take up to 18 months to be concluded, given the Supreme Court's backlog of cases, and the court that will hear his appeal has overturned a dozen previous corruption convictions handed down by Justice Sergio Moro, according to local press.

What's Next: We maintain our view that Lula is highly unlikely to contest the election, scheduled for October 2018. Although he currently leads early polling, we expect that even if he avoids prison his conviction and the lingering cases against him will erode his public support, particularly as the field of candidates comes into sharper focus over the coming months. Outside of him, his leftist Partido dos Trabalhadores lacks viable candidates, which suggests that the country's traditional left is unlikely to pose a serious threat to policy continuity.

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