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Brazilian election update

12 October 2018 Carlos Caicedo

The unexpectedly high 46% support obtained by far-right candidate Jair Bolsonaro shows momentum is with him and he most likely will be elected president.

  • The former Army captain will now face leftist opponent Fernando Haddad in the second round of the presidential election, with Bolsonaro enjoying a surge in support.
  • Both candidates will now move to build alliances, the center-right vote will prove the deciding factor with Bolsonaro being the better-placed to capture most of it.
  • Bolsonaro is on course to become president; his success will be secured if he tones down his authoritarian speech and seek consensus with other political forces, but there are concerns about his commitment to fiscal reforms and privatization.

Far-right candidate Jair Bolsonaro, from the Social Liberal Party (Partido Social Liberal: PSL) came first in the first round of the Brazil's presidential election, with 46% of the vote. Fernando Haddad, from the leftist Workers' Party (Partido dos Trabalhadores: PT), came second with 29%, setting the stage for a runoff on 28 October 2018.

Running his campaign as an outsider, without the support of a large party, with restricted funds and almost no TV airtime, Bolsonaro managed to capitalize on voters' deep dissatisfaction with traditional politics, rampant corruption and growing criminality. Also, crucially, in the last days of the campaign, he also received important backing of the country's most important evangelical leaders - what helped him to get more votes with low income families.

Bolsonaro won in four of the five regions of Brazil, only losing to Haddad in the northeast, a PT stronghold. He also won the race with the richer, younger, better educated, and male population. Crucially, he attracted the vote of former supporters of the Brazilian Social Democracy Party (Partido da Social Democracia Brasileira: PSDB), which used to be the main PT rivals, and some other smaller center-right parties.

However, Haddad had to rely heavily on the support of former president Luiz Inácio Lula da Silva's popularity with part of the electorate - especially the lower-middle-classes and the poorest, who benefited the most from social policies implemented by the former president. Little known in parts of the country, Lula's backing was Haddad's strongest support. Significantly, Bolsonaro made inroads in the northeast, the PT's main stronghold. There, Ciro Gomes, from the Democratic Labor Party (Partido Democrático Trabalhista: PDT), who came third with 12% of votes, also managed to attract support from the leftist camp, denting Haddad's numbers.

Race to build alliances

Bolsonaro and Haddad will now focus on garnering the support of the center and the center-right. Bolsonaro has already secured the support of political groups that previously snubbed him. These include moderate and center-right deputies belonging to the powerful agribusinesses congressional lobby, representatives of the evangelical church, and several candidates to state governments. He will receive open or veiled support from the majority of the PSDB, the pro-business party of defeated candidate Geraldo Alckmin. The catch-all Brazilian Democratic Movement (Movimento Democrático Brasileiro: MDB) party of President Michel Temer will be divided but probably with more alignment with Bolsonaro.

Haddad will try to attract the voters that backed Gomes; the few that voted for Marina Silva (only 1% of valid votes), from Sustainability Network (Rede Sustainability: Rede); and part of the centrists that dislike Bolsonaro's racist and misogynist views. He has already called for a "national alliance of democrats". But such support is unlikely to be sufficient to defeat Bolsonaro.

Bolsonaro most likely will keep his popular strong speeches on crime and corruption (in a direct attack against PT). But he will also try to avoid further polemics and abusive comments related to minorities in a bid to win the extra votes that prevented him from early victory. Bolsonaro will also try to distance himself from proposals from his allies about the need to increase taxation and the possibility of scraping some worker's benefits, like the annual bonus granted to workers.

Economic policies

The second round will see both candidates providing some clarity on their economic policy proposals, which up to now have remained vague and to some extent contradictory.

Bolsonaro has voted consistently in Congress against fiscal austerity, cuts in government costs and the pension reform. He declared that Brazil needs to keep strategic companies under state control and admitted that he knows very little about economy. However, his program is ultra-economically liberal, defending the privatization of almost all state assets, reduction in taxes, and promising to bring the fiscal deficit to zero in one year -without detailing how.

Bolsonaro announced he will keep Ilan Goldfajn, one of Brazil's most respected economists, as president of the Central Bank of Brazil and that his economic adviser, former banker Paulo Guedes, would be his economy minister. However, during the campaign, both Bolsonaro and Guedes disagreed on several topics including a badly received proposal by Guedes to create a new financial transaction tax.

Haddad's program has been state interventionist, seeking to appeal to the PT's core leftist supporters. It mentions that the party would tax big fortunes, inheritances, and dividends. He has avoided discussing the pension reform and suggested that economic growth would in due time correct the country's large fiscal deficit. However, he has given some hints of moderation. He has admitted that the pension system demands a reform. He seems to understand the fiscal pressures, noting he would try to emulate the first government of President Lula, when PT tightly controlled the budget, creating fiscal surpluses.

Outlook and implications

The momentum appears to be with Bolsonaro, thanks to a swell of support not only of the electorate across the country (except for the northeast), but also of highly influential quarters such as the agribusiness lobby and the evangelical churches. To this add the center-right parties and governors whose interests will be better served by working with Bolsonaro. Bolsonaro is also well placed to secure a majority in congress if he seeks consensus; his PSL party is now the second-largest political party in the Lower House and has gained, for the first time, a representation in the Senate. In contrast, Haddad's party has lost ground in the Senate and at the regional level, where the PT lost important governorships. Also, the level of rejection of the PT and Haddad himself is very high, making extremely difficult to prevail in the second round. Furthermore, the other leftist parties, with the exception of Gomes's PDT, the natural allies of Haddad, did very poorly in the first round, suggesting their support will not be enough to stop Bolsonaro.

Given the polarization of the race, violent confrontation between the two camps are likely as the campaign progresses and even on election day on 28 October. This will include marches by both sides in cities such as Brasília, Rio, and São Paulo, which could escalate, resulting in physical confrontations of opposing marchers against each other and with the police.

Posted 12 October 2018 by Carlos Caicedo, Senior Principal Analyst – Americas, Country Risk, IHS Markit

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