Hell bent on reform, but at what cost? Bolsonaro’s forked path to economic growth

Economic liberal or conservative nationalist? Brazil’s president elect Jair Bolsonaro has two distinct routes and each have a different economic outcome, according to local management consultancy Macroplan.

Brazil is reeling from the upset earlier this month which saw Bolsonaro’s PSL party take the lead in the election polls. Reminiscent of the 2016 elections in the United States, the divisive campaign which saw the conservative, right-wing ex-military-man promise to purge Brazil of socialism, cut deep into the fabric of Brazilian society. In the aftermath, there has been no promise of reprieve or any sign which would suggest that the president-elect will attempt to unite the country. In stark contrast, it seems likely he will persecute or in-fact prosecute his enemies.

Whilst this may be how he played his path to power, the overarching questions lie with how his conservative policies will affect the countries struggling economy. After what has been a rough few years for Latin America’s largest economy, a shift from the social agenda of the now incarcerated Lula, may prove to be beneficial for Brazil’s GDP. However it is unknown how this will play out as there are two underlying paths which will shift course for Brazil. Whilst the compass is pointing south-east, the route is yet to be mapped ahead.

With what we know at present, Bolsonaro campaigned on the economic coattails of Paulo Guedes, a University of Chicago trained economist. Combined the two announced policies that would appeal largely to the pockets of the private sector and found many friends along the way.

The president-elect himself has admitted to being an economic novice, but Guedes managed to persuade many in the liberal-business world to get behind the PSL, even if it was because they didn’t want to be considered enemies.

“They are very conservative segments with a very domestic view of the issues, even segments of a modern and liberal business sector, so there are conflicting agendas, and the first year of government, there will be a Bolsonaro ‘trilemma. How will this weigh up the demands of the population, the corporatist demand and the fiscal adjustment?” asks Claudio Porto, the founder and President of Macroplan.

However, he was also fond of the economic management present under Brazil’s nationalist dictatorship between the 1960s and 1980s. It is unlikely to see a blend of both nationalist agenda and economic liberalism in this case.

The former, economic nationalism – sometimes referred to as economic patriotism – heavily favours state interventionism in the economy. The concept runs the line of protectionism and opposes globalization, a platform which Bolsonaro campaigned on. As protection mildly reinserts itself into the public narrative with a unique blend of economic liberalism, also seen in the United States, it is unclear what this would look like in policy terms for Brazil.

“It is not clear which agenda, whether the liberal or corporatist, should prevail. The course will become clearer between October 30 and March 31, when measures will be announced and concessions will be made,” said Porto, adding that in that period actions as opposed to campaign promises will be important. “And the greatest battlefield will tend to be the reform agenda.”

Damned legacy

In the scenario that the liberal agenda prevails – following a greater openness in the country’s economy, lower barriers to foreign capital, private investment and even a promise for lower taxes – Brazil could see a rise in GDP of over 3% according to the consulting firm. Within this framework, inflation would remain under control. For this scenario to be qualified a success, there would be a large scale sell off of national assets, including privitization of Petrobras, Banco do Brasil, Caixa and Eletrobras.

On the other hand however, following a resurgence of the nationalist in Bolsonaro, there would be a slower uptake in the economy and the chance for inflation to take the real on a run. The consulting firm warns that Bolsonaro’s downsizing of the state would be symbolic and the concessions of infrastructure only moderate, leading to GDP gains of 2% maximum.

In either of the two scenarios, the consulting firm – who are located in Rio de Janeiro and specialise in governments, companies and institutional management and strategies – suggests that Bolsonaro will inherit a country at tipping point. Decades of corruption, economic mismanagement, broken states, and a looming trade war. The firm dubbed this, a “damned legacy”.