Brazil braced for Bolsonaro

22 October 2018
16 October 2018, Week 41, Issue 735

Likely new president Jair Bolsonaro’s energy policy will appeal to the IOCs, but there are concerns about his unpredictability, writes Dom Phillips in Rio de Janeiro

WHAT: Bolsonaro is expected to win in the run-off vote on October 28. 

WHY: The Workers’ Party candidate is estimated to have just a 25% chance of winning. 

WHAT NEXT: Bolsonaro’s hard right wing policies should see greater deregulation in the energy sector.

Not so long ago, few Brazilians thought that extreme right wing candidate Jair Bolsonaro, 63, could become the country’s next president. Now, barring a major turnaround, it seems very likely he will. According to an IBOPE poll on October 15, he has 59% of valid votes while his rival Fernando Haddad from the leftist Workers’ Party (PT) trails with 41%. The two go head to head in a run-off on October 28. 

The Eurasia consulting outfit estimates that Haddad has just a 25% chance of winning. And those who do business in Brazil are hoping that Bolsonaro’s expected victory will be as positive for them as he claims it will be. They will also do their best to ignore the downsides of a candidate that The Economist recently described as a “menace” who was likely to make Brazil’s many problems worse.

Extraordinary candidate

Bolsonaro is no ordinary candidate. For nearly three decades the former army captain pursued a nondescript career in the Brazilian Congress, vociferously defending the military dictatorship that ran Brazil from 1964-85 along with its torturers and executioners. He told a female lawmaker she did not deserve to be raped, attacked LGBT people, and described refugees as the “scum of the earth”. Now he wants to fight corruption, give the police free reign to kill even more criminals than they already do and chemically castrate rapists. He is so far to the right he makes Donald Trump look like a bleeding heart liberal. 

Yet Brazilians are ground down by relentless corruption and terrifying rates of rising violent crime. Fired up by a blitzkrieg of fake news on social media and the closed WhatsApp groups widely used by Brazilian families, they prefer Bolsonaro to Haddad and the PT, widely discredited by its role in an enormous graft scandal at Petrobras and allegiance to its founder and two-time president Luiz Inacio Lula da Silva. Confusingly, polls suggested Lula would easily win this election, if he was not serving a 12-year prison sentence for graft and money laundering. But as Brazilians are fond of repeating, this is not a country for beginners.

Bolsonaro easily won the first-round vote on October 7. Four years ago the tiny Social Liberal Party he joined earlier this year elected just one deputy elected to Brazil’s lower house of Congress. This time it elected 52. He has also formed alliances with powerful agribusiness and evangelical Christian lobbies, giving him traction in the legislature.

Bolsonaro has promised to erase the country’s deficit in his first year while cutting taxes, and has tapped University of Chicago-educated liberal economist Paulo Guedes to run a souped-up Economy Ministry that will swallow the Ministries of Planning, Finance and Development, Industry and Foreign Trade.

IOC impact

All this looks like good news for IOCs, who have supported current President Michel Temer’s moves to dismantle heavy-handed state control of the oil industry introduced under successive PT governments.

Temer removed an obligation that Petrobras operate all new pre-salt PSCs with a minimum 30% stake, slashed strict local content requirements for goods and services and held successful tenders that enabled the IOCs to grab valuable pre-salt acreage. Bolsonaro’s manifesto suggests he will carry on in the same direction.

“After the discovery of the pre-salt, oil regulation was orientated by statism, generating inefficiencies,” it said. “The bureaucratic demand of local content reduces productivity, as well as having generated corruption.”

Local industry will grow where it has competitive advantages and Brazil’s shipbuilding industry – brought to its knees by the Petrobras scandal, falling prices and recession – will be forced to invest and improve its productivity, the manifesto adds.

It also says that Petrobras will follow international fuel prices, softening the impact with appropriate hedge mechanisms, which the company is already doing. And Petrobras will sell a “substantial portion” of its refining, retail and transport businesses – again, in line with what the company is already doing or would like to do.

So what is not to like? His promise to zero Brazil’s $37 billion in his first year while cutting taxes is unrealistic. Bolsonaro is unpredictable and prone to contradicting his key ministers-to-be when they say things he decides he does not like. He slapped Guedes down when he suggested re-introducing an unpopular tax on financial transactions and told his vice-presidential candidate, General Hamilton Mourao to be quiet after he questioned whether Brazilians should keep receiving the extra month’s “13th salary” at the end of each year.

He repeatedly said he would give Guedes full reign over economic policy because he himself does not understand it. In August Guedes told TV Globo that the government could sell Petrobras. Last week Bolsonaro said he would limit privatisations and the “core” of Petrobras should be preserved during an interview for TV Band. When the production-sharing law was approved in 2010 and ensured Petrobras’ participation in every pre-salt contract, Bolsonaro voted in favour. Even though his party won 52 seats, it will still need to make deals with other parties to get things done in Congress. This process traditionally involves trade-offs for jobs and ministries, something Bolsonaro has said he is not willing to do.

His authoritarian tendencies and plans to appoint generals to key ministries worry many. His declaration that he will submit Brazil’s Environment Ministry to its Agriculture Ministry and open up protected indigenous reserves in the Amazon to mining have horrified environmentalists and could spark international protests – or even consumer revolts.

With Bolsonaro, Brazil is stepping into the unknown. But its current roll of oil tenders, at least, does seem likely to continue, which will reassure the IOCs active in the country. 

“We don’t have the resources to exploit the pre-salt,” Bolsonaro said in the same television interview, “and 20, 25, 30 years from now there will be another energy source.”

Edited by

Ryan Stevenson

Managing Editor

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