ECONOMICS October 4, 2016

Brazil—Municipal Elections Luciano Sobral* When the Ballots Speak [email protected] 5511-3353-3753

 Results from the first round in ’s municipal elections fell short of the outcome anticipated by polls and political analysts for the Workers’ Party (PT). The PT’s share of valid votes in the countries’ most populous cities and state capitals declined almost 12 percentage points, relative to 2012 elections.  In the same sample of cities and for the same period, the Democratic Movement Party (PMDB) also saw a relative decline, from 14.6% to 11.1% of the valid votes.  On a nationwide basis, the Social Democracy Party (PSDB) captured most of the share lose, raising its valid vote share from 16.8% to 22.9% in our sample. PSDB’s gains were more notable in the country’s 10 largest cities and influenced by a landslide victory in São Paulo.  Other notable winners were mid-sized parties such as the Party of the Republic (PR), the Brazilian Republican Party (PRB), and the Social Democratic Party (PSD), which make up the so-called “big center” in Congress.  We further note that party fragmentation also increased, with the share of votes going to the 15 largest parties falling from 96.3% in 2012 to 90.3% this year. In our view, this outcome could strengthen the case for political reform.  Our analysis also aimed to answer whether municipal election outcomes can aid in forecasting the outcome of presidential/gubernatorial/legislative elections, which are held two years later. We found no such correlation in the recent past. However, municipal votes in Brazil have been used as a leading indicator for the composition of the next Congress (see page 12 for details).

Figure 1. Share of Aggregate Valid Votes for Mayor in Brazil’s Largest Cities and State Capitals, %

30

25

20 PT PSDB 15 PMDB DEM 10 PSB

5

0 2000 2004 2008 2012 2016

Notes: 92 cities with the largest number of registered voters plus Palmas-TO. Source: Brazil Electoral Court.

IMPORTANT DISCLOSURES/CERTIFICATIONS ARE IN THE “IMPORTANT DISCLOSURES” SECTION OF THIS REPORT. U.S. investors' inquiries should be directed to Santander Investment at (212) 350-0707. *Employed by a non-US affiliate of Santander Investment Securities Inc. and is not registered/qualified as a research analyst under FINRA rules.

The Data We used Brazil’s Electoral Court extensive databases to evaluate the performance of the countries’ main political parties in Sunday’s municipal elections. Of Brazil’s 5,570 municipalities, we used as a main sample those with more than 200,000 registered voters (where current rules mandate a runoff in the event that no candidate garners 50% of valid votes); in addition, our sample included Palmas, the only state capital whose electorate is lower than the cut for a runoff. This left us with 93 municipalities, with a combined population of 78.5 million people (approximately 37% of Brazil’s total population). We also analyzed data from all of the country’s municipalities to determine what the outcome of this first round could mean in the upcoming presidential election for the two parties that have been the main contenders in the presidential race since 1994 — PT and PSDB. Nationwide Results Aggregated data from our main sample (G93 hereafter) show a steep decline in the proportion of votes for the PT party, as suggested by polls and the low popularity of former president Dilma Rousseff. Relative to 2012, PT lost almost 13 p.p. of the valid votes in the G93 cities — the most among the 15 largest parties (as defined by the average vote share in municipal elections within the group since 2000). PSDB won the lion’s share of the ground lost by PT, raising its share of valid votes by 6 p.p. Using the same metric, PMDB lost 3.6 p.p., whereas centrist parties PR, PRB, and PSD gained, respectively, 1.4 p.p., 2.4 p.p., and 3.4 p.p. Fragmentation increased markedly: votes for smaller parties (those outside the top 15) increased 6 p.p. in this electoral cycle, mostly attributable to the creation of two new parties Rede and Solidariedade (which won, respectively, 1.7% and 1.4% of valid votes) and the rise of the Humanist Party of Solidarity, or PHS (from 0.4% to 1.2%).

