What I’m Expecting from Round 2 of the Brazilian Presidential Elections

Tomorrow (Sunday, October 28) is the second round of the 2018 Brazilian Presidential election, almost inarguably the most consequential in the modern history of Brazilian democracy.

After a landslide first round result which saw Jair Bolsonaro win 46% of the vote (short of the 50% required for an outright victory), Bolsonaro will face off against Workers’ Party (PT) candidate Fernando Haddad (winner of 29% of the primary vote) in a battle of the insurgent outsider versus the entrenched party politician; with one side promising to blow up the existing political institution, and the other one promising stability and a continuation of the Workers’ Party regime of Lula and Dilma Rousseff.

Since the October 7 primary, the polls have narrowing slightly, but continue to predict a rout for Bolsonaro: from an 18-point advantage (59/41) on October 18th to a 12-point advantage (56/44) this week. Late breaking news, including an endorsement of Haddad by the former head of the Supreme Court, Joaquim Barbosa, and an overtly apolitical non-endorsement by 3rd place finisher Ciro Gomes (positioning himself for a 2022 run), are unlikely to change the minds of many Brazilians.

In Brazil, the sides are as polarized as ever: to Bolsonaro supporters, and even just anti-Lula/PTistas, the idea of a Workers Party victory is so anathema that I genuinely fear how a Bolsonaro loss / Haddad victory would be received: almost certainly cries of electoral manipulation would follow, as well as manifestations across Brazil. Whether or not this would lead to violence would depend on the response of Bolsonaro himself. As we’re increasingly seeing in the United States, mild denunciations of violence are insufficient for avowed extremists. Given Brazil’s existing culture of violence and the already-incensed extremists among Bolsonaro’s faithful (resulting in acts of violence and even murder), it is safe to expect the absolute worst.

While many Bolsonaro supporters would consider themselves committed to Brazilian democracy, the prospect of 4 years of PT rule would likely lead to calls of a military intervention. Army Chief Eduardo Villas Boas has been mostly silent since his comments on the Supreme Court decision on Twitter regarding the imprisonment of Lula. Maybe alarmist, but if Haddad seems primed for victory, I would expect a response of some sort from General Villas Boas on Twitter.

In the increasingly more likely instance that Bolsonaro is elected, I would expect outward jubilation from Bolsonaro’s supporters, with manifestations in support of the newly elected President. Given the empowerment already felt by many of his supporters, there may be violence in the event of a Bolsonaro victory as well, violence that I suspect would be more targeted against supposed enemies – feminists, LGBT individuals, and other minorities. In the days following, I would expect to immediately assume a muscular posture through anti-gang and trafficking actions, followed by other punative actions meant to demonstrate his ‘zero-tolerance’ policy towards criminals in Brazil.

Meanwhile, the international press has been near-united in its opposition to Bolsonaro (as well as its general antipathy towards Haddad) and the expected consequences of the election and Brazilian democracy.

  • The Economist editorial – Containing Jair Bolsonaro (October 27): “his corrosive rhetoric may make Brazilians more receptive to autocracy in the future.”
  • A letter published in The Guardian – Bolsonaro threatens the world, not just Brazil’s fledgling democracy (October 25): “The international community, and in particular France and the European Union, must take action and support Brazilian democrats, regardless of the outcome of the presidential election.”
  • A letter published in Le Monde – Brazilians, don’t give up your values (October 26): “we wish to express our immense concern by addressing in particular Brazilian voters still undecided, so that they position themselves in favor of democracy.”
  • The New York Times editorial – Brazil’s Sad Choice (October 21): “a sad day for democracy when disarray and disappointment drive voters to distraction and open the door to offensive, crude and thuggish populists.”

Further, the New York Times has provided a consistent anti-Bolsonaro soapbox via ongoing editorials from Brazilian politicians (Lula – August 14), celebrity activists (musician Caetano Veloso – October 24), authors / commentators: (Vanessa Barbara – October 24 and October 2), and researchers (Robert Muggah – October 8).

