Brazil’s extreme right-wing leader Jair Bolsonaro made his way to the stage in an auditorium packed in Brasilia to declare his return to the center of Brazil’s political elite. Following a prayer by an evangelical congressman asking for God’s blessing on his life, the once-popular iconoclast spoke about how he came to the Liberal party which is Brazil’s third-largest party in terms of the number of lawmakers.
“I came from among you,” he said to the lawmakers in the audience about his long career in Congress. “I feel at home here“
The warm words of Bolsonaro on November 30 was a sour reality: less than an entire year prior to what is likely to be a fiercely fought election the man who was a presidential candidate as an outsider and promised to shake up the establishment was now accepting the idea with all his heart.
Although no candidate has been officially announced for the presidency, the 2022 race is likely to be a battle between the former army captain and a scion of religious conservatives against the one-time president and icon of the left, Luiz Inacio Lula da Silva, to take over the presidency of Latin America’s largest economy.
In his capacity as the president, Bolsonaro has been on the toppling point. His management of the pandemic is in the spotlight because Brazil was one of the highest deaths from coronavirus. The rising cost of living is affecting the earnings of the poor and the recovery of the economy is slowing. The government’s approval ratings have been lowered to below 20 percent at the very first in its history, according to an Atlas survey. A poll conducted by Datafolha this week showed Lula has a lead of 26 points over Bolsonaro and could be the winner of the presidential election within the initial round if the election were to be held today.
In the midst of a difficult battle to re-election, and without any party of his own after he quit in 2019 of the right-wing Partido Social Liberal under whose banner was he elected, Bolsonaro was running out of options to tap into the huge state budget and campaign airtime that is available to established parties in the election in 2022. He chose a party that represented what he called the “old politics” he had promised to eliminate.
The Liberals constitute a significant component of the “Centrão” or “big center” group of traditional political Brazilian parties, which has ruled Brazil’s Congress for decades, providing assistance to presidents of all political stripes, in exchange for huge budgets and a plethora of post in the government.
Bolsonaro was previously highly disdainful of the system. In the video from his campaign in 2018 Bolsonaro criticized the policy of naming ministers in accordance with particular political party interests in a way that was “guaranteed not to work” and said: “We will name the appropriate people for the right posts. This is why we aren’t an element of Centrao”.
However, now “it is absolutely back to the old politics,” says Matias Spektor, who is an assistant professor of the Getulio Vargas Foundation in Sao Paulo. Bolsonaro had “abandoned any hopes that he might be able to govern in a way that was fundamentally different from previous administrations”
A tale of financial slackness
Bolsonaro initially turned to the Centrao to seek assistance last year in order to fight against a plethora of impeachment petitions submitted to Congress and offered the group crucial posts within his administration in exchange for their help. For Brazil’s old-school politicians it was normal business.
“As long as we have 30-something parties in Brazil and 28 which are today in the chamber of deputies, there is not a president who does not need to do deals with the parties to govern,” says Arthur Lira, leader of the chamber of deputies, and an important figure from Centrao.
It is rare for ideology to be a barrier to the negotiating process in the tangled world of Brazilian political life.
It was the Liberal Party, that was adamant about the president of the hard-right and senator-son Flavio as new members also backed Dilma Rousseff, who is a left-wing Workers leader, as did Her predecessor Lula. The Liberal party was only the ninth Bolsonaro has joined in the span of three decades.
Even though he now has the party’s support, Bolsonaro still faces formidable challenges in creating an electoral coalition that is broad enough to allow him to return to power in October next year. The first campaign he ran garnered the backing of the military and the powerful agricultural lobby as well as the evangelical church. businesspeople seeking reforms to the economy and a lot of Brazilians fed up with the corruption scandals as well as the recession that marked the end of fourteen years under the Workers Party government led by Lula and Rousseff.
Despite being able to fill his administration and important posts in state institutions with a plethora of generals and ex-military officials, Bolsonaro has since alienated the top brass with concealed warnings of an insurrection reminiscent of Trump should he be not allowed to run again in a “rigged” election.
People in the business world who believed Bolsonaro could bring about a turnaround in the economy and pursue long-mooted reforms to the structure of society have grown been enraged by his unpredictable behavior as well as his incessant attempts to downplay the spread of the disease and derail vaccines, and his chaotic style of governance.