Figure 2. Share of Aggregate First Round Valid Votes for Mayor in Brazil’s Largest Cities and State Capitals, % Change Average 2012-2016 Party 2000 2004 2008 2012 2016 2012-2016 (pp) PT 25.1 26.2 23.6 21.2 8.3 -12.9 20.9 PSDB 16.0 19.4 16.1 16.8 22.9 6.1 18.2 PMDB 9.1 9.5 16.1 14.6 11.1 -3.6 12.1 DEM 13.7 10.8 11.5 4.4 4.8 0.4 9.0 PSB 7.0 6.5 4.4 8.8 7.5 -1.2 6.8 PDT 6.8 6.7 5.6 7.0 5.7 -1.2 6.4 PP 6.1 4.0 3.8 2.4 2.8 0.4 3.8 PPS 4.4 3.9 2.0 1.9 2.5 0.6 3.0 PTB 6.0 2.7 2.8 1.5 0.9 -0.5 2.8 PR 2.3 4.5 1.2 2.2 3.6 1.4 2.8 PRB 0.0 0.0 2.0 4.3 6.7 2.4 2.6 PSOL 0.0 0.0 1.6 5.3 4.8 -0.5 2.3 PC do B 1.1 2.0 3.1 2.5 1.6 -0.9 2.0 PV 0.8 1.5 3.9 1.1 1.3 0.2 1.7 PSD 0.0 0.0 0.0 2.3 5.8 3.4 1.6 Others 1.6 2.4 2.2 3.7 9.7 6.0 3.9

Notes: 92 cities with the largest number of registered voters plus Palmas-TO. Source: Brazil Electoral Court.

In Brazil’s 10 most populous cities (São Paulo, , Salvador, , , , , , , and Goiânia, in descending order), the picture is similar. From 2012, PT decreased its aggregate share of valid votes by 11 p.p., and PMDB and PSB also lost ground (by 8 p.p. and 5 p.p. of valid votes, respectively). PSDB won more than a quarter (26.6%) of valid votes in this group, raising its share by 11.4 p.p. As in the previous group, PR, PRB, and PSD were significant winners (the latter, here not included among the 15 most voted since 2000, explains all the difference from the previous table in the “others” group).

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Figure 3. Share of Aggregate First Round Valid Votes for Mayor in Brazil’s 10 Most Populous Cities, %

35

30

25 PT 20 PSDB DEM 15 PMDB

10 PSB

5

0 2000 2004 2008 2012 2016

Source: Brazil Electoral Court.

Figure 4. Share of Aggregate First Round Valid Votes for Mayor in Brazil’s 10 Most Populous Cities, % Change Average 2012-2016 Party 2000 2004 2008 2012 2016 2012-2016 (pp) PT 28.1 29.2 23.6 21.3 10.5 -10.8 22.5 PSDB 11.3 18.9 13.3 15.2 26.6 11.4 17.1 DEM 21.0 16.6 18.1 4.8 6.1 1.3 13.3 PMDB 4.5 6.0 16.8 18.1 10.1 -8.0 11.1 PSB 7.8 5.2 4.3 10.3 5.1 -5.2 6.5 PRB 0.0 0.0 3.6 8.1 10.7 2.6 4.5 PDT 3.7 4.6 1.6 6.2 5.3 -1.0 4.3 PP 7.5 5.2 2.7 0.0 0.4 0.4 3.2 PSOL 0.0 0.0 2.0 7.3 5.6 -1.7 3.0 PR 3.8 5.3 0.0 0.9 4.5 3.6 2.9 PC do B 1.9 3.2 3.2 2.1 1.7 -0.4 2.4 PTB 5.9 0.5 2.3 0.9 0.6 -0.3 2.0 PPS 2.8 2.8 1.7 0.9 0.0 -0.9 1.7 PV 0.3 0.8 4.8 0.2 0.1 -0.2 1.3 PSC 0.1 0.2 0.4 2.3 2.5 0.2 1.1 Others 1.3 1.5 1.4 1.3 10.2 8.9 3.1

Source: Brazil Electoral Court. In state capitals, the pattern of winners/losers is similar to G93’s, with the main difference being a steeper rise (5.5 p.p. of valid votes) for PSD. A robust performance in São Paulo (the first outright win of a candidate in the city since Brazil’s redemocratization in 1989) gave PSDB an edge in this group. The leftist Socialism and Liberty Party (PSOL), despite having a candidate in the runoff in Rio, actually decreased its share of votes, failing to capture the ground lost by PT – the same can be said of other left-of-the-center parties in all the samples analyzed here, with the exception of Rede (which is coming from a zero-base).

