Brazil at the polls: Back to the past for the land of the future? | Brunswick Group

Brazil at the polls: Back to the past for the land of the future?

Who would make a better President: The bed-ridden candidate who was stabbed on the campaign trail or the one whose campaign appears to be directed by an illustrious jail bird?

That, in a nutshell, is the most likely choice offered to Brazilian electors as they prepare to go to the polls on October 7 and October 28 (should a second-round be necessary) to pick the new President of Latin America’s biggest economy.

Even by the occasionally surreal standards of Brazilian politics, the current presidential campaign is clearly out of the ordinary. “This is an election that for a long time to come will be a case study for analysts in all areas – including psychoanalysts,” writes economic commentator Miriam Leitao in the daily O Globo. “Nothing seems rational.”

Will the apparent irrationality produce an outcome that will help put Brazil back on the growth path, or will it plunge Brazil further into crisis? While the business community is hoping for the former, many observers believe the latter, given the front-runners’ lack of commitment to the deep structural reforms Brazil urgently needs. The country is heading for the polls deeply polarized and dispirited, fed up with its political system but without anyone proposing radical renewal – or even a clear program. Brazil looks poised for four more years of muddling through rather than delivering the full potential of one of the world’s biggest consumer markets.

Indeed, while the election should be an opportunity for renewal, polls suggest it could in fact be a choice between two backward-looking visions: One that is a throwback to the law-and-order days of military rule, which some fear could pose a threat to democracy, and the other to the redistributive policies of the Lula government, which others fear could pose a threat to the economy. If polls are to be believed, the second round runoff is likely to oppose far-right candidate Jair Bolsonaro (he’s the one campaigning from his bed after having been stabbed during a campaign march through the city of Juiz de Fora) and Fernando Haddad (he’s the one who stepped in as the Worker’s Party candidate after its standard-bearer, former President Luiz Inacio Lula da Silva, as banned from running after being jailed on corruption charges.) In other words, wrote Estado de Sao Paulo in an editorial, to succeed Michel Temer, the most unpopular President in Brazil’s democratic history, the choice could well be between “a populist who defends dictatorship, praises torturers and confesses he knows nothing about the economy,” and “another populist who would represent the return to power of the political group directly responsible for the economic, political and moral crisis the country is going through today.”

It can seem hard to believe that this is the same country that at the turn of the decade appeared to be on the cusp of joining the superpower ranks. After slaying hyper-inflation, the economy was posting Chinese-like growth rates, President Lula, having pulled 40 million people out of poverty, seemed to walk on water, the country brimmed with collective excitement at the prospect of hosting both the football World Cup in 2014 and the summer Olympics in 2016 and the B of BRICS was the flavor of the day. The time finally seemed to have come for the perennial “land of the future.”

Fast forward eight years, and the land of the future looks a lot like the Brazil of the past. Today’s narrative is “corruption,” “shame” and “disappointment,” opinion polls show. In just four years since the last presidential election, Brazil has gone through its worst recession in a century, the impeachment of a President (Dilma Rousseff, Lula’s successor, who was forced out of office in 2016 after being accused of violating Brazil’s fiscal responsibility law and claims she was the victim of a coup), a new spate of violence and a huge and continuing corruption scandal that has sent many of the country’s top businessmen and politicians to jail. These include former President Lula, who began serving a 12-year jail sentence in April after being convicted of being the beneficiary of a triplex beachfront apartment paid for by a construction company in return for government contracts.

On the face of it, the election offers a stark choice. The leader in the polls, with 28%, is the 63-year-old Mr. Bolsonaro, who has stolen a page from Donald Trump’s playbook, riding the wave of Brazil’s anger to portray himself as an anti-system candidate who will drain the swamp. In reality, Mr. Bolsonaro, a retired Army captain, is a seven-term congressman from the state of Rio de Janeiro with an undistinguished legislative record – he has only two pieces of legislation attached to his name in 28 years. He’s mostly known for his crime-fighting law-and-order stand – his signature pose is to pretend he is firing a machine-gun – and for his inflammatory statements: He has told a fellow Congresswoman she “didn’t deserve” to be raped, has said he’d rather have a dead son than a gay son, vowed to give policemen carte blanche to kill and said that after having four sons, he became weak and had a daughter.

