1. 8 October 2010 Brazil: election outlook The second round and beyond Christopher Garman Director, Latin America (202) 903 0029 garman@eurasiagroup.net

2. 2 Two messages: (1) The election will tighten, but Rousseff remains a heavy favorite (2) Next administration will be marked by a continuity, but there will be some positive and negative surprises

3. 3 Probability of Victory for Government Candidate Source: Clifford Young and Christopher Garman, “The Unpredictability of Pundits and Predictable Elections: Using public opinion to predict political disputes”, WAPOR, 12 May 2010.

4. 4

5. 5

6. Eurasia Group is the world’s leading global political risk research and consulting firm. This presentation is intended solely for internal use by the recipient and is based on the opinions of Eurasia Group analysts and various in-country specialists. This presentation is not intended to serve as investment advice, and it makes no representations concerning the credit worthiness of any company. This presentation does not constitute an offer, or an invitation to offer, or a recommendation to enter into any transaction. Eurasia Group maintains no affiliations with government or political parties. © 2010 Eurasia Group, 475 Fifth Avenue, 14 th floor, New York, New York 10017 www.eurasiagroup.net 6 Voter Demands Social Class ABCDE Crime and Violence 504953 Jobs 444954 Healthcare 414348 Drug Trafficking 313741 Education 392715 Low Salaries 152120 Corruption 201410 Source: Ipsos Public Affairs, September 2010

7. 7 Congressional Election Results

8. 8 Two policy drivers that will shape the next administration The “challenge of abundance” Politics fundamentally changes when the risk of insolvency is no longer a key concern for investors The learning curve on the left Lessons learned in President Luiz Inacio Lula da Silva’s administration extend beyond low inflation –Greater appreciation for the bottlenecks for investments –The left has learned the up-side to developing deeper capital markets –Policymakers learn from the failures of the past (tax reform)

9. 9 A mix of positive and negative surprises Macroeconomic Policy Outlook Fiscal Policy: The government will signal a desire to roll back spending, have some mixed success, but fail to fully deliver Exchange rate and monetary policy: Greater concern on FX appreciation, but less conflict within economic team Reform outlook Structural reforms: Tax reform will be the positive surprise Microeconomic reform agenda: Focus on hurdles to investments and deepening capital markets Sector specific reform: Oil & gas, mining, utilities, telecommunications, and restrictions on foreign land purchases

10. 10 Rousseff’s Reform Agenda Structural and Fiscal ReformsProbabilityTiming Tax Reform60%First half 2013 Public Sector Payroll Cap60%First half 2011 Public Sector Pension Reform40%First half 2012 Microeconomic ReformsProbabilityTiming Positive Credit Bureau60%First half 2011 Antitrust Legislation / Competition reform70%Late 2010 to early 2011 Government procurement reform70%First half 2011 Public Auditor (TCU) reform50%First half 2012 Environmental Licensing60%First half 2012 Foreign Asset Amnesty40%Second half 2011 Sector Specific ReformsProbabilityTiming Oil Reform80%Late 2010 to early 2011 Foreign Landownership Restrictions60%First half 2011 or second half 2012 Mining Reform60%First half 2013 Utility Reform70%Second half 2011