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Figure 5. Share of Aggregate First Round Valid Votes for Mayor in Brazil’s State Capitals, %

30

25

20 PT PSDB 15 PMDB DEM 10 PSB

5

0 2000 2004 2008 2012 2016

Source: Brazil Electoral Court.

Figure 6. Share of Aggregate First Round Valid Votes for Mayor in Brazil’s State Capitals, %

Change Average 2012-2016 Party 2000 2004 2008 2012 2016 2012-2016 (pp) PT 27.4 27.7 22.5 19.4 9.0 -10.4 21.2 PSDB 13.0 18.5 13.9 17.1 24.6 7.6 17.4 PMDB 6.5 6.9 15.8 16.1 10.9 -5.2 11.2 DEM 17.4 13.4 15.2 4.7 4.8 0.1 11.1 PSB 8.6 6.9 5.2 9.9 6.0 -3.9 7.3 PDT 4.6 6.0 1.7 6.2 6.3 0.1 4.9 PP 6.8 4.8 4.1 1.6 1.6 0.1 3.8 PRB 0.0 0.0 2.9 6.6 8.5 1.9 3.6 PSOL 0.0 0.0 1.8 7.6 6.2 -1.4 3.1 PTB 6.3 2.2 3.2 1.3 0.8 -0.5 2.8 PR 3.1 4.7 0.6 0.9 3.5 2.6 2.6 PC do B 1.5 2.7 4.1 1.9 1.9 -0.1 2.4 PPS 2.9 3.5 2.1 1.7 0.5 -1.2 2.1 PV 0.5 0.7 5.0 0.7 0.2 -0.6 1.4 PSD 0.0 0.0 0.0 0.4 5.9 5.5 1.2 Others 1.3 2.1 2.1 4.0 9.3 5.4 3.8

Source: Brazil Electoral Court.

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In terms of elected mayors in G93 cities, results are still preliminary, since 54 of them will still hold runoffs on October 30. We estimated the results of the runoff by attributing a small probability edge (0.10) to parties that finished first in the first round. With this assumption, PT and PSB would lose, respectively, 13 and 5 cities, which would be distributed mostly among PSDB (+6), PMDB (+4), and PPS (+4).

Figure 7. Number of Elected Mayors in Brazil’s Largest Cities and State Capitals 2016 Outright Runoff Estimated* Worst Best Partido 1996 2000 2004 2008 2012 wins First R/U PSDB 21 18 20 14 19 25 15 33 15 13 5 PT 9 22 21 25 17 4 1 8 1 2 5 PMDB 13 12 10 20 11 15 7 21 7 10 4 PSB 7 6 8 6 11 6 2 11 2 4 5 PDT 11 7 9 8 7 5 1 9 1 4 4 DEM 11 11 6 5 5 4 3 6 3 1 2 PSD 2 0 0 0 4 5 2 8 2 1 5 PC do B 0 1 1 2 4 1 0 2 0 2 0 PP 13 4 3 5 4 2 1 3 1 1 1 PPS 0 5 7 0 3 7 3 10 3 5 2 PR 0 2 2 3 2 3 1 5 1 2 2 PRB 0 0 0 1 2 3 0 6 0 3 3 REDE 0 0 0 0 0 1 0 3 0 1 2 PV 0 0 2 1 1 3 1 5 1 2 2 PSOL 0 0 0 0 1 1 0 3 0 0 3 PTN 0 0 0 0 1 1 0 2 0 1 1 PTC 0 0 0 0 1 0 0 0 0 0 0 PSC 0 1 0 0 0 1 1 1 1 0 0 PSDC 0 0 1 0 0 0 0 0 0 0 0 PTB 6 4 3 3 0 2 0 4 0 0 4 PMN 0 0 0 0 0 1 0 2 0 1 1 PHS 0 0 0 0 0 1 1 2 1 0 1 SD 0 0 0 0 0 1 0 2 0 0 2 PMB 0 0 0 0 0 1 0 1 0 1 0

Notes: 92 cities with the largest number of registered voters plus Palmas-TO. *Estimated attributing a 0.6 probability of winning in the runoff to the most voted in the first round and the complement (.4) to the runner-up. Source: Brazil Electoral Court.

