Brazil: Bolsonaro embraces the politics he once vowed to abolish

For an outsider who won the presidency promising to reject traditional corrupt politicians, it was a remarkable volte-face.

Brazil’s far-right leader Jair Bolsonaro took the stage in a packed auditorium in Brasília to announce his return to the heart of the political establishment. After a prayer from an evangelical congressman calling for God’s blessing, the erstwhile iconoclast rose to speak about his decision to join the Liberal party, Brazil’s third largest by number of lawmakers.

“I came from among you,” he told the audience of legislators, referring to his 28-year career in Congress. “I feel at home here.”

Behind Bolsonaro’s warm words on November 30 lay an uncomfortable fact: less than a year before what promises to be a bitterly fought election, the man who ran for president as an outsider promising to shake up the political establishment had now embraced it wholeheartedly.

Although no candidate has yet been formally declared, the October 2022 presidential race is expected to pit the former army captain and darling of the religious right against one-time president and leftist icon, Luiz Inácio Lula da Silva for the leadership of Latin America’s biggest economy.

As the incumbent, Bolsonaro is on the ropes. His handling of the pandemic is under fire after Brazil suffered one of the world’s highest death tolls from coronavirus. Rising inflation is eating into the incomes of the poor and the economic recovery is stuttering. The government’s approval rating has fallen below 20 per cent for the first time, according to a recent Atlas survey. A poll by Datafolha last week shows Lula holds a 26-point lead over Bolsonaro and would win the presidential election in the first round if it were held now.

Facing an uphill battle for re-election and lacking a party of his own after quitting in 2019 the rightwing Partido Social Liberal under whose banner he was elected, Bolsonaro was running out of options for accessing the generous state funds and campaign airtime available to established parties for the 2022 election. He chose a party which symbolised the “old politics” he had vowed to bury.

The Liberals form a key part of the so-called “Centrão” or “big centre” bloc of traditional parties which have controlled Brazil’s Congress for decades, offering support to presidents of all political stripes in return for budgetary largesse and plum government posts.

Bolsonaro used to be highly critical of this system. In a video from his 2018 campaign, he denounced the practice of naming ministers according to party political interests as “guaranteed not to work” and promised: “We will name the right people for the right jobs. That’s why we don’t form part of the Centrão”.

But now “it is absolutely back to the old politics,” says Matias Spektor, an associate professor at the Getúlio Vargas Foundation in São Paulo. Bolsonaro has “abandoned any hopes that he might be able to govern in a way that was fundamentally different from previous administrations”

A history of fiscal lassitude

Bolsonaro first turned to the Centrão for help last year to fend off scores of impeachment requests filed in Congress, offering the bloc key posts in his administration in return for their support. For Brazil’s old-school politicians, it was back to business as usual.

“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 a key Centrão figure.

Ideology is rarely an obstacle to dealmaking in the fickle world of Brazilian politics.

The Liberal party, which embraced the hard-right president and his senator son Flávio as new members, also supported Dilma Rousseff, a leftwing Workers party president, as well as her predecessor Lula. It was the ninth party Bolsonaro has joined in three decades.

Although he now has party backing, Bolsonaro still faces formidable hurdles in building an electoral coalition broad enough to return him to power next October. His first campaign rallied the support of the military, the powerful agricultural lobby, the evangelical church, business people seeking economic reform and many Brazilians tired of the corruption scandals and recession which marked the end of the 14 years of Workers party government under Lula and Rousseff.

Despite filling his government and key posts in state entities with dozens of generals and other ex-military officers, Bolsonaro has since alienated many top brass with thinly veiled hints of a Trump-style insurrection if he were denied another term by a “rigged” election.

Business people who hoped Bolsonaro might turn round the economy and push long-mooted structural reforms have tired of his unpredictable antics, his constant attempts to play down the pandemic and undermine vaccinations and his chaotic style of government.