“There’s a lot of negativism in the price of Brazilian assets at the moment,” says a banker of senior standing located in Sao Paulo. “People are extremely fed up with Bolsonaro. Bolsonaro isn’t competent enough to lead his country.”
Bolsonaro’s efforts at crafting a story of economic competency are scuppered by inflation that is double-digit. The sharp price hikes have primarily hit families of lower incomes which is the foundation he must build to remain in office. The rate of inflation for families with the lowest income is at 11. percent per year, according to the government IPEA, a research institution. IPEA.
To win over the people who are poorer, Bolsonaro has turned to another tool used by Brazilian political leaders that is welfare handouts. Inspired by the successes of the emergency cash transfer program in the outbreak, Bolsonaro has launched a brand new welfare program, dubbed Auxilio Brasil. It could help around 50 million less fortunate Brazilians roughly 25% of the population.
The program is giving around 18 percent more than the average of R$189 ($33) paid out monthly to the beneficiaries from the former Lula regime Bolsa Familia scheme. On December 1, Bolsonaro was able to secure the support of the Congress to increase the amount to R$400 per month through the end of next year, just two months after the elections.
Officials from the government deny that the welfare system is aimed to win votes. “Auxilio Brasil is going today to the same people who received Bolsa Familia so in reality this already existed and doesn’t have anything electoral about it, they are people in extreme poverty,” declares Pedro Guimaraes, president of the bank of the state Caixa Economica Federal, which provides the aid.
Investors are still wary. They are concerned that President Trump’s populist tendencies will come into play during an election year and could lead to dangerous consequences for the stability of the economy in a country that has a high level of government debt as well as a record of fiscal slackness. The real has slid 10 percent against the dollar over the past year, despite a frenzied increase in interest rates as well as an increase in the Bovespa stock index has fallen by more than 15.
“The pressure for public spending is always very high in Brazil,” says Eduardo de Carvalho, a portfolio manager at Pacific Asset Management in Rio de Janeiro. For nearly 3 years as a congressman, Bolsonaro did not show any enthusiasm for fiscal prudence and, during the pandemic, he splurged heavily.
Brazil has launched one of the world’s most costly programs of support from the government, which is worth around 11 percent of its gross domestic product. The program was able to limit economic damage as output dropped just 3.9 percent in 2020, and is expected to increase by about 4.5 percent this year, which will lift the economy to a pre-pandemic peak. However, the deficit in the budget exploded and inflation began to fall off.
Concerned by the rising cost of living Brazil’s central bank has enacted the most aggressive plan of interest rate hikes that have pushed the benchmark Selic rates to 9.25 percent. Future increases are anticipated to increase rates to as high as 11 percent cent next year, which will increase the expense of paying off Brazil’s debt.
To finance Auxilio Brasil, Bolsonaro negotiated the approval of Congress to override the constitutionally-mandated cap on spending by the public. The budget deficit is expected to double in the next year, from 4.4 percent of GDP by 2021 to 7.8 percent as per Goldman Sachs.
“The fiscal position is a bit shaky and likely to weaken in 2022 due to the impact of the pressure to boost spending during the midst of an election year and an increase in interest rates on the public debt,” states Alberto Ramos, Goldman’s head of Latin America economics. “This will keep the debt dynamics on an upward and dangerous trajectory.”
Paulo Guedes, Bolsonaro’s finance minister, and a proponent of free-market reforms has described the welfare program as “politically irresistible” but insists that the government hasn’t changed its stance on fiscal prudence.
The Auxilio Brasil, Guedes says, is a policy he learned from his favorite free-market Guru Milton Friedman. “The idea is, in the political campaign for re-election to say ‘Now is going to be the Milton Friedman minimum income concept,” Guedes explains. [This may interest you: Download the ebook Farmacologia Basica e Clinica (13ª edição) from here]
However, Brazil’s economists and bankers are unsure of how much power Guedes enjoys on his top bosses in particular considering the forecasts of extremely weak growth or stagnation for the next year.
“Guedes does whatever Bolsonaro wants so he has lost a lot of credibilities,” says Elena Landau, a former top official of the state-owned bank for development BNDES. “There is no real government in Brazil — we are governed by the Centrão“.
The critics point out that while Guedes was able to pass a significant reform to Brazil’s massive pension system for the public sector and offered concessions for running airports, sewers, and other infrastructures, the other important reforms promised from Bolsonaro’s government Bolsonaro administration — both to the tax system as well as to the state bureaucracy remain in Congress.