5

Figure 8. Number of Elected Mayors in Brazil’s Largest Cities and State Capitals

30

25

20 PSDB PT 15 PMDB PSB 10 PDT

5

0 1996 2000 2004 2008 2012 Estimated*

Notes: 92 cities with the largest number of registered voters plus Palmas-TO. *Estimated attributing a 0.6 probability of winning in the runoff to the most voted in the first round and the complement (.4) to the runner-up. Source: Brazil Electoral Court.

Regional Results North Figure 9. Share of Aggregate First Round Valid Votes for Mayor in Brazil’s Largest Cities and State Capitals, % – North (9 cities)

35

30

25 PSDB 20 PT PTB 15 PSB

10 PMDB

5

0 2000 2004 2008 2012 2016

Notes: cities with more than 200,000 registered voters. Source: Brazil Electoral Court.

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Figure 10. Share of Aggregate First Round Valid Votes for Mayor in Brazil’s Largest Cities and State Capitals, % – North (9 cities) Change Average 2012-2016 Party 2000 2004 2008 2012 2016 2012-2016 (pp) PSDB 13.7 4.4 4.5 31.2 27.3 -3.9 16.2 PT 19.2 22.9 21.3 6.4 8.1 1.7 15.6 PTB 13.8 14.6 26.2 2.3 1.8 -0.5 11.7 PSB 10.2 13.2 12.8 6.4 7.8 1.4 10.1 PMDB 4.3 8.2 8.9 7.4 13.1 5.6 8.4 PR 15.1 4.7 1.9 7.9 8.7 0.8 7.7 DEM 6.0 13.3 6.7 1.6 3.2 1.6 6.2 PPS 10.6 6.2 3.1 2.7 0.0 -2.7 4.5 PSOL 0.0 0.0 1.2 11.9 8.5 -3.4 4.3 PDT 3.2 3.0 1.8 3.8 1.0 -2.8 2.5 PC do B 0.5 4.2 0.6 6.5 0.3 -6.2 2.4 PV 0.0 3.1 2.8 3.8 0.5 -3.3 2.0 PP 2.3 1.5 0.0 5.4 0.5 -4.9 1.9 PMN 0.0 0.0 7.2 0.4 0.0 -0.4 1.5 PRB 0.0 0.0 0.0 1.4 5.9 4.5 1.5 Others 1.3 0.7 0.9 0.9 13.3 12.4 3.4

Notes: cities with more than 200,000 registered voters. Source: Brazil Electoral Court.

Notable oscillations in the North were: PMDB gaining 5.6 p.p. of valid votes since 2012 (mostly from PSDB), and a rotation among the mid-sized parties, with PPS, PSOL, PDT, PC do B, PV, and PP losing ground to PRB, Rede, and PSD.

Northeast Figure 11. Share of Aggregate First Round Valid Votes for Mayor in Brazil’s Largest Cities and State Capitals, % – Northeast (16 cities)

30

25

20 PT DEM 15 PSDB PDT 10 PMDB

5

0 2000 2004 2008 2012 2016

Notes: cities with more than 200,000 registered voters plus Palmas-TO. Source: Brazil Electoral Court. 7

