Brazil’s tumultuous presidential election came to an end on the evening of October 28, when it became clear as soon as the polling stations closed that far-right candidate Jair Bolsonaro had gained a comfortable majority in the presidential run-off with leftist candidate Fernando Haddad. A former military officer and congressman, Mr Bolsonaro is now called on to give details over his promised deep economic reforms, and thus solve once for all the ambiguity between market-friendly policies and protectionist tendencies that have characterised his campaign trail.

“We are going to change together the future of Brazil,” Mr Bolsonaro stated in his first speech as elected president streamlined via YouTube, thus emphasising the rupture point from the past, disastrous legislature, which saw former elected president Dilma Rousseff impeached on charges of mismanagement of public funds, and the economy fall into its worst recession in recent years.

Mr Bolsonaro won 55.5% of the votes in the run-off, confirming forecasts that put him way ahead of rival Mr Haddad, who got 44.5% of the votes, according to the country’s elections tribunal TSE. Mr Bolsonaro inherits an economy that got back on track in the past few quarters, and whose foreign investment appeal did not fade not even in the past troubled years, but he must still address with major challenges.  

Brazil came out of recession in 2017, although its economic recovery gradually lost steam in 2018, with GDP growth falling to 1% in the second quarter of year. FDI remained solid through the country’s 2014-2017 recession, and stood at $62.7bn at the end of 2017, by far the highest in Latin America, and the fourth highest in the world, according to figures from Unctad. Despite glimpses of economic recovery, Mr Bolsonaro will have to address a weak fiscal position, with large fiscal deficit and “unsustainable debt”, an inefficient and costly state bureaucracy and tax system, a very closed economy, mediocre growth, low levels of human capital and weak consumer and business confidence.

“We expect the Bolsonaro administration, and its strongly liberal-minded finance minister, Paulo Guedes, to focus on promoting a fiscal regime shift and to turnaround a long underperforming and uncompetitive economy,” Alberto Ramos, head of economic research for Latin America at Goldman Sachs, wrote in a note. “But achieving that will demand more than just sheer willingness and sense of purpose, in our view; it will also require top-notch political skill to guarantee the minimum necessary governability conditions to move forward with the reform agenda.”

Mr Bolsonaro ‘converted’ to market-friendly policies over the course of his campaign, veering from his previously marked protectionist approach. The expected appointment of Chicago School economist Paulo Guedes as finance minister seems to signal his will to pursue a market-oriented agenda to relaunch the Brazilian economy through a mix of privatisation, fiscal reform and spending cuts.

The markets have rejoiced at this outlook, with the Brazilian real recovering about 14% over the US dollar from mid-September as Mr Bolsonaro emerged as the clear favourite to win the elections, and Mr Guedes to run the economy. Yet the future of this alliance may hang in the balance. 

“We have a strong concern that Mr Bolsonaro’s recent conversion to market-friendly policies, and his alliance with Paulo Guedes, may not be long-lasting, with potential for a reversion to economic populism,” Jimena Blanco, head of Americas political research at risk consultancy firm Verisk Maplecroft, wrote in a note. “With a history of right-wing nationalism, Mr Bolsonaro has often been protectionist and critical of foreign investment. Any falling out with Guedes would create major policy uncertainty.”

Besides, Mr Bolsonaro has given mixed signals about his position on trade agreements, even hinting that he might pull Brazil out of the Southern Common Market (Mercosur), quit the Paris climate agreement, and relax ties with the other BRICS countries, Ms Blanco added.  

Mr Bolsonaro’s election brings a mixture of hope and fear: hope that Brazil will turn the page on the past troubled years by fixing its economic but also social and political problems through a clear reform agenda, and fear that his presidency will quickly resort to authoritarian and populist measures and thus resemble of other economies around the globe, from the US to Turkey, the Philippines or Hungary.