Following the re-democratization process, the Brazilian general election has been a concern for the market, for those who invest, and for those who hire them. The concern stems from the possibility that the new president will adopt anti-investment and populist policies. Some neighbors give us negative examples, such as Argentina, which did not manage to get out of the 1980s, and Venezuela, which collapsed due to socialism, hunger for the majority.
The socialist threats of François Mitterrand’s first term forced many French people to leave the country for Switzerland. During his second term, he already understood market dynamics and interests and began to manage in a more predictable way. Market capitalism, although imperfect and susceptible to interference, is given and must be factored into political calculations.
In the coming months, the relationship between politics, elections and the market will be at least interesting in Brazil. And, of course, intensively. The volatility of speculation will be fueled by both electoral expectations and risks associated with unpredictability. The more reliable the campaign indicator, the quieter the market. Vice versa. In 2002, Lula bought predictability by inviting a businessman on his ticket and releasing Carta ao Brasileiros. In 2018, Jair Bolsonaro brought with him Paulo Gedes, his Ipiranga Post, to demonstrate economic security.
“There is no corresponding political force that thinks about putting forward ideas that will roll back the reformist agenda”
In 2022, the situation will be different, although there is no clear idea of how the next elections will differ from the previous ones. Each dispute has its own characteristics. However, the analysis of the relationship between elections and the market should focus on two new, basic and significant factors: the independence of the Central Bank and the greater autonomy of the National Congress in making decisions with economic consequences.
In practice, today’s economic policy is governed by a kind of triumvirate: the Central Bank, the Department of Economics, and Congress. The volatility of the past elections was more due to the behavior of the president. In 2022, it will continue to depend on the behavior and statements of the president, as well as on the interconnection of the three power centers and how the market perceives such dynamics. For the conscientious and more informed investor, Brazil will continue to generate more light than heat in terms of problems. And opportunities will continue to be offered to those with strategic vision and composure.
The reason is that, apart from radical radicals, who have little or no chance of winning elections, there is no corresponding force that thinks about putting forward ideas that roll back the proposed reform agenda. Even PT, which contradicted the Constitution, the Real Plan, Fiscal Responsibility Law, spending ceilings, labor and social security reforms, central bank autonomy and privatization, would not have had the courage or strength to reverse such processes. … If only because they would be very harmful for the possible future introduction of the PC.
An institutional framework and responsible management of hard currency reserves can provide the necessary investment security after 2022 for job creation, income, taxes and foreign exchange. Voters want a unified agenda in terms of purchasing power and daily predictability. The market, politicians and candidates should not lose sight of this.
Published in VEYA dated October 27, 2021, issue No. 2761.
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