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A Clear-Cut Victory for Brazil’s Next President Yields an Uncertain Future for His Country

A Clear-Cut Victory for Brazil’s Next President Yields an Uncertain Future for His Country

Voters in Brazil sent a strong message by choosing Jair Messias Bolsonaro of the conservative Social Liberal Party as their next president. But questions abound over Bolsonaro’s ability to govern and how quickly he can return the country to economic and political stability — if he can at all.

W

hen the final votes were tallied in Brazil’s general elections last October, the returns were both as expected and resounding. Right-wing candidate Jair Bolsonaro of the Social Liberal Party earned 55.1 percent of the vote, easily defeating Fernando Haddad of the Worker’s Party, who garnered 44.9 percent. The moment ended 14 years of rule by the left-wing Worker’s Party.

While Bolsonaro’s victory made a statement, election data show a large portion of the Brazilian population sent another message: Almost 41 million — a record number — chose neither Bolsonaro nor Haddad, nor any candidate for that matter. Instead, they voted “nulo” (null or protest), branco (“blank”), or in abstention. This demonstrated extreme disenchantment with politicians in general and frustration with the establishment.

Rather than a “win” for Bolsonaro, then, Brazil’s election results can be considered a “loss” for traditionally powerful parties like the Worker’s Party, their centrist coalition parties and historical political elites. Among those who did vote for Bolsonaro — who ran on a populist, authoritarian and law-and-order platform — were a sizeable number of moderates who titled the election in his favor simply because they saw him as a vehicle for expressing their opposition to the status quo.

Thus, Bolsonaro’s mandate heading into office in 2019 is not nearly as strong as his vote totals suggest. To sustain his presidency, he’ll need to generate economic growth, improve employment prospects and deliver some early political wins.

He has his work cut out for him.

Governing Through Power, Not Ideology

Although Brazil’s political system grants the president strong executive powers, the position itself relies upon an unwieldy legislature to implement any major policy changes. Known as a “coalitional presidentialist” system, Brazil’s presidents must cobble together a majority coalition from a dispersed and fragmented legislature. Currently Brazil’s Congress comprises more than 30 ideologically disparate political parties.

Since Brazil’s return to democracy in 1985, every president has had to patch together a hodgepodge of ideologically disparate parties to effectively govern. Former presidents have used a variety of licit and illicit practices to create party loyalty and fidelity within the governing coalition.

This institutional feature of the Brazilian political system means that Bolsonaro must put aside his fiery rhetoric and create a majority coalition that includes trenchant opposition if he wants to govern successfully.

Here are the main issues Bolsonaro will face following his inauguration on January 1:

Economy in Turmoil

Lifting Brazil out of its dire economic crisis must be one of the first issues tackled by President Bolsonaro. None of his other policy objectives can be achieved without a return to growth and lower unemployment. To restore Brazil’s fiscal equanimity, Bolsonaro will need to overcome a fiscal deficit totaling almost 8 percent of GDP and somehow enact desperately needed pension reform.

To appease investors and capital markets, Bolsonaro has indicated that Paulo Guedes, a University of Chicago-trained, orthodox economist and proponent of free markets, de-regulation and liberal economic policies, will be a “super minister” with some oversight over other economic departments and ministers.

However, to achieve meaningful pension reform, Guedes and Bolsonaro will need a two-thirds majority in the Brazilian legislature to modify the pension system, a Herculean task in the hyper-polarized political environment.

Rampant Crime

A notable feature of the election was the perception of Bolsonaro’s “law and order” campaign as a potential cure to social disorder stemming from rampant crime and corruption. His base expects quick results on these issues. Bolsonaro might also try to get some early wins post-inauguration with other social initiatives promised during his campaign.

For an in-depth look at the optimistic, moderate and pessimistic scenarios for Bolsonaro’s administration, see the one- and two-part corresponding white paper on FTI Consulting’s website.

One example is to weaken restrictions on gun ownership, a promise he made early in the campaign as a blanket response to fears of a lack of security in the country. However, this legislative change would require significant coalition support from a highly fragmented legislature.

Corruption Scandals

Rampant corruption is a major issue for the Brazilian population, with the country’s reputation especially tainted by the notorious Operation Car Wash (“Lava Jato”) scandal of the past two decades. Movements to combat corruption are almost universally supported, and therefore provide fertile territory for some early political wins for Bolsonaro.

The president-elect has promised to implement the so-called “10 Measures Against Corruption,” originally developed and proposed by Brazil’s federal public prosecutor’s office.  However, Bolsonaro’s own administration will not be immune from scrutiny. Significant uncertainty could arise if allegations or investigations reach key members of his own team or coalition partners — not a remote possibility.

Restoring the Energy Sector

Like past governments, the incoming Bolsonaro administration understands that a thriving energy sector is key for economic recovery. Plentiful offshore oil and gas reserves have positioned the country as an energy powerhouse, and the current Temer Administration accelerated reserve development by softening restrictions on private investment and local content requirements.

On the campaign trail, the president-elect vowed to deliver a more flexible, open, competitive and profitable energy sector, indicating his administration will sustain Temer’s policies. Bolsonaro could score an early victory by pushing through Congress a much-needed opening of the natural gas market that has stalled over the past year.

Uncertainty Following Inauguration

To remain in power, Bolsonaro must act quickly to reenergize the economy. The Brazilian legislature has impeached presidents during periods of sustained economic malaise, and Brazilians have endured several years of anemic economic performance following the worst recession in the country’s history. Patience is wearing thin.

Markets expect that Bolsonaro will make good on his promise to give Guedes free rein over economic policy. Analysts bet that, in addition to pension reform, Guedes will be able to make good on his campaign trail promises — including privatizations, reduced public spending and implementation of tax reform — and eliminate Brazil’s fiscal deficit in year one and return it to a primary surplus in year two, bringing Brazil back to fiscal discipline.

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Still, there are reasons to question whether markets may have overestimated just how far Bolsonaro will take economic reforms. Bolsonaro himself appears to have only recently embraced the liberal market policies advocated by Guedes, raising suspicions over the true extent of his personal commitments to reform. Unfortunately, there is simply no historical precedent in Brazil for adopting deep neoliberal reforms advocated by Guedes.

With the need to expend significant political capital on achieving economic stability early on, it is unclear which, if any, policies Bolsonaro advocated for during the campaign will be prioritized. The effectiveness of his more radical proposals is doubtful and the potential for further politicization of the Brazilian electorate is great.

Published December 2018

© Copyright 2018. The views expressed herein are those of the authors and do not necessarily represent the views of FTI Consulting, Inc. or its other professionals.

About The Authors


Christopher DeSa
christopher.desa@fticonsulting.com
Managing Director
Forensic & Litigation Consulting
FTI Consulting

Liliana Diaz
liliana.diaz@fticonsulting.com
Managing Director
Economic Consulting
FTI Consulting

Ana Heeren
Ana.Heeren@fticonsulting.com
Senior Managing Director
Strategic Communications
FTI Consulting

Gavin Parrish
gavin.parrish@fticonsulting.com
Managing Director
Global Risk & Investigations Practice
Forensic & Litigation Consulting
FTI Consulting

Stephanie Bergeman
Associate Director
Forensic & Litigation Consulting
FTI Consulting

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The views expressed in this article(s) are those of the author and not necessarily those of FTI Consulting, Inc., or its professionals.
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