Bolsonaro's First Year: Balancing the Economy and Cultural Wars

This article was originally published by the Global Americans on January 9, 2020.
Running as an “outsider” to Brasilia’s corrupt insider politics and with the slogan “Brazil before everything, and God above all,” Jair Bolsonaro, a former army captain and long-term congressman, handily won his country’s presidential vote in late 2018. 
Following his inauguration in January 2019, he ushered in a new era of politics for Latin America’s largest economy, promising to clean up government, restore law and order, and reboot the economy. While he marked his first year in office by putting measures in place to stimulate stronger economic growth and was able to deal with the long-standing need for pension reform, Bolsonaro also pushed Brazil deeper into a cultural war between those favoring traditional values—including his base among the country’s evangelicals—and those supportive of a more tolerant society vis-à-vis same-sex marriage and LGBTQ rights, among other issues.
On the foreign policy front, Brazil moved right and sided with the United States in its various tussles with Venezuela, Cuba, and China. Bolsonaro disregarded environmental concerns, putting himself in the line of fire over his government’s stewardship of the Amazon, and called Argentina’s new Peronist President, Alberto Fernández, “leftist scum.” Looking into 2020, Brazil’s leader is likely to remain a polarizer, both at home and abroad, his presidency’s success dependent on a challenging global economy and rising geopolitical risks.    

Authoritarian Legacy, Economic Policy, and Reforms

Although Bolsonaro appeared to come out of nowhere, he represents a Brazilian political tradition, which combines populism, nationalism, centralization of power in the hands of a strong leader, and conservative social views. Some of that tradition is evident in the mixed legacy of Getúlio Vargas, who dominated his country’s political life in the mid-twentieth century. 

Another slice of the country’s hardline conservative political tradition is observable in the lengthy period of authoritarian rule under Brazil’s military (1964-1985). Although the military era was marked by an upgrading of the Brazilian economy and a degree of political stability, the general-presidents were not shy in violating human rights to crush the left, including using techniques of torture and murder. Bolsonaro has made it clear that he has nostalgia for the military era, which has stirred up debate over just how authoritarian of a leader he might be. Considering the above, it is easy to place Bolsonaro in the company of other ballot-box strongmen, such as Hungary’s Viktor Orban, Turkey’s Recep Tayyip Erdogan, and the Philippines’ Rodrigo Duterte. He has also been called the “Trump of the Tropics” due to the similar worldview shared with U.S. president Donald Trump. 
Yet for all of Bolsonaro’s autocratic tendencies, his ability to totally dominate his country’s political life is to some degree obstructed by Brazil’s complicated political landscape. First and foremost, Brazil’s constitution has given considerable authority to the country’s legislative body. Any major policy initiatives must make their way through the corridors of Congress, which can be a convoluted and painfully slow process. Second, political parties often tend to function more like political groupings of like-minded individuals or regional representation than cohesive ideological blocs. 
Considering that the president’s party, the Social Liberal Party (PSL), lacks anything resembling a majority of seats in either of the two houses in Congress, the president is forced to work with allies to pass any legislation. In 2019, Rodrigo Maia, president of the Chamber of Deputies, and president of the Senate Davi Alcolumbre—neither of whom share Bolsonaro’s far-right social views—opted to work with market-oriented Economy Minister Paulo Guedes, keying in on pension reform. Indeed, it is widely acknowledged that pension reform moved forward due to Guedes stepping in for President Bolsonaro.  
The pension reform bill passed in October 2019 was significant, as it required a change in the country’s constitution and a super-majority in Congress. The high cost of the pension program had long been the major cause of the country’s large fiscal deficits, a situation made worse since 2016 by slow economic expansion and an aging population. According to the Organization for Economic Cooperation and Development, the general government deficit to GDP ratio stood at 7.8 percent in 2017 and 7.1 percent in 2018. The measures are expected to result in savings of $195 billion over the next 10 years. 
Led by Economy Minister Guedes, the Bolsonaro government was also active on other economic fronts, including privatization, selling in excess $23 billion state assets in 2019; the easing of monetary policy, with some of the lowest interest rates in recent history; and implementation of deregulation measures. Although the economy was weak in the first half of the year, it showed evidence of stronger expansion in the second half. Real GDP growth is likely to be a disappointing 1.0 percent in 2019, but prospects for 2020 are better
However, the lesson on the economic front is that President Bolsonaro’s victories are based on his team’s ability to work with a wide-enough political grouping in Congress. There is much more work left to be done to fix the economy: badly needed infrastructure upgrades, competition-friendly domestic regulation, the ratification of the European Union-Mercosur trade agreement, improvement of contract enforcement and tax reform. If reforms continue and the international trade environment calms in 2020, the stars could align to accelerate Brazil’s economy, which, in turn, would help to gradually reduce unemployment and improve wage growth. 

