Incumbent President Luiz Inácio Lula da Silva won a contentious runoff election in Brazil as the nation faces rising prices and high household debt. After neither candidate secured a majority vote in an early October election, the country headed into a runoff vote on Oct. 25. Lula defeated Sen. Flávio Bolsonaro Sunday night to earn his fourth term as Brazil’s president.
The election between right-wing Bolsonaro and leftist incumbent Lula comes as inflation eases. Consumer price index rose 0.32% in mid-October, according to Reuters, a drop from the previous month’s 0.70% reading and below the predicted 0.43%. Prices rose 4.62% in 12 months, an increase from 4.47% in the previous month but also below the forecasted 4.73%. The rise in prices reflects the 0.88% increase in food and beverage prices followed by a 0.55% increase in the price of personal expenses and 0.1% in housing costs.
Brazil’s central bank targets inflation at 3%, per Reuters, plus or minus 1.5 percentage points. Policymakers will meet in the first week of November, following the tight election, to discuss moving forward. Easing core inflation is a priority for the policymakers, but whether or not a rate cut is in the bank’s future may depend on the results of the runoff election as fiscal credibility is a big concern.
The central bank is preparing a few measures to curb rising household debts, including stricter disclosure requirements for lenders and further research into foreign regulatory models that limit access to unsecured credit based on borrowers’ income, according to Reuters. The move reflects concerns about household debt and the fast rise of unsecured lending. The bank has signaled that it may tighten oversight of unsecured credit, particularly credit card lending. There is no official comment on from the central bank at this time, but anonymous sources have said any measures will be rolled out gradually.
High cost of living is a big issue heading into the election, with Lula struggling to win over voters upset about heavy household debt and high prices while Bolsonaro capitalizes on these concerns. As president, Lula worked on boosting customers’ purchasing power.
Credit managers with customers in Brazil are mostly offering 1-30 day terms (43%) or 31-60 day terms (43%) while 14% do not extend credit in the region. Customers are 16 days beyond terms on average, with payment delays mostly attributed to billing disputes (75%), unwillingness to pay (75%) and an inability to pay (50%).
“Verify financial strength using local credit sources and trade references, not just information provided by the customer,” one respondent advised.
“Respect data privacy requirements,” another respondent wrote. “Ensure credit and collection activities comply with Brazil’s LGPD laws.”
“Develop a clear understanding of your customer’s goals, challenges and business strategy,” another respondent advised.
