Jair Bolsonaro speaks during an event. (Photographer: Andre Coelho/Bloomberg)

Brazil Swings Right With Jair Bolsonaro's Commanding Victory

(Bloomberg) -- Jair Bolsonaro swept to power in Brazil’s presidential election Sunday, marking a hard pivot to the right that promises to open up the resource-rich economy to private investment, strengthen ties to the U.S. and unleash an aggressive crackdown on epidemic crime.

The former army captain trounced Fernando Haddad, a leftist former Sao Paulo mayor whose Workers’ Party became synonymous with graft, winning 55 percent of the vote to Haddad’s 45 percent with almost all votes counted. His supporters thronged public places throughout the fifth-largest nation, celebrating with flags, music and fireworks. Brazilian assets surged.

“I make you my witnesses that this government will be a defender of the constitution, of democracy and of freedom,” Bolsonaro told a crowd of supporters in Rio de Janeiro. “This is a promise, not from a party, not the words of a man, it’s an oath to God.”

Brazil Swings Right With Jair Bolsonaro's Commanding Victory

A little-known lawmaker for almost three decades, Bolsonaro, 63, drew public attention with tough talk. He promised to suppress the nation’s lawlessness by meeting violence with violence, insulted minorities and women, waxed nostalgic for Brazil’s dictatorship and expressed doubts about the electoral process itself. His unforgiving politics places him among nationalists such as Hungary’s Viktor Orban, Rodrigo Duterte in the Philippines and Donald Trump in America, who called him shortly after his victory was declared.

To many, however, Bolsonaro is the best hope to revive an ailing economy and streamline an inefficient state.

“The biggest risk is an erosion of democracy, though I’m not apocalyptic," said Michael Shifter, head of the Inter-American Dialogue in Washington. “The opportunity is that he could stop the economic hemorrhaging.”

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Bolsonaro’s supporters on Sunday weren’t concerned with the finer points of political economy. A crowd surrounding his beachside home in Rio honked horns, sang the national anthem and waved the green-and-yellow flag. The music stopped abruptly when he spoke. One woman said to her husband, "look, the Myth is talking!" and they hustled toward a screen to watch.

“Liberty is a fundamental principle,” Bolsonaro said. “Liberty to walk freely in the streets throughout this country. Political and religious freedom. Liberty to inform and have opinions.”

“As a defender of liberty, I will guide a government that defends and protects the rights of the citizens.”

Free Fall

Since the height of Brazil’s commodity-driven boom nearly a decade ago, those citizens have seen millions of jobs evaporate, queues at hospitals grow and violence explode to the point that more than 60,000 people a year are murdered. For years, impatient voters have watched news reports of politicians and executives being caught with vast sums of taxpayer money in suitcases or Swiss bank accounts while roads and schools crumbled.

Haddad, a former education minister in addition to running the nation’s largest city, joined the race only after courts barred former President Luiz Inácio Lula da Silva thanks to his imprisonment on corruption charges. In the end, Haddad was unable to overcome that tainted legacy. He told a crowd in Sao Paulo that he had a responsibility to the 46 million people who supported his bid to oppose the next government to defend “national interests.”

“We must defend this nation from those who are disrespectfully seeking to usurp our legacy -- civil rights, workers rights and social rights,” he said.

Brazil Swings Right With Jair Bolsonaro's Commanding Victory

Bolsonaro aims to thwart corruption and downsize a costly state by selling scores of state-owned companies. He would cut corporate and individual taxes to kick-start the economy and push structural reforms such as capping pension spending and simplifying taxes. All that helped drive a rally in Brazilian assets over the past few weeks. The real has gained more than 10 percent this month, the second-best performing currency among those tracked by Bloomberg.

Brazil’s Potential

Bolsonaro’s economic advisers, led by University of Chicago-trained Paulo Guedes, plan to slash import barriers and embark on new free-trade talks. Guedes said Sunday night that the first order of business would be to fix the ailing pension system. Then, the government will turn to selling off assets.

“We are going to accelerate privatizations," Guedes said.

If Bolsonaro’s plan succeeds, he could catalyze businesses in Brazil’s $2.1 trillion economy, the second-largest in the Americas behind the U.S.

“A lot of global money is going to look to Brazil," said Hari Hariharan, chief executive officer at NWI Management LP in New York, which has been investing in Brazil since 1990. “If the fiscal situation is addressed, Brazil is going to be fantastic.”

Alberto Ramos, an economist at Goldman Sachs Group Inc., said that Bolsonaro’s solid win gives him a strong mandate and “the market is likely to react positively.”

It’s a far cry from 2005, when the region’s leftist leaders -- Lula, Nestor Kirchner of Argentina and Hugo Chavez of Venezuela -- rejected U.S. President George W. Bush and his free-trade proposal for the region at the Summit of the Americas in Mar del Plata.

Single Issue

Today, Lula not only sits in prison but his Workers’ Party lost the presidency race for the first time since 1998. Many voters and investors alike supported Bolsonaro less for his economic proposals than for his fierce stance against the party.

In fact, with crime, corruption and ethics having dominated the debate, Bolsonaro can’t assume widespread support for austerity and economically liberal reforms, said Alexandre Schwartsman, a former central bank director.

“He doesn’t have a mandate for a liberal revolution,” Schwartsman said.

Brazil Swings Right With Jair Bolsonaro's Commanding Victory

Indeed, there have already been signs that Bolsonaro is dialing back some of the more ambitious plans proposed by Guedes. This month, he ruled out privatizing the core operations of oil giant Petrobras as well as the generation units of state power utility Eletrobras.

Fractious Congress

The key question will be Bolsonaro’s ability to unify a deeply divided nation and to forge a majority in congress to pass austerity measures. A bitter campaign shook the underpinnings of a democracy that has existed only since 1985. Anger and political violence have surged and Bolsonaro himself was stabbed by a fanatic in September and campaigned from his hospital bed.

While Bolsonaro’s Social Liberal Party surged in the Oct. 7 congressional vote to become the second-largest force in the lower house, it still has only 52 out of 513 seats. And managing a ruling coalition isn’t easy in a congress with 30 political parties.

While Bolsonaro’s party is likely to form a majority coalition, it still won’t be easy to push through his agenda, said Senator Fernando Bezerra Coelho, the current majority whip in the upper house.

“There’s a hard core against reforms in the chamber, including some deputies from Bolsonaro’s camp,” said Bezerra. “He’ll have to negotiate.”

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