Divergent Forecasts – Uncertainties in Brazil’s Post-Election Scenario by Eduardo Zardo

Brazil’s recent presidential election was marked by a stark opposition from Brazil’s left-wing party, the Worker’s Party, against the far-right candidate and newly elected president Jair Bolsonaro, whose victory ended the Worker’s Party’s fourteen years in power. Mr Bolsonaro took intolerant stances on social issues throughout his political career and during the campaign; his proposals that minorities should be subdued to the majority have made him widely unpopular among women, the LGBT community, and Brazilians of African descent. Despite such far-right social agenda and growing unpopularity, the Brazilian economy seems to be in favour of Mr Bolsonaro; the Brazilian currency has risen in value against the American dollar, and the Brazilian stock market rose.

When the Worker’s Party was in power, Brazil fell into the worst economic recession in the country’s history. Crime rates skyrocketed, and corruption dominated the Brazilian political scene and stained the country’s credibility worldwide. Due to widespread corruption in Brasilia and the administration’s incompetency in managing the taxpayer’s money, the Brazilian public grew an extreme sentiment of rejection toward the traditional political system. The far-right candidate Jair Bolsonaro capitalized on these conditions, delivering propagandas that he would reform Brazil. His biggest triumph was joining forces with the renowned economist Paulo Guedes, who received his doctorate from the University of Chicago and is today a prominent businessman.

The president-elect said he will combine the ministries of Finance, Planning and Industry to one Super Ministry which will be led by Mr Guedes. Among the various topics covered in his proposal to reorganize the government, Guedes indicated privatizing a large number of state-owned companies, which would provide an excellent opportunity for investment and capital raising. It could both generate a multitude of jobs and alleviate the terrifying 13.1% unemployment rate which has more than doubled in the past four years.

In addition, the financial markets in Brazil celebrated Bolsonaro’s looming victory in hope that he will cut government spending, simplify taxes, privatize state companies and eliminate excessive regulation. Finishing the revamp of the pension scheme in Brazil is another big promise among his proposals. All these reforms are needed for Brazil to recover from the current debt crisis. According to The Economist, the Brazilian stock market index rose by 10% in the month leading to the election as Mr Bolsonaro’s victory became clear. The uptick in Brazil’s economic indexes reflects international investors’ approval of the newly elected president’s plans and ideas, despite his authoritarian leanings.

Nonetheless, the election of the right-wing politician has generated divergent forecasts on Brazil’s economy. Goldman Sachs Associate Jose Colasuonno suggests that Mr Bolsonaro and Mr Guedes will bring beneficial changes to the Brazilian economy as the country recovers from its current economic crisis. Economists at UBS predicts the economy to grow at 3% a year if the president-elect governs skilfully, while Citibank has cut its growth prediction from 2.5% to 2.2% for next year claiming the government will reform less than the market expects.

The pressing problem is that Mr Bolsonaro rhetoric and proposals have been extremely controversial and have propagated hate against minorities. During his campaign, many of his voters displayed violence against people of the LGBT community, black community, and other minorities. Mr Bolsonaro denied involvement in any of these incidents. Even though international investors seem to have enjoyed the president-elect’s ideas to reform the country’s sluggish economy, there are still wide-ranging doubts about his success.

The markets currently seem to be willing to accept his radicalism, in part because he does not look or sound like the centrist and leftist politicians who were perceived as having caused the country’s economic problems in the first place. Nonetheless, it is unclear whether Mr Bolsonaro’s programme – a mix of economic liberalism and social conservatism – will work harmoniously.


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