September 2, 2021

Latam

BRAZIL: Day of economic reckoning for Bolsonaro

BY Mario Marconini

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( 3 mins)

President Jair Bolsonaro has resorted to combative discourse from the outset of his government. The strategy has always been to attack first and explain later, never to recognize mistakes, and at best deny what was said. Even when he has struck deals with other branches of government, he never refrains from confrontation to preserve die-hard positions dating back to his campaign days. He has also battled critics when backtracking on tenets of his platform, such as when he broke with former Justice Minister and anti-corruption icon, Judge Sergio Moro, or supported “old politics” candidates for top congressional posts. This approach may have worked when stridency remained in the political realm. Now that it has reached the economy, Bolsonaro may need to rethink his strategy.

Given a contraction of the economy in Q2, growth for 2021 is now expected to come in at less than 5%, which barely makes up for last year’s 4.1% contraction. Forecasts of 2% growth in 2022 are increasingly seen as optimistic. Unemployment is resilient at above 14%. Covid-19-related emergency assistance, which was interrupted between January and April, expired again in June and the government is having great difficulty replacing it with a new permanent cash transfer program, the Auxilio Brasil. Inflation has reached 9% in the 12 months to July and should reach 10% by year-end. Severe droughts have already caused an average increase of 7% in the price for electricity. Interest rates may reach 7.5% this year.

Bolsonaro can hardly blame the current economic situation on external factors. A recent poll (Quaest) has shown that the pandemic is now considered the main concern for 28% of the population (from 41% in July) while 27% are mostly worried about the economy (from 12% in July) – an evolving reversal that casts serious doubt on the president’s economic-activity, anti-social-distancing discourse throughout the pandemic. This, coupled with an increasing difference in voting preferences in favor of former president Luiz Inacio Lula da Silva in a hypothetical run-off against Bolsonaro (now at 25% from 22% in August), attests to how the president is now facing his biggest challenge – the economy.

Bolsonaro will continue to double down on confrontation. He has attacked those who defend buying food as opposed to weapons. He has openly encouraged Independence Day (7 September) protests against the Supreme Court (STF) and Congress, claiming that they constitute a singular “opportunity” for the Brazilian people. He has professed that he will change Brazil’s destiny “within the four lines of the constitution”. Threats to democracy are being denounced across society and both the political and judiciary system. There is real fear that the president may take matters too far.

The upcoming protests will indeed function as a bellwether of the president’s effective support. They may even work to show presidential prowess depending on the size of the crowds. However, the president will need to do more on the economy without resorting to easy populism. A new cash transfer program cannot threaten the spending cap, for example. Business leaders are concerned, and manifestos are beginning to emerge in favor of democracy and predictability from sectors that had so far strongly supported the president – such as agribusiness. As to the population, inflation alone can inflict significant damage to the president’s electoral prospects.

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