Figure 12. Share of Aggregate First Round Valid Votes for Mayor in Brazil’s Largest Cities and State Capitals, % – Northeast (16 cities) Change Average 2012-2016 Party 2000 2004 2008 2012 2016 2012-2016 (pp) PT 20.5 22.6 27.4 20.0 7.9 -12.2 19.7 DEM 23.3 13.5 16.1 16.3 17.3 1.0 17.3 PSDB 8.6 13.1 14.3 16.8 12.0 -4.8 13.0 PDT 7.5 15.2 5.4 8.1 16.2 8.1 10.5 PMDB 13.4 11.2 12.4 7.3 4.4 -2.8 9.8 PSB 7.9 9.3 3.7 13.4 13.5 0.1 9.6 PC do B 6.2 5.4 6.1 1.7 4.6 2.9 4.8 PPS 6.7 2.4 0.5 1.1 0.7 -0.4 2.3 PP 1.8 0.0 4.6 0.8 2.6 1.7 1.9 PSOL 0.0 0.0 2.4 3.6 2.0 -1.6 1.6 PR 0.1 0.5 0.1 0.0 7.4 7.4 1.6 PTB 0.7 1.9 0.5 2.0 0.4 -1.6 1.1 PSD 0.0 0.0 0.0 0.0 5.4 5.4 1.1 PRB 0.0 0.0 1.7 2.8 0.7 -2.1 1.0 PTC 0.0 1.4 0.3 2.5 0.2 -2.4 0.9 Others 3.4 3.6 4.6 3.5 4.8 1.3 4.0

Notes: cities with more than 200,000 registered voters plus Palmas-TO. Source: Brazil Electoral Court.

Notable oscillations in the Northeast: PT accelerated the downtrend started in 2012 in its former stronghold, holding a smaller share of votes in the region’s G93 cities than in Brazil as a whole. Curiously, here another leftist party (PDT) managed to fill part of the vacuum PT left. Other important winners were PR and PSD, with PSDB also reducing its share of votes.

Center-West Figure 13. Share of Aggregate First Round Valid Votes for Mayor in Brazil’s Largest Cities and State Capitals, % – Center-West (5 cities)

60

50

40 PMDB PT 30 PSDB PP 20 PSB

10

0 2000 2004 2008 2012 2016

Notes: cities with more than 200,000 registered voters. Source: Brazil Electoral Court. 8

Figure 14. Share of Aggregate First Round Valid Votes for Mayor in Brazil’s Largest Cities and State Capitals, % – Center-West (5 cities) Change Average 2012-2016 Party 2000 2004 2008 2012 2016 2012-2016 (pp) PMDB 24.9 40.2 55.9 14.4 28.1 13.7 32.7 PT 26.3 20.7 9.9 38.3 6.1 -32.2 20.3 PSDB 21.7 0.0 10.4 7.3 12.1 4.8 10.3 PP 1.7 13.5 8.9 10.1 6.3 -3.8 8.1 PSB 0.0 4.1 0.9 7.8 14.7 6.9 5.5 PTB 11.8 1.8 3.2 4.9 2.2 -2.7 4.8 DEM 5.6 10.7 0.0 0.9 1.6 0.6 3.8 PSD 0.0 0.0 0.0 4.0 11.9 7.9 3.2 PR 0.3 2.1 4.9 0.0 4.0 4.0 2.3 PSOL 0.0 0.0 2.8 2.3 4.3 2.1 1.9 PPS 4.8 0.6 2.0 0.3 0.2 -0.1 1.6 PDT 0.7 4.8 0.0 0.4 1.3 0.9 1.4 PSC 0.0 0.1 0.0 3.7 2.5 -1.2 1.3 PMN 0.0 0.4 0.9 3.5 0.0 -3.5 1.0 PV 1.2 0.1 0.0 0.2 1.4 1.2 0.6 Others 0.9 0.9 0.3 1.7 3.2 1.5 1.4

Notes: cities with more than 200,000 registered voters. Source: Brazil Electoral Court.

