Brazil Voted for Change. Will it Come?

Despite garnering significant popular support, Bolsonaro will likely face an uphill battle to deliver on his campaign promises. Investors and businesses with operations in Brazil can initially expect market-friendly economic policies, but the effective implementation and duration of such policies remain uncertain.

BOLSONARO

Bolsonaro’s background is quite unorthodox for a Brazilian presidential candidate. A former Army captain, he gained notoriety in the 1980s following well publicised article in which he voiced criticism of low military wages. After leaving the Army in 1988, he was initially elected to city councillor in Rio de Janeiro. He was subsequently elected for seven consecutive terms as a federal deputy for the state of Rio de Janeiro (between 1991 and 2018). 

 As a politician, Bolsonaro at first catered almost exclusively to the military and pro-gun vote in Rio de Janeiro. He then became notorious for making misogynist, racist, homophobic, pro-torture, and anti-communist remarks. His extremist views made him the perfect target of internet memes and sensationalist TV reporting, which helped elevate his national profile. Eventually, Bolsonaro became not only the candidate of the far-right, but also the representative of an anti-establishment rhetoric as the traditional political class was increasingly rejected by voters due to a growing anti-corruption sentiment among the population. 

 In addition to a loyal support base, he successfully employed social media to attack his opponents and distribute material in support of his candidacy. Smaller parties and candidates running for different offices latched on to Bolsonaro and benefited from his voter base, although Bolsonaro himself publicly endorsed only a small number of contenders. 

 On 6 September, roughly one month before Election Day, Bolsonaro was stabbed during a public rally by a mentally-ill man. The attack and his subsequent recovery removed him from the campaign trail – although he remained active on social media – and from any additional presidential debates, which hampered close scrutiny of his platform or proposals by his opponents or the press.

KEY PROPOSITIONS

The lack of depth of Bolsonaro’s government programme turned out to be a strong point of his campaign: devoid of detailed policy proposals, it offered only broad notions of what could be expected. The themes that dominated his campaign were the establishment of a free market economic policy; suppression of left-wing social movements; and zero tolerance of crime and corruption. However, his first days as president-elect have shed light on more concrete policy proposals not discussed prior to his election.

CRIME AND VIOLENCE

Bolsonaro’s main proposals are to deliver a pro-gun legislation, reduce the minimum age for prosecution as an adult and give carte blanche for law enforcement officers to shoot first and ask questions later. A pro-gun legislation is the most likely to be approved, while the reduction of the minimum criminal prosecution age might require some back and forth with legislators and leniency from the Supreme Court. Carte blanche to police is unconstitutional and, in theory, the constitution cannot be amended to allow it. However, to date, Bolsonaro’s aides have hinted that this would be implemented regardless and have defended a change in the “rules of engagement” of policing actions to give law enforcement officers ample liberty to shoot first.

CORRUPTION

During his campaign, Bolsonaro positioned himself as an anti-corruption candidate and has repeatedly stated that he will support the continuation of Lava Jato, the wide-ranging anti-corruption probe that began in 2014 with Brazilian oil company Petrobras and has since expanded into several economic sectors and into the political sphere.

However, many of Bolsonaro’s appointments to his transition team challenged Bolsonaro’s anti-corruption tenet. Onyx Lorenzoni, who admittedly received illegal campaign donations from a company under investigative scrutiny by public prosecutors, was announced as his chief-of-staff. Magno Malta, a politician allegedly involved in multiple corruption allegations, was announced as part of the transition team and is a tentative Minister of Families (a yet-to-be-created ministry). Paulo Guedes, Bolsonaro’s appointee for the Ministry of Finance, is himself under scrutiny by the federal public prosecutor’s office for corruption-related allegations involving mismanagement and misappropriation of money from federal pension funds.

On the other hand, Bolsonaro has offered the job of Minister of Justice to federal judge Sérgio Moro, who presided over the rulings of most of the charges brought by Lava Jato and serves as a cornerstone of political stability for Bolsonaro with the general public due to Moro’s high popularity in Brazil as an anti-corruption crusader.

SOCIAL AND POLITICAL ISSUES

Bolsonaro’s stance on social matters mirrors that of the rising far-right groups worldwide both in form and substance, and has historically made statements that indicate opposition to racial and gender equality and indigenous and LGBTQ rights, to name a few. Bolsonaro is also notorious for his defence of authoritarian regimes.