“There’s a lot of negativism in the price of Brazilian assets at the moment,” says one senior banker in São Paulo. “People are very tired of Bolsonaro. He is not competent [enough] to run the country.”

Bolsonaro’s attempts to craft a narrative of economic competence are threatened by double-digit inflation. Sharp price increases have particularly hurt poorer families whose support he needs to retain the presidency. Inflation for the lowest-income families is running at 11 per cent a year, according to government research institute IPEA.

Hoping to win over poorer voters, Bolsonaro has turned to another traditional tool of Brazilian politicians: welfare handouts. Buoyed by the success of an emergency cash transfer programme during the pandemic, the president has launched a new welfare scheme, known as Auxílio Brasil, that could benefit about 50m poorer Brazilians, nearly a quarter of the population.

The programme is handing out roughly 18 per cent more than the average R$189 ($33) given monthly to recipients of the Lula-era Bolsa Família scheme. In December, Bolsonaro secured congressional support to increase this amount to R$400 a month until the end of next year, two months after the election.

Government officials deny the welfare is targeted at winning votes.

“Auxílio Brasil is going today to the same people who received Bolsa Família so in reality this already existed and doesn’t have anything electoral about it, they are people in extreme poverty,” says Pedro Guimarães, president of the state bank Caixa Econômica Federal which distributes the aid.

Investors are nonetheless wary. They fear that the president’s populist instincts will come to the fore in an election year, with potentially dangerous consequences for economic stability in a country with high public debt and a history of fiscal lassitude. The real has fallen 10 per cent against the dollar this year, despite an aggressive series of interest rate rises and the Bovespa stock index is down more than 15 per cent.

“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.

In almost three decades as a congressman, Bolsonaro never showed an appetite for sound fiscal policies and during the pandemic he spent big.

Brazil launched one of the developing world’s most expensive programmes of government support, worth about 11 per cent of gross domestic product. The package limited economic damage — output fell just 3.9 per cent in 2020 and is set to rebound by around 4.5 per cent this year, taking the economy above its pre-pandemic level. But the budget deficit soared and inflation started to take off.

Alarmed by rising prices, Brazil’s independent central bank has implemented the world’s most aggressive programme of interest rate rises, pushing the reference Selic rate to 9.25 per cent. Further rises are forecast to take rates as high as 11 per cent next year, increasing further the cost of servicing Brazil’s government debt.

To help pay for Auxílio Brasil, Bolsonaro negotiated congressional approval to bypass a constitutionally mandated cap on public spending. Now the overall budget deficit is set to nearly double next year from 4.4 per cent of GDP in 2021 to 7.8 per cent, according to Goldman Sachs.

“The fiscal stance is fragile and bound to deteriorate anew in 2022 on the back of . . . the push to increase spending in an election year, and a rising interest bill on public debt,” says 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 supporter of free-market reforms, has described the welfare programme as “politically irresistible” but insists that the government has not abandoned its commitment to fiscal rectitude.

Auxílio Brasil, Guedes says, is a policy taken straight from his favourite 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,” he explains.

But Brazil’s bankers and economists question how much influence Guedes retains over his boss, particularly given forecasts of very weak growth or stagnation next year.

“Guedes does whatever Bolsonaro wants so he has lost a lot of credibility,” says Elena Landau, a former senior official at the state development bank BNDES. “There is no real government in Brazil — we are governed by the Centrão”.

Critics note that although Guedes pushed through a landmark reform of Brazil’s bloated public sector pension scheme and tendered concessions to run water, sewage, airports and other infrastructure, other key reforms promised by the Bolsonaro government — to the tax system and to the state bureaucracy — are bogged down in Congress.

Ricardo Barros, the leader of the government majority in the chamber of deputies, doubts major reforms will gain parliamentary assent before the 2022 election. “Reforms don’t get voted in an election year,” he says. “I don’t believe there’s the political environment.”

A third…