Date first published: 22/11/2018

Key sectors: all

Key risks: policy uncertainty; governability

The election of far-right former captain Jair Bolsonaro as Brazil’s next president has arguably been the biggest surprise in Latin America’s 2017-2018 super-electoral cycle. The unprecedented levels of uncertainty observed throughout Brazil’s electoral process is far from ending given the room for populist, nationalist and potentially erratic policies that the results of the 28 October runoff have created. 55.2 per cent of those who voted chose the far-right option over leftist Workers’ Party (PT) Fernando Haddad, who won 44.8 per cent of the vote. The president-elect seems to be relatively aware of the concerns that some of his campaign stances have created and has since winning toned down some statements. Created confusion with others. Continued to appoint former generals to his cabinet. Reiterated that his security stance will be hard-line. Started preparing to deal with a Congress that has never been as fragmented as it will be during his term. Markets and trade partners have been reassured and given reason to worry. Brazilians as well.

Generals, economists, technocrats. The choices to populate Bolsonaro’s cabinet and inner circle speak for their own. The role that former military men – and therefore the military– will have over the next four years in Brazil should not be underestimated. The vice president elect, Hamilton Mourao, is a retired army general seen as someone that might try to counterbalance Bolsonaro in some of his controversy-triggering positions. Mourao appears likely to temper Bolsonaro’s clear preference for the United States (US) – particularly US President Donald Trump – over China. Both countries, currently in the middle of a trade war, are certainly strategic to Latin America’s largest economy, and concerns have been raised about the incoming administration’s willingness to maintain the level of business China has gained – and intends to further pursue – as opportunities to increase foreign and private participation in the mining, oil and energy sectors will likely continue to rise. Free market policies led by Paulo Guedes, a so called ‘Chicago Boy’ who will become economy minister, are expected to mark economic policy choices. The latter will have to face a fragmented Congress and a polarised society.

Pension reform, privatisations, polarisation. Policy and management decisions on these three subjects are expected right after the administration takes office on 1 January. Some hints, although to a degree unclear, have already been given. Fiscal consolidation will be extremely difficult without a pension reform which – even if highly unpopular – Bolsonaro seems ready to push for. It is not clear if a new, more gradual proposal will be drafted or if the new government would be ready to take on the bill that incumbent President Michel Temer could not get Congress to approve. Guedes is expected to push for the reform, which will come at political costs. Mixed signals have been given regarding privatisations. Roberto Castello Branco, set to become CEO at state-owned oil company Petrobras, intends to focus on oil exploration and production and intensify the sale of non-core assets, reportedly without a mandate to privatise the company. The military would be against the latter, although partial privatisation cannot be ruled out. Policymaking and implementation will not be straightforward if democratic institutions are to be respected. Tempering polarisation and avoiding a deep populist dive would be ideal. Although it might be already too late, Brazil has recently taught to expect the unexpected.