Brazil’s 81-seat senate just elected a new leader. (The “president of the senate” is third in line to Brazil’s presidency.) It was not the old leader, who had served four two-year terms in the role: a well-known deal-maker who, like many establishment politicians in Brazil, is facing allegations of corruption. The new leader, Davi Alcoumbre, is a young senator, elected in 2014 and serving his first term, from a minor party which supports Brazil’s new government. It is a good omen for President Jair Bolsonaro’s progress in entitlement reform and law-and-order issues.
More deeply, it is a further sign of the political transformation that has occurred in Brazil as a result of the long Car Wash corruption scandal, the ousting and imprisonment of former leaders, and the depths of public disgust and despair at Brazil’s long, punishing recession and unconscionable crime rates. For a long time, party machinery has been the primary force in Brazilian politics. Bolsonaro’s election indicates that for the present, at least, the arbiter of political authority in Brazil is the will of the public rather than the interests of the political class.
This means, in part, that Brazil’s politicians are — again, for the present at least — likely to be attuned more to public opinion than to political machinations within Brazil’s established parties. Since President Bolsonaro currently enjoys a 70% rate of public support, that makes it more likely that he will succeed in a rapid push to implement some tough reforms.
The most important will be entitlement reforms; Brazil is a developing country with developed-world social and retirement benefits. Reining in those benefits will be the biggest shot in the arm Bolsonaro can give to the Brazilian economy and to potential foreign investors, but will also be the bitterest pill for ordinary Brazilians to swallow. We hope that he uses his current window of disrupted politics and public enthusiasm to get some difficult work done, and believe that he can.
Investment implications: Brazil’s new president, Jair Bolsonaro, has a window to achieve significant reforms in Brazil’s public welfare and law enforcement that will support economic growth and foreign investment in Brazil. The signs are good that the disruption of recent scandals, and public disgust with corruption and crime, will afford him the political support he needs to make hard changes. Brazil has moved significantly since Bolsonaro’s election; we believe there is further upside in Brazilian stocks, bonds, and currency.