In the Center-West, the small sample size gives room to widest variations between elections. The main national trends were also observed in the region, though, with PT registering only 6.1% of valid votes (versus 38.3% in 2012) and PMDB, PSDB, PSB, PSD, and PR capturing most of that share. Southeast Figure 15. Share of aggregate first round valid votes for mayor in Brazil’s largest cities and state capitals, % – Southeast (50 cities)

30

25

20 PT PSDB 15 PMDB DEM 10 PSB

5

0 2000 2004 2008 2012 2016

Notes: cities with more than 200,000 registered voters plus Palmas-TO. Source: Brazil Electoral Court. 9

Figure 16. Share of Aggregate First Round Valid Votes for Mayor in Brazil’s Largest Cities and State Capitals, % – Southeast (50 cities) Change Average 2012-2016 Party 2000 2004 2008 2012 2016 2012-2016 (pp) PT 24.9 27.1 23.9 23.0 8.7 -14.3 21.5 PSDB 18.7 23.4 17.2 17.5 28.4 10.9 21.0 PMDB 6.2 8.0 14.5 19.1 11.4 -7.7 11.8 DEM 12.3 10.6 12.3 1.8 1.8 0.0 7.8 PSB 8.1 6.0 4.7 7.9 5.7 -2.2 6.5 PDT 6.7 5.0 6.9 4.1 2.2 -1.9 5.0 PP 7.7 4.5 2.5 1.4 1.8 0.4 3.6 PR 2.3 6.3 1.3 2.7 2.1 -0.6 2.9 PPS 3.7 2.2 2.6 2.3 3.8 1.4 2.9 PTB 6.9 2.0 0.6 1.2 0.3 -0.8 2.2 PV 1.0 1.9 5.2 1.3 2.1 0.8 2.3 PRB 0.0 0.0 2.9 6.3 10.0 3.7 3.8 PSOL 0.0 0.0 1.2 5.6 5.2 -0.4 2.4 PC do B 0.0 1.2 2.5 1.7 1.0 -0.7 1.3 PSD 0.0 0.0 0.0 2.2 4.8 2.6 1.4 Others 1.5 1.8 1.8 1.8 10.7 8.8 3.5

Notes: cities with more than 200,000 registered voters plus Palmas-TO. Source: Brazil Electoral Court. In the country’s most populous region, PT lost 14.3 p.p. in valid votes from 2012, distributed among PSDB, PPS, PRB, and PSD, mainly. PMDB’s vote fell by 7.7 pp in the same period. Other left-wing parties with relevant presence in the region, such as PDT, PSOL and PC do B, also lost vote share.

South Figure 17. Share of Aggregate First Round Valid Votes for Mayor in Brazil’s Largest Cities and State Capitals, % – South (13 cities)

40

35

30

25 PT PSDB 20 PMDB

15 PDT PP 10

5

0 2000 2004 2008 2012 2016

Notes: cities with more than 200,000 registered voters. Source: Brazil Electoral Court.

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Figure 18. Share of Aggregate First Round Valid Votes for Mayor in Brazil’s Largest Cities and State Capitals, % – South (13 cities) Change Average 2012-2016 Party 2000 2004 2008 2012 2016 2012-2016 (pp) PT 36.3 31.1 22.8 17.0 8.2 -8.8 23.1 PSDB 11.8 23.6 23.2 6.4 15.6 9.1 16.1 PMDB 15.0 5.2 19.2 8.6 12.4 3.8 12.1 PDT 10.1 4.5 3.7 26.2 10.9 -15.3 11.1 PP 7.2 6.1 10.4 5.3 8.7 3.4 7.5 DEM 13.7 5.6 7.0 0.9 0.0 -0.9 5.4 PPS 1.6 15.7 1.2 1.6 2.6 1.0 4.5 PSD 0.0 0.0 0.0 8.0 9.4 1.4 3.5 PSB 0.1 1.2 0.4 7.4 2.4 -5.1 2.3 PTB 3.1 1.1 3.0 0.0 4.0 4.0 2.2 PSC 0.1 0.0 0.4 8.2 2.2 -6.0 2.2 PSOL 0.0 0.0 2.5 3.2 5.0 1.9 2.1 PC do B 0.0 0.1 3.9 5.6 0.6 -5.0 2.0 PMN 0.0 0.2 0.3 0.3 9.2 8.9 2.0 PRB 0.0 0.0 0.0 0.0 3.8 3.8 0.8 Others 1.0 5.6 2.1 1.4 5.2 3.7 3.1

Notes: cities with more than 200,000 registered voters. Source: Brazil Electoral Court.

