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Brazil's Win to Aid Economy, But Only in the Short Term

 

 

By: Matt Moffett and Pamela Druckerman
 The Wall Street Journal, July 1, 2002

 

Rio de Janeiro -- Can Brazil's success on the soccer field, where it won its fifth World Cup Sunday, do anything to counter the mounting economic and political woes that threaten to turn the nation into an emerging-market also-ran?

Don't make book on it, say economists and political analysts. Even in this soccer-mad nation, observers remain skeptical that triumph on the pitch will provide anything more than a fleeting boost to Brazil's beleaguered markets, which have been hammered by fears that a leftist candidate will win presidential elections in October and undo eight years of free-market reforms.

Eduardo Gamarra, director of Latin American and Caribbean studies at Florida International University, did a study in 1998 on the impact of World Cups on Latin politics. He found that the correlation between soccer and political success for incumbent governments was slim at best. "It helps to win, particularly in a country like Brazil or Argentina," he says. "But it doesn't help that much."

President Fernando Henrique Cardoso was elected in 1994, after Brazil won the Cup, Mr. Gamarra notes. But he adds that Mr. Cardoso won re-election in 1998, even after Brazil bitterly disappointed its fans by losing to France in the World Cup finals.

To be sure, economists and political analysts welcomed any event that brightened the national mood in Brazil. In recent weeks, Brazil's currency and stock markets have tumbled into a free fall amid concerns that Brazilians could elect a leftist, Luiz Inacio Lula da Silva of the Workers Party, in October. Mr. Cardoso's government is backing the second-place candidate, former health minister Jose Serra. Mr. da Silva has vowed not to make radical changes in areas important to building confidence among investors.

After the 2-0 victory over Germany, Brazilians filled restaurants, shot off fireworks and uncorked impromptu block parties. Still, "when you have things like an election going on, that kind of overwhelms the World Cup," says James Barrineau, who helps manage Latin American debt at Alliance Capital Management LP in New York. "Lula being the president of the best soccer nation in the world is still a scary thought to many investors."

Mr. Barrineau says he received reports from several investment banks suggesting there was money to be made by taking positions in certain Brazilian stocks and bonds ahead of the finals. He said some of the reports suggested that certain companies would benefit from a surge in consumer spending upon a Brazilian victory.

Did he follow their advice? "Absolutely not," Mr. Barrineau said. "It's a little scary to think you might want to trade on that."


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