Brazil Awaits Policies After Bolsonaro's Campaign Fireworks

(Bloomberg) -- For all the promise of a radical break with politics-as-usual and a downsizing of government during Jair Bolsonaro’s turbulent election campaign, his presidency is off to a rather unspectacular start.

Watered down plans to liberalize gun laws finally look set to receive presidential approval. But a pledge to move Brazil’s Israeli embassy to Jerusalem awaits delivery. And on the most crucial issue facing the new administration -- pension reform -- different members of the government are openly at odds. Rather than a flurry of policy directives there’s been a fair amount of dissonance, backtracking and miscommunication.

Neither Bolsonaro, a longtime lawmaker and former army captain, nor many of his ministers, came to office with much political experience. In addition, his social media-driven campaign thrived on controversy but was short on proposals. While financial markets see little more than teething pains in a new government, the president himself this week urged ministers to hurry to fulfill his campaign promises, according to his cabinet chief Onyx Lorenzoni. For the remainder of the week aides have talked up the cabinet’s harmony and unison.

"Bolsonaro has never exercised executive power and it will take some time for him to learn," Mauricio Santoro, a professor of political science at the State University of Rio de Janeiro said. "Many times the president has wasted time and energy talking about things that aren’t at all important."

The presidential press office issued a statement to Bloomberg, asserting that Bolsonaro remains on schedule. Control of public spending -- and pension reform in particular --continues to be the government’s priority, but opening the economy and reforming the state do not happen overnight.

"Criticism of dissonance in the communication of government authorities, which are natural at the start of a mandate, are exaggerated," it stated, pointing to the performance of the financial market as a sign of optimism over the government’s actions so far.

Unforced Errors

In part, a lack of clearly-defined boundaries between ministries means there’s been too much overlap. Not having a spokesman or someone in charge of public relations doesn’t help. Yet, a lack of understanding of how to navigate Brazil’s colossal state apparatus and legal morass have already led to some unforced errors.

In one of the few concrete announcements the government has made, Lorenzoni dismissed 320 members of staff, including some who brief the president. Shortly after the dismissals, Bolsonaro gave an announcement on tax hikes that had to be rapidly corrected.

Meanwhile at the foreign ministry, the head of the agency tasked with promoting exports turned up to work on Thursday, the morning after the minister had announced his resignation via Twitter. He’d only started the job one week earlier.

Legal Jams

Ignorance of how Brasilia works already became clear during the transition period. A list of sweeping measures to tackle red tape, cut spending and heighten productivity was slashed by government lawyers saying nearly all of the proposals required congressional approval, according to one official who participated in the talks. Bolsonaro himself flung up his arms in disbelief over the watered-down list, according to the person.

A series of anti-fraud measures are due to be unveiled on Monday and a presidential decree on gun ownership is also expected early next week, Lorenzoni said on Friday. But the deadlines offered for the announcement of a package of wider policy proposals have been repeatedly pushed back.

To be sure, investors relished Economy Minister Paulo Guedes’ inauguration speech in which he renewed his vision of an efficient, slimmed-down state that would lead to a decade of sustainable growth. Investors broadly see Bolsonaro to be on the right track. The Bovespa stock exchange hit successive record highs, while the real became the best performing major currency this year.

"The proposals put forward so far and cabinet appointments are all going in the right direction," said Delphine Arrighi, a money manager at Old Mutual in London. "Overall we are still positive on Brazil at this juncture."

Meanwhile for UBS economists Tony Volpon and Fabio Ramos the most significant political development of the first few days of the Bolsonaro government was his party supporting the re-election of Rodrigo Maia as head of Congress.

"Rodrigo Maia has shown support for Guedes’ reform agenda, and if in fact re-elected should be an important ally in pushing through economic reforms," they wrote. With the chance of success still outweighing that of failure, most investors see no reason to cut short the president’s honeymoon just yet.

"I think it is fair to say that although the market was expecting more changes, it is true that government transitions are not easy," Marco Oviedo, Chief Economist for Latin America at Barclays Capital Inc, said. "I still believe that Bolsonaro will deliver some of his promises."

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