PT’s share has been steadily falling in the South since 2004, and is now down to 8.2% of valid votes. PDT lost most of its votes in the region, from 26.2% in 2012 to 10.9% this year. Similarly, PC do B reversed an upward trajectory, with its lowest vote share since 2004. PSDB and PMN were the biggest winners (around 9 p.p. each). PSOL captured a small part of the votes lost by other leftist parties, rising its share by 1.9 pp.

Is there a correlation between the outcome of municipal elections and the outcome of presidential elections? Given Brazil’s election calendar, in which there is a two-year gap between municipal and presidential/gubernatorial/legislative elections, one can question to what extent do municipal ballots anticipate trends in the vote for president two years later. Our analysis, however, found no correlation between results in the change in share of votes at the municipal level received by PT and PSDB between the last two presidential elections (2006 to 2010 and 2010 to 2014) and the changes between corresponding previous municipal elections (2004 to 2008 and 2008 to 2012). However, municipal elections have been good proxies for the future congressional composition1. If holds true for the upcoming congressional elections, we could see an even more fragmented Congress in 2019, with leftist parties losing relative ground to the center and the center-right. If such fragmentation does indeed occur, this could strengthen the case of those in favor of political reform that aims to reduce the effective number of parties and lift barriers to the creation of new parties. Last July, a group of center-right senators proposed a constitutional amendment proposition (PEC36/2016) to introduce a barrier clause (whereby from 2018 onward, only parties with more than 2% of the national vote could be represented in Congress) . A similar bill was deemed unconstitutional by the Supreme Court in 2006, but some justices have since been quoted admitting the possibility of a new appraisal if Congress passes a new amendment2.

1 See, for example, “Premiando os rejeitados”, Marcus André Melo (Folha de São Paulo, October 3, 2016) and Ambition, Federalism, and Legislative Politics in Brazil, David Samuels (Cambridge University Press, 2003). 2 See, for example, Barroso defende cláusula de barreira para evitar a proliferação de partidos (http://www.conjur.com.br/2016-mai-17/barroso- defende-clausula-barreira-excesso-partidos) and Presidente do TSE defende nova cláusula de barreira para conter a criação de partidos políticos (http://www.tse.jus.br/imprensa/noticias-tse/2015/Marco/presidente-do-tse-defende-nova-clausula-de-barreira-para-conter-a-criacao-de-partidos- politicos) 11

CONTACTS / IMPORTANT DISCLOSURES Macro Research Maciej Reluga* Head Macro, Rates & FX Strategy – CEE [email protected] 48-22-534-1888 Sergio Galván* Economist – Argentina [email protected] 54-11-4341-1728 Maurício Molan* Economist – Brazil [email protected] 5511-3012-5724 Juan Pablo Cabrera* Economist – Chile [email protected] 562-2320-3778 Brendan Hurley Economist - Colombia [email protected] 212-350-0733 David Franco* Economist – Mexico [email protected] 5255 5269-1932 Tatiana Pinheiro* Economist – Peru [email protected] 5511-3012-5179 Piotr Bielski* Economist – Poland [email protected] 48-22-534-1888 Marcela Bensión* Economist – Uruguay [email protected] 5982-1747-5537 Fixed Income Research Brendan Hurley Macro, Rates & FX Strategy - LatAm [email protected] 212-350-0733 Juan Pablo Cabrera* Chief Rates & FX Strategist – Chile [email protected] 562-2320-3778 Nicolas Kohn* Macro, Rates & FX Strategy - LatAm [email protected] 4420-7756-6633 Aaron Holsberg Head of Credit Research [email protected] 212-407-0978 Equity Research Christian Audi Head LatAm Equity Research [email protected] 212-350-3991 Andres Soto Head, Andean [email protected] 212-407-0976 Walter Chiarvesio* Head, Argentina [email protected] 5411-4341-1564 Valder Nogueira* Head, Brazil [email protected] 5511-3012-5747 Pedro Balcao Reis* Head, Mexico [email protected] 5255-5269-2264 Electronic Media Bloomberg SIEQ Reuters Pages SISEMA through SISEMZ

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