Brazil

On 1 January 2019, Brazil’s new President elect, Jair Bolsonaro will begin his four-year term as the 38th President of the Federal Republic of Brazil. His mandate during the election campaigns was that of free market reforms. However, all will not be an easy task for the new President. Brazil’s economic challenges are more daunting than his presidential quest. Given the deep recession faced by the country in 2015-16, coupled with its weak recovery in 2017-18, the Economic Intelligence Unit country report forecasts an average annual growth rate of 2.5% in 2019-23. Yet, Brazil’s economy is unlikely to pick up much until 2019.

The Political Environment in Brazil

Gaining 55% of the votes, Bolsonaro came to power after the most polarized and violent election campaign in the history of the political system, which was inaugurated in 1985. People in general are not too happy about their new leader. He is known for his vehement defense of the “shoot to kill” bandits and massive incarceration as solution for the urban violence, his clumsy bigotry against feminists and women in general, his gross prejudice against gays, lesbians and transsexuals, and all marginalized and contempt for basic social environmental, behavioral and labor rights.

In the last few years, Bolsonaro made a vast number of public statements considered to be homophobic (he said, for instance, he rather have one of his sons die in an accident than come out as gay); racist (he said one would not find Japanese – Brazilians “panhandling” because they are – supposedly in contrast with Afro-Brazilians, in the context – “not a shameless race”); and profoundly violent and/or misogynistic (in an argument with a member of Congress from the PT, he shouted that she did not even “deserve” to be raped).

In his victory speech, Jair Bolsonaro did mention that he would defend the constitution; but that does not rule out the possibility of authoritarianism in the country coupled with a potential decline in the freedom of the press. Another factor that will spear activity in the political environment is the upcoming election for municipal posts in October 2020. This will give the Bolsonaro government only a period of one year to pass bold reforms such as the pension reform and other structural reforms.

With an aim to slim the bloated government, the Bolsonaro administration created a Ministry of Economy, headed by Paulo Guedes and a Ministry of Justice and Political Security led by Sérgio Fernando Moro.

The Economic Environment in Brazil

The Bolsonaro government is expected to pursue the path of trade liberalization more vigorously through bilateral deals. The agenda is also to further integrate manufacturing into global value chains, as in the case of Mexico. In contrast, we see the appointment of Ernesto Araújo, an anti-globalist foreign minister.

From the banking side, we also see the potential for granting of formal independence to Banco Central do Brasil (the central bank), which will boost confidence in the inflation-targeting framework. Also, on the cards, is reduction of bureaucracy and lowering of the custo Brasil, which refers to the additional costs of doing business in Brazil in comparison with other emerging markets.

Jair Bolsonaro’s pro-free-market economic advisor, Paulo Guedes is proposing a privatization program to remove political appointees. This will improve efficiency, reduce political interference, increase competition and provide the government with an opportunity to raise revenue from the sale.

The new president’s election also led to strengthening of the Real in comparison to the dollar from R4.2:US$1 in September 2018 to R3.7:US$1 in late October 2018. This can be attributed to increased investor confidence on the free-market economic policies promised by the Bolsonaro government.

Jair Bolsonaro’s deep anti-Communist bias is also likely to impact Brazil’s foreign policy regarding China. Bolsonaro had mentioned during his electoral campaign that the Chinese “are not buying in Brazil, they are buying Brazil itself.” While he wants to continue the exports to China, defending strategic sectors such as energy and natural resources from Chinese investments is on his agenda. Since Bolsonaro’s foreign policy appears to be greatly influenced by U.S. President Donald Trump’s brand of ‘America First,’ discussions of a Brazil-U.S. trade deal as a U.S. response to Chinese influence in the region could be seen.