Mr. Bolsonaro’s campaign has given short shrift to issues – even less so since his stabbing, which has confined him to his hospital bed and has reduced him largely to silence, allowing him, in the words of Globo’s Ms. Leitao, to “be spared the embarrassment of betraying his enormous void of ideas and proposals.” His past pronouncements put him firmly in the camp of the statist positions long defended by Brazil’s military, but in a bid to win over the center, he has said he would appoint a leading free-market proponent, economist Paulo Guedes, as his Finance Minister and would delegate economic policy to him. Mr. Guedes, a University of Chicago graduate, has presented a radical program including privatization of all state assets, tax simplification and infrastructure concessions. However, some of his statements, notably on taxes, have been disavowed by Mr. Bolsonaro.

His main challenger at this stage is the 55-year-old Mr. Haddad, who has risen rapidly to 22% since entering the fray only recently. Initially, Mr. Haddad was going to be Mr. Lula’s running-mate - and polls showed that Mr. Lula, despite his corruption conviction and several other court cases pending, remained Brazil’s most popular politician and stood a good chance of returning to power. However,  Mr. Lula was banned from running by Brazil’s top electoral court. Though he has been Education Minister under President Lula and mayor of Sao Paulo, Mr. Haddad still suffers from lack of recognition, to the point that newspapers make light of the fact that his name is regularly mangled. But Mr. Haddad benefits from a major asset: As Mr. Lula’s handpicked substitute, he benefits from his popularity as a champion of the poor.

As is the case with Mr. Bolsonaro, there is some doubt as to what economic policy will be implemented by Mr. Haddad should he be elected. His economic advisers have spelled out a Keynesian program to stimulate growth, leading some economists to say that if it returned to power, the Workers Party would repeat the mistakes of Ms. Rousseff’s doomed presidency that drove Brazil into recession. On the campaign trail, Mr. Haddad has sought to appear more pragmatic, saying he will pursue “a sustainable fiscal trajectory, but we need to observe a political dimension and a social dimension,” implying a focus on social spending.

While Messrs. Bolsonaro and Haddad have built up sizeable leads over other contenders in the election, neither is assured of making it to the second round because they are also the two  candidates who inspire the highest rejection rates: 44% say they would not vote for Mr. Bolsonaro under any circumstance and 27%  say the same about Mr. Haddad, according to the latest Ibope poll. Behind them, three candidates still have an outside chance if they manage to rally the support of those turned off by the extremes. They are Ciro Gomes, a former Finance Minister who is running as a left-wing alternative to Mr. Haddad, centrist Geraldo Alckmin, a former governor of the state of Sao Paulo whose moderate stance makes him the favorite of the business community but who has failed to ignite enthusiasm, and ecologist Marina Silva, who is making her third run at the presidency. Should any of the alternative candidates make it to the second round, polls show they stand a chance of defeating Mr. Bolsonaro due to his strong rejection rate.   

Whoever is elected will have very little headroom because of the weakness of the economy. After Gross Domestic Product dropped by more than 7% in 2015 and 2016 combined, the economy grew by 1% last year and was expected to pick up further this year. But when President Temer, who is serving out the remainder of Ms. Rousseff’s mandate after her 2016 impeachment, was also caught up in a corruption scandal, the country’s reform agenda stopped dead in its tracks. A crippling 11-day truckers’ strike this May further stalled growth as the country then entered a wait-and-see period due to the electoral uncertainty. Unemployment, while falling, still stands at 12.1% in the quarter ending in August, or 12.7 million people. The country faces a budget deficit of 7% of GDP, and gross public-sector debt is at 77.3% of GDP.

What needs to be done to put Brazil back on the growth path has been quite clear for years: Rein in public spending and boost its efficiency, accelerate privatization, open the economy and integrate it into the global economy, reduce the so-called Brazil cost tied to taxes, regulations and labor laws, stimulate productivity and competitiveness and invest in infrastructure. At the very least, economists say, the next government needs to carry out two key reforms: a fiscal adjustment to bring public finances into line, which would require a combination of spending cuts and an end to subsidies and tax exemptions granted to various sectors of the economy, and a pension reform to curb an unsustainable deficit that limits the state’s ability to invest in health, education and infrastructure.

The hitch is that getting legislation through Brazil’s Congress, in which 28 political parties are represented, requires building coalitions, which in turn requires the sort of pork-barrel politics that have led Brazil into its current predicament. And since the current front-runners are the two most polarizing forces, their chances of building coalitions are lower than those of the candidates with lesser chances of making it to the second round and being elected. Says former Finance Minister Rubens Ricupero in an interview in Estado de Sao Paulo: “What’s most likely is that this election will simply be another step in the development of the Brazilian crisis.”

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