Jair Bolsonaro, a far-right lawmaker and former army captain, member of the Social Liberal Party (PSL), is the new President of Brazil. With 55% of the vote, he defeated his opponent Fernando Haddad from the Workers’ Party (PT) in the second round of the presidential elections. Mr Bolsonaro will begin his four-year mandate in next January.


The victory of Mr Bolsonaro, which was still unexpected a few months earlier, is explained by two factors. One is the broad rejection of the political class and system. Indeed, the population is disillusioned by endless corruption scandals that have hit the whole political spectrum over the past years. This is particularly striking for the long ruling Workers’ party which has seen ex-presidents Lula Silva and Dilma Roussef jailed and impeached respectively. Therefore, by presenting himself as an anti-elite candidate (despite nearly 30 years of experience in Congress), Mr Bolsonaro managed to capitalise on people’s wish to be governed by an upright president.

The other factor is the need to change government policies. Voters demand a more decisive struggle of the State against criminal gangs – which have made large Brazilian cities places with the highest crime level in the world – and expect the economy to be revived after the deep recession of 2015-2016 and the flat GDP growth in 2017. In such a difficult political, economic and social context, the task of Mr Haddad, expected to ensure the continuity of PT rule, was insurmountable, especially as populist waves spread across the globe and social networks have become the first source of information in Brazil.

Being a controversial and polarising figure, Mr Bolsonaro is seen as a risk to the Brazilian society and democracy. His nostalgia for the military dictatorship that ended in the mid-1980s, his calls for more domestic repression, his soft stance towards weapon use and his frequent attacks against the traditional media are worrying for Brazil’s young democracy and institutions and overall stability. Although his potentially fragile majority in Congress and the army’s declared commitment to the Constitution might mitigate those risks, experience in other countries calls for caution once populist leaders are in power. In this context, social tensions could increase and weigh on Credendo’s political violence risk rating, currently at a low 2/7.

Among his future policies, fiscal consolidation is undoubtedly the most urgent one. Public finances are in such a poor state that decisive action is required to cut spending, especially the long-awaited reform of the unaffordable pension system. In spite of Mr Bolsonaro’s announcements to reduce the fiscal deficit and pension burden (notably by raising the retirement age), the capacity and willingness to implement ambitious policies are questionable.

Among other reasons, we can also mention the very fragmented Congress, with a record number of 30 parties, which will require sound coalition management ability, but also vested interests (e.g. from the army) which might hinder a large privatisation plan and likely an increase in security expenditures. That might disappoint investors and renew market pressures through capital outflows and a depreciation of the Brazilian real, which has rebounded by more than 10% since September on the back of Mr. Bolsonaro’s pro-business stance. https://www.credendo.com/country-risk-monthly/brazil/wildly-unpredictable-election-fuels-exchange-rate-volatility

For all these reasons, Mr Bolsonaro’s mandate promises to be very challenging and potentially unstable in the medium term. A confidence boost to the economy is possible in the first months of 2019, as confirmed by a 2.4% GDP growth forecast (from 1.4% expected this year). However, deteriorating external conditions – from slower global and Chinese growths to the normalisation of the US monetary policy and higher oil prices – will complicate the government policies and could maintain economic pressures. At this stage, Credendo’s MLT political risk is kept in category 5/7. Nevertheless, the outlook is uncertain given Brazil’s vulnerability to high external debt and weak public finances. Therefore, change in rating cannot be ruled out for 2019.

Analyst: Raphaël Cecchi – r.cecchi@credendo.com