The only pro-Bolsonaro editorial that I came across leading up to the election was from the Wall Street Journal, entitled “Brazilian Swamp Drainer” (October 8). Doubling as an endorsement of Bolsonaro, the article lauds Bolsonaro’s supposed “outsider” status, frames his alarming rhetoric towards racial minorities, LGBT, and other threatened communities as “traditional values,” and claims his opponent’s economic policies to be from the “Hugo Chavez playbook.” After recounting the failures of the PT era under Lula and Dilma Rousseff, the editorial concludes: “After so much political turmoil and corruption, it’s hardly surprising that Brazilians are responding to a candidate who promises something better.”

Taking into account the financial markets’ reaction to Bolsonaro’s result in the first round, the Journal’s editorial makes a lot more sense. The morning after Bolsonaro’s result, the Brazilian stock exchange, Petrobras (the national oil company), and the Brazilian real against the US Dollar, all bellwethers of international sentiment towards the Brazilian economy, all shot up. The conclusion is clear: the international financial markets and global capital are clearly placing their hopes on President Bolsonaro and the neoliberal economic stewardship of his minister Paulo Guedes. Again, how much this indicates a vote of confidence in Bolsonaro himself, or a statement against the Haddad and the Workers Party, is difficult to ascertain (a running theme.)

In the likely event that Bolsonaro does win, it will be interesting whether markets will rally further in Brazil’s favor, or whether much of the impact of Bolsonaro has already been priced in following the primary result.

The emerging markets investor Jean Van de Walle offered a more nuanced look at the published economic plans of both Haddad and Bolsonaro, entitled: What is it that the foreign press doesn’t get about Brazil’s Bolsonaro?. After acknowledging Bolsonaro’s tendency towards “loose lip[pedness],” Mr. Van de Walle points to a sentiment shared by many Brazilians: the Workers Party’s presiding over a disastrous span where Brazil’s economy failed to capture the growth in emerging markets to the long-term benefit of the country. Through mismanagement (and corrupt usage) of state-run assets and growing indebtedness during their tenure, the PT has become synonymous with wasteful spending, uncompetitiveness, and corruption. And per Van de Walle’s analysis of the published plans of both candidates, “Haddad offers a continuation of the failed policies of the past without any explanation for why they would now work, while Bolsonaro hopes to bring about a complete break.” While Bolsonaro’s plan, focused on privatization, decentralization, and free market orthodoxy, is certainly far too extreme for any country, let alone one as complex as Brazil, it is easy to see how the financial markets, where capital famously has no ideology, would pit their short-term bets on Bolsonaro’s ability to create a short-term turnaround bolstered by this market confidence.

However, as the New York Times and The Economist have pointed out, Brazil’s growing deficit and public debt loads and to-date unaddressed needs for pension and tax reform are creating a looming fiscal cliff, whereby Brazilian could reach 100% of GDP and trigger a recession. If no action is taken to reduce Brazil’s pension obligation by 2020, any gains over the next year or so would disappear, and Brazil would likely lose all investor confidence. Bolsonaro’s desire, and subsequent ability to push through these deeply unpopular reforms through a Congress where he will have few formal alliances will quickly prove Bolsonaro’s ability to effectively make difficult decisions that extend beyond mere rhetoric.

Meanwhile, as I speculated in my post on US/Brazil ties in the event of a Bolsonaro Presidency, Bolsonaro has begun to ramp up his rhetoric against the Chinese, signaling a likely cozying up to the United States following his election. Per Reuters in a fascinating analysis of Chinese-Brazilian relations, China is now scrambling to position themselves as a continued partner to the Brazilians and trying to sure up an annual $75B bilateral trade agreement. No doubt leery of many of the short-sighted trades of capital in exchange for control offered up by many emerging markets, Bolsonaro has positioned himself against Chinese involvement in Brazilian infrastructure investment, stating in a recent interview that: “China isn’t buying in Brazil, China is buying Brazil! Are you going to leave our energy in the hands of the Chinese?”

Considering his plans to privatize much of Brazil’s state-run energy sector, Bolsonaro is already sending a mixed message to the international investor community. Whether his rhetoric against China is a strategic attempt to woo the Americans, or an indication that Bolsonaro plans to pursue a Trump-esque nationalist trade strategy of alienating friends and enemies alike remains to be seen, but in either case runs counter to the economic orthodoxy of his supposedly deputized Minister Guedes. Either way, one has to feel some level of sympathy for Chinese class of diplomats and political and trade advisors, who will now have another confounding leader on the global stage, adding to what I’m sure has been a dizzying few years.

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