Bolsonaro's Deal-Making in Spotlight as Brazil Congress Returns

(Bloomberg) -- When Brazil’s Congress returns from recess on Friday, President Jair Bolsonaro will have no coalition to ensure him a lasting majority, raising doubts over his ability to push through highly anticipated pro-market reforms.

True, the front-runners for the leadership of both houses pay allegiance to Bolsonaro’s economic agenda. What is unclear is how the former Army captain will win the necessary support from legislators to reform the country’s pension system, a measure investors say could make or break public finances. According to Andre Cesar, a political scientist and veteran observer of Congress, Bolsonaro can count on firm support from 200 deputies, far short of the 308 needed for a constitutional amendment in the lower house alone.

"The government’s main challenge is not the opposition, which isn’t that big, but consolidating its base," said Juliano Griebeler, a Brasilia-based political analyst from the BMJ consulting firm. "It won’t be easy to approve a drastic reform in the next six months."

Bolsonaro's Deal-Making in Spotlight as Brazil Congress Returns

Traditionally, Brazil’s centrist parties rally behind newly-elected presidents in exchange for pork and privileges, but Bolsonaro has pledged to govern without the customary horse-trading. Instead, he has vowed to mobilize his enthusiastic supporters to pressure lawmakers. He also intends to ditch negotiations with party leaders in favor of talks with cross-party caucuses, such as law-and-order hardliners, farmers and evangelicals--the so-called "bullets, beef and Bible" blocs.

Reformists’ Skepticism

Many legislators, even those who support the government’s agenda, remain unimpressed by the administration’s stance to date.

"So far, I haven’t seen any will from the government to try and build a base in Congress," Sostenes Cavalcante, a lower house lawmaker and the deputy-leader of the pro-business DEM party, told Bloomberg. "If the government wants a coalition, well then, in politics it’s got to be a two-way street."

Another congressional deputy, Cleber Verde, from the center-right PRB party, urged the new administration to be more sympathetic to lawmakers’ needs. "Why would I support the government if no concrete action reaches my home state?" he said, urging Bolsonaro to allow for congressional participation in executive decision-making.

One cloud looming on the horizon is a probe into financial irregularities involving the president’s eldest son. Flavio Bolsonaro, a Senator-elect, faces an investigation into suspicious bank transactions from when he was a member of the Rio de Janeiro state assembly.

Even if the case doesn’t involve the president himself, it may weaken him ahead of the reform battle and possibly delay the pension bill, says Griebeler. At stake is a broader economic agenda that not only includes pension reform but also plans to simplify an unwieldy tax system, grant the central bank formal independence and dramatically downsize the state.

But a senior pro-Bolsonaro lawmaker, Senator-elect Sergio Olimpio Gomes, said he expects legislators to rally around the president because the "economic situation is so desperate."

In the lower house, incumbent speaker Rodrigo Maia is a favorite to retain his job as a dozen parties, including Bolsonaro’s PSL, have endorsed his bid in Friday’s election. In the Senate, one of the two candidates from the MDB party, Simone Tebet or Renan Calheiros, is expected to win.

Maia, Tebet and Calheiros have promised to push for the much-needed social security overhaul, and speakers in Congress hold significant power over the legislative agenda.

Their respective victories would be a good first step, but not enough to ensure reform approval, said Alberdi Partners founding partner Marcos Buscaglia. "Investors will continue pricing in some risk of non-implementation," he said.

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