The day after the first round of the presidential elections in Brazil, the Sao Paulo stock market gained 5.54%. The financial markets, reinforced by the unexpected results of Jair Bolsonaro, the president-candidate with ultraliberal economic policies, have they chosen their candidate? Nothing is taken for granted. On the contrary, the narrower-than-expected spread could reassure markets and force left-wing candidate Luis Inácio ‘Lula’ da Silva to moderate his economic program.
Just 24 hours after the results of the first round, the “B3”, the São Paulo Stock Exchange, soared on October 3, 2022, reaching its highest valuation since April 6, 2020. With only five points of difference Regarding his rival on the left, some specialists in the sector whispered in the corridors of XV de Noviembre Street, where the stock market of the economic capital is located, that Jair Bolsonaro could change the game and win.
“At last it would have the necessary majority to carry out more concrete and much better reforms for the country’s economy,” said Antoine Skaf, director of the Witpar investment fund. In the legislative elections, Jair Bolsonaro’s side won the majority of seats.
In 2018, this young financier from Sao Paulo had voted “in opposition to the left”. Today, it is a vote of confidence that he will give to the president. “Despite the nonsense he blurts out from time to time, he has shown that he knows how to steer his ship. Paulo Guedes is the best economy minister we have ever had and he has obtained very good results,” he explains.
We have the third month followed by deflation (0.29%). The index is or lower for a month of September since the beginning of the historical series, which began in 1980. At the same time, the IMF published a report on Brazil’s growth or revenue for this year’s peak, exactly as we expected.
— Minister of the Economy (@PauIoGuedes) October 12, 2022
Bolsonaro, the ultraliberal
And for Antoine Skaf, the list of his successes is long: the difficult pension reform that he has launched and that, according to him, will transform the Brazilian economy for the next 20 years, the privatization policy of numerous companies and branches of the public sector, the more flexible management of Petrobras, which has allowed the national oil giant to release dividends for the first time… A positive sign for the market. Antoine Skaf rubs his hands together. His fund has greatly benefited from the record number of foreign investments recorded in recent years.
However, don’t Jair Bolsonaro’s periodic threats to the country’s democratic institutions scare the financial markets, so fond of stability? “No, because he threatens, but he doesn’t. His actions are much more moderate than his words, which is reassuring in practice. His ultra-liberal politics is a guarantee for us,” says Antoine Skaf.
The same figures but a different tone for the economist André Calixtre. “If you look at the European pension funds, the green funds, which are more structured than short-term investments, have decreased a lot. To say that investments have reached records with Bolsonaro is false. Maybe in the short term yes, that allowed operators to make quick money, but it is a very volatile success, which is not proof of long-term stability of the Brazilian market.”
Co-founder of the “family bag”, a social subsidy created by the first ‘Lula’ government in 2004 and aimed at the poorest households to encourage their consumption, André Calixtre is highly critical of Bolsonaro’s trajectory. When the Covid-19 pandemic hit the country and aggravated the world economic crisis, he criticized Jair Bolsonaro for copying ‘Lula’ with his “Aid Brazil”. 20 million Brazilians were entitled to this similar aid of about 100 euros, but unlike its predecessor on the left, it did not include social, educational and health aid.
– No way of Lula, as you are prejudiced, because they were looted to feed corruption scheme of his side. Not Jair Bolsonaro’s path, these states are led by technicians and profiteers, who are used in investments, such as the payment of Aid Brazil.
— Jair M. Bolsonaro 2️⃣2️⃣ (@jairbolsonaro) October 4, 2022
“He wanted to become the new father of the poor by distributing a single subsidy per household, but in reality he distributed it too late and badly, without increasing wages and without a real policy to combat inflation. Today, according to him, “the perception of misery and hunger is much greater”.
Claudio Amitrano, from the Institute of Economic Research, has spent the last four years analyzing the economic management of the outgoing president, and his assessment is not the most complimentary: “Jair Bolsonaro could have taken faster economic measures to reduce the impact of the pandemic. It was too late. It should have lowered interest rates faster, cut corporate taxes faster so they produce faster and that curbs inflation… It underestimated the pandemic and that cost Brazil dearly.”
The São Paulo Strong Business School Institute has made an effort to compare the economic trajectory of the two candidates at the end of their respective first terms.
Although the economic contexts are very different – record inflation in the ‘Lula’ era and a pandemic in Bolsonaro’s – the national consumer price index shows a drop in inflation of 0.29% for the third consecutive month, and the The unemployment rate has dropped more than one point since the last term of ‘Lula’, standing below 9%. So it’s not quite a victory for the outgoing president.
But, would ‘Lula’ do better? The economic programs of the two presidential candidates remain unclear. Distilled down to the press, they drown in an avalanche of fake news. When asked who his economy minister would be, the left-wing candidate shrugged his shoulders during the last presidential debate broadcast by ‘TV Band’ on Sunday, October 16.
“‘Lula’ has had a fairly orthodox fiscal policy”
The “communist threat” presented by the extreme right is nothing more than a chimera. ‘Lula’ has a history of moderate economic policies that, according to André Calixtre, would reassure the markets. His election would constitute, above all for him, a “regulatory” bulwark against a Congress with a majority on the right. A balance of power that brings negotiations back to the center. And “the center has always reassured the financial markets and investors,” says the economist.
Claudio Amitrano, for his part, laughs: “He is presented as an evil leftist who is going to ruin the country, but we must not forget that President ‘Lula’ has had a fairly orthodox fiscal policy. Under his governments, income taxes exceeded spending, private investment exploded…. It has had very conservative economic management. And this past is also reassuring.” Your bet on him? That the country’s reindustrialization program, one of the spearheads of ‘Lula’, attract the markets.
‘Lula’, an international asset
Under his presidency, from 2003 to 2011, the leftist leader elevated Brazil to the rank of sixth world power, exploiting trade partnerships with Europe, China and Africa. As a good diplomat, he was able to sell Brazil and its riches. But under Bolsonaro, the country’s image has taken a hit, isolated on the international stage.
“‘Lula’ could restore our country’s image in international markets,” says an optimistic André Calixtre.
Indeed, in recent weeks, many former presidents of Brazil’s central bank have publicly announced their support for the former leftist president. For some economists from IPEA, the Federal Government’s Applied Economic Research Institute, who are not authorized to speak on their own during the electoral period, ‘Lula’ could benefit from his environmental policy; because protecting the Amazon and the economy is cheap.
By announcing an increase in the budget of the organizations for the protection of the Amazon rainforest, torpedoed by Jair Bolsonaro, ‘Lula’ will attract, they say, “green” investment funds for carbon compensation and remuneration for the preservation of the forest.
This article was adapted from its French original
