Wall Street May Not Get Dream Team Again in Brazil, Speaker Says

(Bloomberg) -- Pro-business candidates may be trumped by populist contenders in Brazil’s presidential election this year, frustrating investor expectations and the country’s economic potential, house speaker and presidential hopeful Rodrigo Maia told Bloomberg News.

"You have candidates who believe in increasing expenditures as a way to stimulate the economy, and these candidates have a chance of winning," Maia said in an interview in his official residence in Brasilia. "It’s a risk."

Wall Street May Not Get Dream Team Again in Brazil, Speaker Says

So far, investors assumed that one of the centrist hopefuls would gain traction, win, and carry on with President Michel Temer’s pro-market reform agenda. But so far, all of them are stuck with single-digit voter intentions. In fact, the two candidates leading opinion polls both would mark a radical departure from the current administration -- retired army Captain Jair Bolsonaro and former President Luiz Inacio Lula da Silva.

One difficulty, said Maia, is that campaigning for fiscal responsibility or small government is a challenge in Brazil, particularly with voters who are still reeling from the worst recession on record.

"We need to make people aware of the fiscal situation the country faces, and many don’t understand this," said the 47-year-old career politician from Rio de Janeiro. "We have to understand that the Brazilian state has by far exceeded its spending ability."

But the problem as Maia see it is not only with the message but also the messengers: More articulate and charismatic candidates outshine the relatively lackluster mainstream hopefuls such as Sao Paulo state Governor Geraldo Alckmin and Finance Minister Henrique Meirelles.

While the field is wide open, Maia sees former Ceara Governor Ciro Gomes as one candidate who’s standing out. "Ciro has support, speaks well, is articulate, has experience, knows Brazil."

Noting that fiscal consolidation has gone a long way toward restoring investor confidence in Brazil, Maia says electoral uncertainty has begun to take a toll, citing recent capital outflows and lack of long-term investment. The Sao Paulo stock exchange has lost steam after hitting a record in February and credit default swap prices are up over the past two months.

In the run-up to the October election, legislators also appear to be distancing themselves from a pro-market reform agenda. After shelving proposed plans to cut pension outlays, efforts to privatize the state-owned utility Eletrobras are also sputtering in Congress, Maia said.

"Everyone is looking for a road to re-election," Maia said.

©2018 Bloomberg L.P.