Since his election, however, Bolsonaro has toned down his position, at least in public. Nevertheless, some of his more extreme supporters have already engaged in intimidation campaigns nationwide. While he has publicly condemned the intimidation campaigns that ended in violence, it remains to be seen if Bolsonaro will endure with such rhetoric

ECONOMY

The market remains somewhat bullish on a Bolsonaro presidency, in the hopes of a hands-off approach to the economy. However, the likelihood that the incoming administration will be market-friendly over the long run is not entirely certain.

Bolsonaro has long been known as an economic nationalist, but has nominated Paulo Guedes, a University of Chicago-educated economist and libertarian, as his future finance minister. Guedes advocates an extreme reduction of the state’s role in the economy, pension reform, reducing taxes and eliminating trade barriers. Bolsonaro and Guedes’ relationship was a point of much debate during the campaign: Bolsonaro typically referred all economic questions to Guedes, but both men were often publicly at odds in terms of policy, specifically with regard to privatisation of “strategic” state-owned entities—mainly Petrobras and Eletrobras—and tax policy.

Yet, to date, Guedes has been given free rein to appoint Bolsonaro’s economic team and will apparently toe the line of similarly liberal and market-friendly appointments, such as the recent announcement to appoint Joaquim Levy, a University of Chicago-educated former finance minister and World Bank official, to the presidency of BNDES, Brazil’s state-owned social development bank.

Bolsonaro and Guedes, in particular, have sent mixed and often worrying signals to important allies and partners of Brazil. The most striking examples were Guedes’ strong criticism of Mercosur, a regional trade pact that includes Brazil’s most important commercial partners, and Bolsonaro’s announcement that he would move Brazil’s embassy in Israel – with which Brail runs a trade deficit – from Tel Aviv to Jerusalem following a call with President Trump. Almost immediately after the announcement, a trade mission from Egypt scheduled to land in Brazil in late 2018 was cancelled, despite the fact that Brazil runs a USD 1.5 billion-dollar trade surplus with Egypt. Bolsonaro also elicited some concern from China, Brazil’s top trade partner, for anti-Chinese investment rhetoric, which he has since dialled back.

Based on the public frictions between Bolsonaro and Guedes regarding major economic policy issues such as the privatization of state-owned enterprises, the permanence of Guedes` influence and role in the incoming administration remains to be seen

WHAT NEXT?

Bolsonaro’s capacity to advance his agenda will largely depend on his ability to garner support in the Chamber of Deputies. He seems to have the support of the majority of the lower house, which could potentially increase after the party transfer window opens in the second quarter of 2019, particularly for legislators which wish to capitalise on PSL’s and Bolsonaro’s momentum. At the same time, continued support from his base in the lower house will require a constant effort, as he is aligning with parties famed for hard-bargaining and pork barrel politics (such as the incumbent MDB). His opposition will be stiff, especially after a campaign where he suggested he would shoot or jail his opponents, leaving little political will for “across the aisle” propositions.

In addition, some of his proposals in the economic field, especially the pension and labour legislation reforms, are deeply unpopular with Brazilians. Current President Temer’s own pension reform, which is not as radical as Guedes’s likely will be, was unsuccessful in garnering enough support for a vote. While Bolsonaro might have a majority in the House to approve it – which would be a positive step for Brazilian economic policy – legislators in both houses of Congress will likely be weary of the political cost of supporting the reform.

Another imbroglio that Bolsonaro will have to solve is the constitutional impediment stemming from the ongoing federal intervention in Rio de Janeiro. According to the Brazilian Constitution, Congress is barred from voting on constitutional amendments – such as the one required to pass pension reform – while a federal intervention is in place. While the intervention is scheduled to end on 31 December, Bolsonaro has supported it and has publicly defended an extension of the mandate.

Currently, the incoming Bolsonaro administration elicits more questions than answers. The first post-election days have showcased a succession of announcements and retractions regarding his policy agenda. His ability to govern will be challenged by Brazil’s governing bureaucracy, the inherent unpopularity of many of the reforms he has touted throughout his campaign, and the durability of his inner-circle of advisors.

Ultimately, the stability of Bolsonaro’s economic team, his ability to garner congressional support for his eventual proposals, and his perceived adherence to an anti-corruption agenda are going to be critical indications of the potential longevity and success of his administration.