Brazil Super Minister Shoulders Weight of Bolsonaro Economy
Comment of the Day

October 30 2018

Commentary by Eoin Treacy

Brazil Super Minister Shoulders Weight of Bolsonaro Economy

This article by David Biller, Cristiane Lucchesi and Rachel Gamarski for Bloomberg may be of interest to subscribers. Here is a section:

More long nights lie ahead. Brazil’s nascent recovery from the worst recession in history hinges on his success, and the nation’s benchmark index has climbed 13 percent since mid-September -- close to its all-time high -- on optimism Bolsonaro would win, giving Guedes a chance to implement business-friendly policies. They include dozens of privatizations, a massive reform of the pension system and a revamp for the nation’s byzantine tax code.

Bolsonaro, who’s admitted he has only a “superficial understanding” of economics, has said he’s placing full control over the nation’s finances in the hands of Guedes, who was trained at the University of Chicago and founded both a private equity firm and a think tank for liberal economic theories. Yet for all that success, he’s had zero experience in implementing public policy.

“One thing’s for certain: Guedes is the guarantor of Bolsonaro’s alleged conversion to liberalism, and if for any reason he leaves the government, there will be an earthquake in markets,” said Ricardo Lacerda, chief executive officer of Sao Paulo-based boutique investment bank BR Partners.

How big an earthquake? One top market analyst said Brazil’s benchmark stock index could tank as much as 40 percent, reaching levels not seen since the 2016 impeachment of Brazil’s former president, Dilma Rousseff. While that’s probably overstating things, it’s the kind of hyperbole that’s characterized Brazil’s election rhetoric ever since polls made it clear in recent months that Bolsonaro was heading to victory.

 

Eoin Treacy's view

It’s a truism but the market likes market friendly administrations. The potential for Bolsonaro to tackle engrained corruption, grant the central bank independence and streamline regulations have resulted in the Real rallying to test the region of the trend mean. Investors are probably now likely to wait and see what the new administration’s program for government will be before getting more bullish.

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