Brazil’s Disruptor-in-Chief Should Learn From the Past

(Bloomberg Opinion) -- As in many democracies, political pride of place in Brazil holds that all predecessors must be vilified. But President Jair Bolsonaro should resist the rabble-rousing temptation to go too far in that direction. If he reads his cues right, he could use his populist momentum to kickstart a stalled recovery by deepening reforms that were already underway.

To judge by his first few days in office, Bolsonaro is on track to become Latin America’s disruptor-in-chief. His chief of staff Onyx Lorenzoni announced his intention to remove more than 300 discretionary appointees in his office left over from previous administrations, a whiff of the ideological “delousing” to come in Brasilia. Foreign Minister Ernesto Araujo vowed to “liberate foreign policy” by rolling back “globalism.” The iconic Labor Ministry, the indigenous protection agency’s prerogative to demarcate native lands, explicit human rights protection for LGBTQ people, and Brazil’s strict gun controls? Likely all history.

No surprises there. Bolsonaro, an unapologetic right-winger, was backed by Brazil’s disaffected cultural conservatives and rising Protestant evangelicals.

The country’s fiscal evangelicals will be harder to mollify. Incoming Economy Minister Paulo Guedes got the memo. “Brazil has been corrupted by overspending,” he said after being sworn in on Wednesday. He vowed to leash the bureaucracy, unfetter trade, simplify taxes and privatize government companies. Most encouragingly, he named social security as the most urgent reform, and not just for the red ink generated by Brazil’s indulgent pensions. “Social security is an inequality factory,” Guedes said.

Overhauling the system, he said, would lock in a decade of economic growth, a telling reference in a country teed up for another lost decade, the third since 1980.

This was samba to the ears of investors, many of whom might have wondered how a career legislator like Bolsonaro, with a soft spot for big statism, could morph into the market’s best friend. Indeed, doubts abound over details of the new pension plan, for which Guedes, a free marketer, prescribes a more thorough overhauling than his boss. Global political leaders and financial mandarins will be eager to hear how Bolsonaro means to sort out this and other contentious points of plans for a “new Brazil” at the World Economic Forum in Davos later this month. “Pensions are the elephant in the room,” Alberto Ramos of Goldman Sachs told me. Still, the Brazilian currency soared and the benchmark Bovespa bourse hit a record high on the feel-good inauguration talk.

Making that market-friendly vibe last, however, will be tougher. Fortunately for Bolsonaro, examples of what to do and what to avoid are close at hand.

Start with the complicated story of his predecessor Michel Temer. For his cloakroom role in the impeachment of Dilma Rousseff in 2016 and his ethically challenged cronies, Temer left office as one of Brazil’s least favorite leaders, best known for having failed to bring in pension reform.

Yet his skill as a political deal-maker and his team of top economists stewarded important if unpopular reforms (capping government spending, overhauling the circa 1940s labor code) and policy shifts (rescuing state oil giant Petrobras from the dirigistes), which helped brake a record economic debacle.

That’s a strong foundation on which Bolsonaro can build. But to do so, he must lose the anti-politician campaign shtick, channel Temer, and forge a stable governing coalition out of what Brazilian political scientist Sergio Abranches calls “the most fragmented legislature in Brazilian democratic history.” Consider that Bolsonaro’s Social Liberal Party is Brazil’s second largest, and yet controls less than 10 percent of congressional seats.

“Government requires political ability,” said Ramos. “Bolsonaro has some time to show his political skills. It’s not clear how much time.” One encouraging sign: Bolsonaro’s party has dropped its purer-than-thou rejection of legacy politicians and agreed to return consummate Brasilia insider Rodrigo Maia, of the center-right Democratas Party, to his pivotal post as the speaker of Brazil’s lower house. Bolsonaro also allowed on late Thursday that he might build on the pension reform Temer prepared but scrapped amid corruption charges late last year—a shortcut that could save the new government months of legislative haggling.

What’s clear is the price of snubbing the tarnished Congress, endorsing half-measures, or tarrying over unpopular reforms, such as pensions, which can ignite public fury.

Look no further than Argentina, where President Mauricio Macri rode a swell of discontent over corruption and a stagnant economy into office in 2015, restored the country’s tattered credit standing, and gradually launched laudable fiscal reforms. As it turned out, too gradually for investors, whose bets against the battered peso stoked inflation, gutted growth and drove the country to a bailout from the hated International Monetary Fund; and yet too brusquely for a crisis-weary Argentines, who turned a protest over pension reform into a rolling political conflagration that could cost Macri re-election.

Bolsonaro has the opportunity to hear all about it later this month when Macri calls on him in Brasilia.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mac Margolis is a Bloomberg Opinion columnist covering Latin and South America. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.”

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