Both presidential candidates believe that the state has an important role to play in economic development. Arguably, a PT administration would be less enthusiastic about liberalising structural reforms. Otherwise, it would have already implemented them, taking advantage of the president's incredibly high approval ratings. A "new" Serra government, eager to leave its mark, would no doubt propose a more ambitious reform agenda (e.g. pension, tax reform). Serra is committed to an "efficient" state somewhat more circumscribed in its activities than it is in the vision of the PT. For all practical purposes, however, one ought not to get too excited about the prospect of wide-ranging structural reform under a Serra presidency. The structure of the Brazilian political system is such that it makes wide-ranging structural reform very difficult to implement on account of various "veto players" (e.g. fragmented, difficult-to-control legislature, powerful states, restrictive constitution), no matter how committed a government is to reform. Even under the best of political circumstances, reform will likely be limited and gradual.

What is to be done? The next government should focus its efforts on reforms that are politically achievable and economically effective. As we and others (Hausmann, Pastore) have argued, limited domestic savings are the most important factor constraining growth in Brazil. Therefore, first and foremost, the next government should seek to limit increases in current spending to below the level of nominal GDP growth and ensure that public-sector investment is narrowly focused on projects where the expected social returns exceed (appropriable) private returns. If the government believes that it can muster sufficient congressional support, it should also consider granting the central bank full legal independence and introducing an explicit fiscal rule committing Brazil to public debt reduction - similar to what Turkey has proposed recently, for instance. All of these measures would help boost savings (and investment).

Eoin Treacy's view Political stability and adherence to a stable set of anti-inflationary economic policies have helped Brazil become of the world's growth leaders over the last decade and it is to be hoped that these policies are adhered to as major spending initiatives such as the World Cup and Olympics are undertaken. Brazil has been one of only a smaller number of markets to regain its pre-crisis highs fuelled by impressive economic growth and the benefit of producing just about every commodity Asia's major growth markets require.

The Bovespa Index has been ranging mostly below the psychological 70,000 since December and fell back below its 200-day MA in May. It continues to hold mostly above 60,000 but a rally above 66,000 is needed to indicate demand is returning to dominance while a sustained move above 70,000 is required to reassert the medium-term uptrend.