Bolsonaro Could Save Brazil or Fail Badly: Two Possible Scenarios

(Bloomberg) -- Jair Bolsonaro, Brazil’s president-elect, is divisive, has no executive experience and says he knows nothing about economics. So, healing a deeply divided nation and putting Latin America’s largest economy back on track is a gargantuan task. But not necessarily an impossible one. There are scenarios in which things go reasonably well under the helm of the former paratrooper and scenarios in which things go woefully wrong. Here’s a quick look at how each of them could unfold.

WRONG

Despite pledges to unify the country in his acceptance speech, Bolsonaro is eager to plant a conservative flag early on. He embarks on a moral crusade to crack down on dissidents and cut minority rights, chewing up political capital and creating a lot of noise and distraction. At the same time he cuts off pork barrel spending to legislators as part of his anti-corruption pledge and denies allied parties traditional access to government posts. All of this antagonizes legislators. His strategy to negotiate via multi-partisan caucuses rather than through party chiefs fails. Negotiations in Congress turn into unmanageable retail horsetrading or outright stalemate.

The window of opportunity to approve structural reform measures, including a badly-needed pension reform or the privatization of state assets, begins to close. Prospects of slashing the budget deficit quickly, as was pledged, dim. Public debt continues to swell. Investors start getting nervous and dump Brazilian assets. Consumption and investment shrink. The economy tanks. Again.