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Why Markets Should Be Skeptical of Jair Bolsonaro

The leader in polls for Brazil’s October election does not have a pro-business past.
Andre Coelho/Bloomberg via Getty Images

This piece has been updated.

Since 1991, retired army captain Jair Bolsonaro has been a lonely voice in Brazil’s Congress, expressing nostalgia for the country’s military dictatorship, attacking human rights, and insulting women, black people, and LGBT people. 

Yet today a Bolsonaro presidency is a real possibility. He leads all major polls for Brazil’s presidential election. He’s running the same campaign that Donald Trump ran, in which he is the outsider and everyone else is a corrupt insider. Indeed, Bolsonaro’s antagonistic position toward Brazil’s political establishment is proving a winning formula, especially after an endless wave of corruption scandals has left voters tired and looking for a new kind of leader.

While human rights organizations are terrified by the possibility of a president who despises the core principles of a Brazilian Constitution designed to curb authoritarian rule, Brazil’s investors and business class envision a much different  and friendlier  outcome. 

A recent survey by Brazilian investment broker XP Investimentos with 204 Brazilian investors found that 48 percent of the respondents believe Bolsonaro will win. Surprisingly, surveyed investors did not seem concerned by this possibility. More than half of those surveyed thought Brazil’s currency would appreciate and that stock markets would rise with a Bolsonaro win. 

Investors’ optimism about Bolsonaro is largely driven by the fact that his main economic advisor is Paulo Guedes, a University of Chicago-educated free-market enthusiast. Guedes is perceived as someone who could play the same role as Chile's “Chicago Boys,” who implemented neoliberal reforms under Augusto Pinochet even as the military dictatorship continued committing hideous human rights violations. 

The reality is more complicated and Guedes might not have that much influence in a Bolsonaro administration. Even though Bolsonaro portrays himself as an outsider, his record in Congress over 20 years provides evidence that he is not exactly sympathetic to the free market. During that time, he has opposed privatizing the telecoms industry, ending the state monopoly in the oil sector and, most importantly given its current relevance to investors, all pension reform efforts.

The pension reform is a prime example of the tenuous nature of Bolsonaro’s embrace of investors’ agenda. In January 2018, when the current administration still seemed to have a good chance of approving a comprehensive pension reform much desired by the business community, Bolsonaro positioned himself against it and stated: “I can’t just send future retirees into poverty (…) because of a financial market demand.” Since then, he has said he favors increasing the retirement age by just one year, to 61 for men instead of 65, as most observers believe is necessary to make the system viable. He has added that paying all retirees the minimum wage would solve the problem, but that he doesn’t want to “proletarianize the country, because that’s called communism. And I am not a communist.”

One of his main campaign proposals is support for a protectionist agenda for niobium exploitation. Niobium is a very resistant metal and Brazil possesses the vast majority of deposits. According to Bolsonaro, state control of the metal’s exploitation would increase the commodity's price and could be a central element to solving the Brazilian fiscal crisis. That is not exactly a market-friendly approach. 

Another good example of populist behavior was his response to the recent truckers’ strike, which created a food supply crisis in the whole country and buried any remaining hopes for meaningful economic growth in 2018. Bolsonaro changed his position many times during the crisis, according to which direction the wind was blowing. At one point, after President Michel Temer threatened to punish truckers who were still blocking roads, Bolsonaro implied that if elected president he would reimburse them for any fines. That’s hardly the position of a pro-market advocate, or someone who upholds the rule of law. 

It is hard to imagine Bolsonaro would completely change his long-held beliefs just because he has Guedes as an adviser. What’s more, his allies running for Congress are mainly retired police and military officers running on a law and order platform. They are likely to oppose any efforts to privatize public pensions that would adversely affect their former colleagues. And Bolsonaro is likely to have political coattails – his popularity could help elect many of his allies in October. 

Finally, Bolsonaro’s anti-civil rights agenda would likely increase social conflict in the country. With Brazil just starting to recover from the truckers’ strike, it is not hard to imagine a polarized climate that could in turn take a toll on the economy. 

Investors seem to hope that Bolsonaro could repeat the Pinochet experience and it is not surprising that investors and the business elite are not focused on potential human rights violations. But it is curious that investors do not seem able to price the real risks that Bolsonaro represents to the economic reforms that they believe are so urgently needed to sustain Brazil’s economic recovery.  

This piece was updated on September 20 to reflect Luiz Inácio Lula da Silva's withdrawal from the presidential race. 

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Abramovay is a Ph.D. in political science (IESP-UERJ) and Regional Director for Latin America and the Caribbean at the Open Society Foundations

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Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: economics, Brazil, Elections 2018

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