Trade and Multilateralism

Brazil’s trade issue is something that President Bolsonaro has been forced to watch closely, considering the importance of exports to the country, which according to the World Bank, make up 12.5 percent of GDP. The Brazilian leader was able to stave off threatened new U.S. tariffs on steel in December 2019, but the Trump administration remains a point of concern on the trade front. 
President Trump’s threat of new tariffs was a result of what he perceived as a willful policy to depreciate Brazil’s currency, the real, to help the country’s farmers. Although a weaker Brazilian real vis-à-vis the U.S. dollar does help Brazilian exports (like coffee and sugar), Brazil has not sought to use its currency in such a fashion. It would prefer smoother relations between Beijing and Washington on trade.  
Despite shared disdain for globalization, multilateralism, and leftist thinking, the Trump administration is a tough challenge for President Bolsonaro. Simply stated, a shared hard right worldview does not necessarily align national interests with respect to trade. Indeed, President Bolsonaro has to consider his own nation’s interests. Brazil still has not moved its embassy to Jerusalem from Tel Aviv as some U.S. allies like Guatemala have done, for fear of angering the Arab world, an important buyer of Brazilian halal meat. Equally important, China is an important market for Brazil; according to the International Monetary Fund (IMF), Brazilian exports to China stood at $64 billion in 2018, well ahead of exports to the U.S. at $29 billion.
During his campaign, President Bolsonaro accused China of “buying Brazil,” which he asserted was threatening to erode his country’s sovereignty. The new hardline stance of Brazilian nationalism playing out against China delighted Washington, but the tariff war between the U.S. and China (along with African swine fever) did much to help Brazilian sales of soybeans and pork to the Asian country. 
Brazilian business interests, important employers of millions of voters, also leaned heavily on the government to back off attacking China. By November 2019 when President Xi Jinping met the Brazilian leader, Bolsonaro stated that “China is becoming more and more part of Brazil’s future.” Economic needs appear to put limits on the to the right-wing brotherhood of Presidents Bolsonaro and Trump.

Bolsonaro the Pragmatist?

The extent of President Bolsonaro’s pragmatism will play out in 2020. Now that pension reform has passed, the ability of the Maia, Alcolumbre, and Guedes team to maintain unity in Congress and focus on new legislation is questionable. Moreover, President Bolsonaro’s hand at steering new legislation through the Congress may be hindered by a sharp decline in his popularity, partially due to scandals surrounding his sons. 
Bolsonaro’s two eldest sons, Flávio and Carlos, are being investigated for corruption. Flávio, a Rio de Janeiro senator, is the target of a money-laundering investigation that accuses him of having ties to the violent paramilitary gangs active in Rio, one of which is thought responsible for the assassination of a black LGBTQ city councilor, Marielle Franco. According to state prosecutors, between 2010 and 2017, the then-state deputy Flávio profited from real estate transactions in which there were “suspicions of under-billing in purchases and over-billing in sales.” A central player in the case was a former military police officer Fabricio Queiroz, described in the media as friend and bagman to Flávio and possibly to the president’s wife.  
Further tarnishing his stance as an anti-corruption fighter, President Bolsonaro accused investigators and other political forces of creating a plot to attack him through the persecution of his third oldest son, Eduardo, a federal deputy in Brazil’s Chamber of Deputies. Eduardo was floated around as a possible pick to become Brazil’s ambassador to the United States, a move which fizzled in the face of considerable public indignation at such a blatant act of nepotism. For many Brazilians, the behavior of the president’s sons has left a bad taste, raising questions of whether anything had changed in the behavior of those who rule the country.
On another front, President Bolsonaro’s cheerleading for the unhindered development of the Amazon and weakening of environmental laws has brought his administration criticism from both domestic environmental groups and foreign governments. Bolsonaro’s government has been active in cutting the budget and authority of the country’s environmental protection agency.  

What was particularly shocking to the global community was the August 10, 2019, “Day of Fire,” during which farmers and loggers coordinated a series of fires in the Amazon forest and nearby land, showing their support for Bolsonaro and his wish to open more of the region to farming and ranching. When international attention focused on the damage to the rainforest, partially due to the massive plumes of smoke visible from space and hanging over a number of Brazilian cities, President Bolsonaro told leaders and activists not to interfere with his country’s sovereignty and blamed the fires on NGOs without providing any evidence. 
He also accused U.S. actor Leonardo DiCaprio of funding non-profit organizations that allegedly set fires to raise donations. Considering that the Amazon Basin—most of which is in Brazil—holds 40 percent of the world’s tropical forests and accounts for 10-15 percent of the biodiversity of the planet’s continents, President Bolsonaro quickly found himself under attack. France’s President Emmanuel Macron accused Bolsonaro of lying about his commitment to fight climate change and threatened to kill the EU-Mercosur trade deal—which would hurt the other Latin American partners, namely Argentina, Paraguay, and Uruguay.

2020 Challenges to Bolsonaro’s Presidency

As President Bolsonaro begins his second year, his clout in the Brazilian Congress remains limited. This has been even more difficult considering the president’s strained relationship with his own party. Moreover, the Brazilian leader may find himself facing a new threat from the left, with former president Lula da Silva’s recent release from prison and the possibility he could function as a rallying point for anti-Bolsonaro forces. 
Another issue that may weaken the Brazilian leader’s position is his health. Since the near-fatal stabbing assassination attempt on Bolsonaro in September 2018, his health is reported to be uneven.  
Looking ahead, President Bolsonaro’s report card is mixed. While he appears to have given the economy an important push out of recession, he stumbled badly on the environment, backtracked on his China policy, has jeopardized the EU-Mercosur trade deal, and tarnished his reputation as a corruption fighter. He remains a polarizer. Outside of the pension reform, many of his major bills, including one on crime, have not advanced. 
If he is unable to maintain some type of alliance in Congress similar to how he passed pension reform, he could find his administration struggling to advance any further reforms. In turn, this would put more pressure on President Bolsonaro to push harder to stimulate economic growth as well as look to non-legislative means to implement policy. This, however, could raise alarms that he is seeking to take a more autocratic approach. The bottom line for Brazil’s president is whether he can balance further progress on the economy while maintaining a functioning alliance in Congress, something that he may find difficult to do considering his tendency to push the cultural wars to extremes. 2020 will be a testing year for Brazil on many fronts.
Scott B. MacDonald is a non-resident senior associate at the Americas Program of the Center for Strategic and International Studies and the chief economist at Smith’s Research & Gradings.
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Scott B. MacDonald