BOLSONARO’S RECENT CABINET CHOICES SUGGEST THAT HE IS LOOKING TO MITIGATE SOME OF THE CRITIQUES AGAINST HIM. THE APPOINTMENT OF LEVY TO THE BNDES UNDERSCORES THE INCOMING ADMINISTRATION’S COMMITMENT TO REDEFINING THE RELATIONSHIP BETWEEN THE STATE AND THE PRIVATE SECTOR.
Without doubt, the most critical task facing the incoming Bolsonaro government will be stabilizing Brazil’s fiscal situation. Expectations are high on this front, due largely to the presence of Chicago-trained economist Paulo Guedes as the finance “super minister” in the new administration. Despite unresolved concerns that Bolsonaro could prove to be a nationalist at heart, limiting the scope for privatizations and other measures, the transition team has pushed ahead in developing a liberal economic agenda, as clearly indicated by the appointment of World Bank executive and former Finance Minister Joaquim Levy to the Brazilian development bank BNDES and the retention of key reformers from the economic team of outgoing President Michel Temer. Key to this strategy are Guedes’s plans for the privatization of public companies, the drastic reduction of bureaucracy, and the substantive lowering of Brazil’s trade and investment barriers—the highest among middle income economies. But Guedes has stated that pension reform tops the list. Pension spending in 2016 was 8.2 percent of gross domestic product (GDP), making the overhaul of the pension system fundamental
to any effort to reduce public debt and spur growth. There is growing recognition among investors that reforms may be less profound and the economic recovery process may take longer than originally hoped, but a failure to pass any pension reform in 2019 would be greeted with serious concern. Yet pension reform has proven notoriously difficult to pass in Brazil—the last reform (in 2003, under President Lula) did not even touch the minimum retirement age, and the situation has only worsened. Temer’s proposal, currently before Congress, is widely considered an important first step, but insufficient to reverse the fiscal deficit. Congressional leaders have stated that the lame duck session is unlikely to pass pension reform before January 1st, scuttling the incoming president’s public hopes that outgoing legislators would be willing to move forward on the highly unpopular measure, leaving him free to address other economic concerns. This lack of immediate progress on pension reform underscores a more serious issue: there is no indication that the president-elect’s current team is capable of effectively cajoling and negotiating with Congress. Bolsonaro will undoubtedly discover, as did his predecessors, that Congress can make or break the administration’s economic agenda. He can expect a broad coalition in Congress, but it will likely prove strongest on conservative social issues, public security, and agriculture—and could easily splinter when faced with highly unpopular legislation like pension reform. Moreover, Bolsonaro has already disavowed two of the traditional methods of enforcing coalition discipline in the fractionalized Brazilian system: rewarding coalition parties with cabinet ministries and other patronage jobs, and pork barrel spending in exchange for votes. As a result, the power of the bully-pulpit may prove far more important to Bolsonaro’s economic agenda than in past administrations.
Conclusion Bolsonaro’s recent cabinet choices suggest that he is looking to mitigate some of the critiques against him. The appointment of Levy to the BNDES underscores the incoming administration’s commitment to redefining the relationship between the state and the private sector. Bringing in entrepreneur and philanthropist Viviane Senna as Education minister (or appointing someone she recommends), as suggested by press reports, would similarly suggest a more positive outlook for social issues—an area of concern due to Bolsonaro’s stated views on women, LGBTQ+, and minorities. The selection of Federal Judge Sergio Moro, who led the Lava Jato corruption investigations, as justice minister has strengthened confidence that the new government will adhere to the rule of law (despite concerns raised about the politicization of the judicial process). However, none of these measures will be meaningful if the administration fails the test of leadership and does not advance needed fiscal reforms during the first year of the new administration. Brazilian foreign policy and economic policy will be inextricably linked for the Bolsonaro administration. Resolving Brazil’s fiscal mess will generate international buzz for the new government, spurring further investment and helping to revive Brazil’s role on the global stage. Similarly, perception of Brazil and its foreign policy stance could have a significant impact on trade and investment. In the absence of necessary reforms, the new Brazilian leader’s honeymoon will be short, regardless of his ability to speak directly to the people via social media. There is hope that the exigencies of the moment will mean at least some of these policies are implemented. As Ana Paula Vescovi, the outgoing deputy minister of Finance, wryly explained in a recent presentation, “The good news is that we have run out of money.” ■ Buenos Aires. Argentina 2018 ❙ 29