The power of the markets? The international bond markets and the 2002 elections in Brazil

Abstract

ABSTRACT This study uses an investment bank's fixed income research reports to analyse in unusual detail the investment activities and attitudes of international emerging bond market investors during the extreme market volatility over the Brazilian presidential elections of 2002. In examining these investors' reaction to the prospect and subsequent policies of the left-wing Lula government, the article considers Mosley's (2003, Global Capital and National Governments, Cambridge, New York, Melbourne: Cambridge University Press) conclusions regarding the strength and breadth of the bond market's influence on emerging market governments. The data show that international bond market investors did not exit Brazil before the elections, putting in question whether they were the source of the rise in the cost of government borrowing that Mosley and others see as indicative of the market's strength. This suggests that our understanding of the actors responsible for market movements remains incomplete. The article, therefore, challenges the idea, common within international political economy, of ‘the market’ as a single entity, with common actions and policy preferences. The data presented strongly suggest ‘the market’ is in reality made up of multiple, heterogeneous actors, often lacking any unity of opinion or purpose. After Lula's election victory, market prices recovered and the data show that international investors increased their investments in Brazil, despite slower policy implementation than market practitioners desired and the new government's social agenda. This supports a questioning of the true breadth of investors' policy interests and, therefore, influence.