Brazil: Political Update

Brazil: Political Update

Brazil: Political Update

By Frederico Bopp Dieterich 

The aftermath of Brazilian general elections held in last October is a clear swing to the right side of the political spectrum. The newly elected President, Jair Bolsonaro, has a clear agenda: liberal in economic matters; conservative in other issues; structural reforms in tax and social security; and a strong hand against corruption and crime. Yet, the specifics are not known, as the candidate’s program was somewhat generic in its proposals.

In spite of some claims that the new government is extremist or even fascist, it is our belief that this is not accurate. So far, the elected President’s actions have shown no indication of radicalism. To the contrary. He has been acting with his feet on the ground, apparently well aware that he needs to govern for all. A clear example is his approximation with the governors of North-East Brazil, a region with some of the country’s poorer States, bearing traditional social-democratic tendencies.

Although the President’s party is the second largest in Congress’ lower chamber (and probably will become first), it accounts only for 10%; and its representation in the Senate is smaller (around 5%). Thus, a coalition will be necessary to provide support for the President’s plans.

The transition between presidents has been serene, and the names announced by Bolsonaro as Ministries of State have been well received, particularly Paulo Guedes (Minister of Economy) and Sérgio Moro (Minister of Justice). The former is a strong liberal, and the latter was the federal judge that led the colossal “Lava Jato” corruption case. On the other hand, critics claim that new stars lack political experience, which might render their efficiency less than optimal.

The general perception in the country is that reforms are of the essence to decrease unemployment, to achieve fiscal balance, to decrease the tax burden on society and to bolster the economy into a new virtuous cycle. However, it remains to be seen how Congress will behave when it comes down to voting controversial matters, and they will not be a few. The most essential and most delicate is social security reform. A more peaceful one is central bank independence.

Overall, we can expect a strong President, with close ties to the military (who have a vivid presence in key positions), having a pro-development / liberal / privatization agenda.

The infrastructure industry will benefit heavily from this new panorama. Bolsonaro and his team have announced important measures:

  • privatization of many federal state-owned companies, but government will retain those deemed strategic (Eletrobrás, Petrobrás and federal banks);
  • many grants of concession of public services and PPPs are expected;
  • expansion of energy matrix: eolic and photovoltaic;
  • new big hydro power plants on Tapajós River;
  • some of Bolsonaro’s key collaborators are being assigned to infrastructure-related offices.
  • the expectation of new rules for natural gas pipelines, aiming at making it easier for private parties to invest, by eliminating regulatory constraints; and
  • Congress is about to pass a law (i) to foster natural gas pipelines by creating a fund for its expansion, (ii) to end the Generation Scaling Factor (GSF) deadlock and its billionaires lawsuits (current government is not in favor of this rule), and (iii) to compensate CEMIG (Minas Gerais state-owned power company) for the Generation Scaling Factor losses it sustained in plants that reverted to the government.

There will be many opportunities, and we are prepared to face them.