Ricardo Barros, the leader of the majority government within the deputies’ chamber believes that reforms of this magnitude will not receive approval from the parliamentary chamber prior to the election in 2022. “Reforms don’t get voted in an election year,” Barros claims. “I don’t believe there’s the political environment.”
A Third Option?
While economic troubles are not the only issue, Bolsonaro faces formidable political opposition in the upcoming elections.
A former President Lula, who is 76, is expected to announce his candidacy as early as 2022. In an effort to bring back the beginning during his term as president, in which Lula was celebrated all over the world for being an exemplary leader The Workers’ Party (PT) iconic leader took part in a European trip in the month of November. meeting with Germany’s new chancellor Olaf Scholz and French President Emmanuel Macron at the Elysee.
Lula’s visit to Europe was in stark contrast to Bolsonaro’s visit to Italy to attend the G20 summit earlier in the week and where Bolsonaro, a former Trump Ally appeared disengaged and claimed he mistakenly stepped on German Chancellor Angela Merkel’s feet.
Lula is, however, facing issues that are his own. Investors are concerned that he may raise spending significantly and increase borrowing to fund large-scale social programs in a time where Brazil’s debt is already quite high by international standards. Markets are skeptical of his commitment to fiscal discipline even when he is under the pressure of his personal political party to spend.
“The problem is.. What Lula do we be seeing?” Spektor inquires. Spektor. “Are we going to witness the vengeful Lula who believes in heterodox.. policies we have seen repeat across Latin America, namely in Argentina?” His view is that it appears Lula will follow in the footsteps of the moderate policies he embraced during his first term 2003-2006.
Middle-class Brazilians are worried about Lula’s reluctance to acknowledge the corruption that was rampant under his regime and the administration of his successor, Rousseff. Beginning in 2014, the investigators discovered and destroyed the largest ever corruption network, dubbed “Operation Car Wash” after the Brasilia location where the investigation was launched.
More than $5 billion of illicit payments to more than 1,000 business and political figures were discovered, and there were more than 300 people were found guilty.
Lula herself was proved guilty of corruption and was sentenced to 12 years in prison. His conviction was overturned following a ruling by the supreme court that there were procedural errors during his trial.
Despite the evidence and confessions collected in the Car Wash operation, which was focused on the state-controlled petroleum firm Petrobras along with construction firm Odebrecht, Lula has repeatedly denied that the entire investigation was politically motivated.
“We knew what the objective of Car Wash was,” Lula posted on Twitter. “It was to ruin the shipbuilding industry in the country. In order to destroy the gas and oil industries. Take a look at the cost of petrol today”.
Some believe Lula’s denials of corruption, as well as Bolsonaro’s acceptance of the old-fashioned politics that he had previously criticized, have paved the way to a bold centrist challenge. “Bolsonaro is repeating the errors of the PT,” declares Alessandro Vieira, a former police chief who was elected senator in the year 2018. “An acceptance of corruption and a disregard for institutions. He also brings a new issue: an absolute inability to lead.”
Sergio Moro, the crusading judge who was the head of the Car Wash investigation last month has joined Podemos the small political group that fights corruption as the first step towards an election campaign for president. Moro believes that for a lot of Brazilians an alternative to a “third-way” option will become attractive.
“Around 31 percent of voters don’t want Bolsonaro or Lula,” states Marcia Cavallari, who runs the pollster IPEC.
The moment is now, Moro, who served as the justice minister under Bolsonaro’s administration for just over a year before resigning remains an option that is the “third-way” option with the most support, even though Moro is far from the required level to earn the right to participate in a Second round play-off.
A lot of people remain skeptical about the prospects of a centrist candidate winning in an arduous battle between two powerful standard-bearers from both the left and right. “Brazil has no viable conditions for a third-way candidate,” declares Wagner Parente, chief executive of BMJ Consulting in Brasilia. “Bolsonaro’s chances of re-election are not to be sneezed at.”
The leader of the far-right who in September vowed that “only God can take me from the presidency” is continuing to fight hard. When he concluded his speech to the Liberal party’s leaders in Brasilia He smiled wide. “I want to thank God for this moment,” he declared to cheers. “And to say that we are more and more united, magnetized by the same ideal: it’s always our Brazil above everything and God above everyone.”
Research by Amna Rizvi. Last updated on 24th December, 2021.