June 21, 2021

Bolsonaro, a neoliberal recipe for a polarized country | Markets

Bolsonaro, a neoliberal recipe for a polarized country | Markets

"Barbaridad is to deliver our oil reserves to foreign capital; barbarity is to privatize telecommunications and (the electric company) Vale ". Jair Messias Bolsonaro, candidate whom polls place as favorite to win the presidential elections in Brazil this Sunday, justified in this way, in the nineties, his desire that the military dictatorship -who governed Brazil between 1964 and 1984- would have shot to Fernando Henrique Cardoso, president of Brazil at the time and executor of the privatizations.

Bolsonaro, 63, has been a deputy since 1991 and has changed eight times in the last 27 years – he now aspires to the presidency of the Liberal Social Party (PSL) – but he never changed his misogynistic, racist and homophobic ideas and neither, Until just two years ago, he had modified his economic ideas. But he met the economist Paulo Guedes, trained at the University of Chicago, cradle of neoliberal thought, and his vision of the economy changed dramatically.

Bolsonaro, who was a military man before entering politics, went, without any transition, to embrace "economic nationalism", as defined by Thomaz Favaro, director of the risk consultant Control Risks in Brazil, to be a promoter of neoliberalism. The privatization of public companies is one of the main economic proposals of the former military.

His defense of neoliberalism is in fact one of the reasons why the markets received with enthusiasm the victory of the PSL candidate in the first round with 46% of the votes, 17 percentage points more than his opponent in the second round of this Sunday, Fernando Haddad, of the Workers' Party (PT), which obtained 29.3%.

The day after the election, the Brazilian Stock Exchange rose 4.57%, the highest increase since March 2016. Investors, fearful of the economic program of the PT candidate, celebrated that Haddad's chances of being the next Brazilian president would be reduced after the vote.

"Bolsonaro wants to liberalize the economy and reduce the State," says Favaro. The former military has already announced that, in the case of winning, his finance minister will be Guedes, who aims to attract more foreign investment to the first economy in Latin America and the eighth worldwide.

In this sense, the Spanish companies that have investments in Brazil, including Santander, Iberdrola and Telefonica, are confident in the future of Brazil and will continue to invest, admits a high source that deals with trade relations between Spain and Brazil . And he adds that the companies present in the South American country see quite calmly a scenario in which Bolsonaro is invested president.

"The market has given Bolsonaro the benefit of the doubt," says Clemens Nunes, Ph.D. in economics and professor at the School of Economics of São Paulo. The economist says that what worries investors most is fiscal discipline, which they believe is more feasible in a Bolsonaro mandate.

Spanish companies that have investments in Brazil prefer a Government of Bolsonaro, but equally arouses reticence

Nunes, however, qualifies: "It is not a matter of the best alternative between Bolsonaro and Haddad, but of the least bad. That's how the market sees it, "he says. Favaro says that "Haddad practically denies Brazil's fiscal problem" and recalls that investors and businessmen demand adjustment measures.

Bolsonaro has picked up the glove and focused the economic discussion on reducing the fiscal deficit, which is 7.45% according to the latest data from the Central Bank of Brazil. Although his electoral program provides few details about its economic axes and how they will be implemented in practice, Bolsonaro states that he will privatize a considerable amount of the 147 public companies that the central State has. And, in this way, it will reduce the deficit.

Favaro emphasizes that "the few proposals that are described in his government plan seem unlikely to be carried out, at least as they are described verbatim." The expert is also raising doubts about how Bolsonaro will be able to privatize the companies within a year, as his program marks. The director of the Control Risks consultancy in Brazil adds that the current Brazilian president, Michel Temer, "also had the same approach of opening the economy and reducing taxes on companies," but he points out that he has not achieved significant progress because "it is not So simple "to put it into practice.

The obstacles

Although the Brazilian Congress has historically been fragmented and without absolute majorities, the new composition will force Bolsonaro to negotiate with the other 29 parties represented in the Lower House, which has a total of 513 seats, and with the 19 formations present in the High Chamber, which has 81 senators. In Deputies, the PSL, with 52 seats, will be the second block behind the PT, which will have 56; while in the Senate there will only be four representatives of the PSL.

Such fragmentation will condition, for example, the reform of the pension system, a key law for Bolsonaro, which must pass through Parliament. The ex-military wants Brazil to leave the current pay-as-you-go system and move on to a capitalization system, that is, it wants the State to stop administering them and, instead, be managed by private funds.

Another inconvenience that Bolsonaro will have to overcome will be a probable resistance of the citizens to the adjustment measures. Temer withdrew the bill to reform the pension law in March of this year due to the rejection of a large part of the population and the massive mobilizations that took place throughout the country.

Finally, the international commercial alliances proposed by Bolsonaro may clash with the agreements that Brazil has already established in the past. "The United States will be the great ally for Bolsonaro," predicts Favaro. But to develop bilateral trade agreements, Brazil will have to respect the rules imposed by its membership of the Mercosur (Common Market of the South) or jump and face the consequences, creating a new source of concern.

The most controversial points of Haddad's electoral program

Fernando Haddad, 55 years old economist and philosopher, has a calm and moderate profile. The candidate for president of the Workers' Party (PT), former Minister of Education during the governments of Lula da Silva and Dilma Rousseff, is truly more liberal than the economic program he proposes, says Alexandre Chaia, professor of economics at the Business Institute Insper of São Paulo. But the markets are not afraid of his figure, but the ambitious plan of structural reforms for which he aspires to be president.

Banking reform is one of the economic axes of the PT. The PT blames private banks for contributing to "financial speculation", denounces the "oligopoly" in the sector and wants to empower public banks to compete with them and offer loans at low rates.

Haddad, who was also mayor of São Paulo for the PT between 2013 and 2017, plans to implement a progressive tax reform and prosecute the big tax evaders. In addition, he wants the State to intervene in the entry of foreign capital and establish regulations to "control the entry of short-term speculative capital." In this way, it ensures that Brazil will increase competitiveness and will have a less volatile exchange rate.

But the reform that most worries many big Brazilian entrepreneurs and also foreigners who own land in Brazil is agrarian. The PT has this proposal in its electoral program, but it does not explain how it will be carried out. The intention is to redistribute land and, if necessary, intervene some private ones.


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