January 16, 2019

Brazil’s Markets Have Surged on Hope of Bolsonaro Victory. Can He Deliver?

With lower interest rates, low inflation and a backlog of investments coming to market once elections are over, the economy will almost certainly rebound, Mr. Mufarej predicted. But it might not last long, he said.

“It will be a honeymoon,” he said.

But, he added, “Unless structural measures are implemented, like pension reform and tax reform, 2020 will be a completely different story.”

Analysts warn that without drastic measures debt could reach unsustainable levels in the next two years, leaving the government unable to finance itself and pushing the economy back into recession.

In Brazil, workers on average retire at 55, earning 70 percent of their final salary, social security accounts for a third of all government spending, which has contributed to record fiscal deficits. That makes pension reform among the thornier challenges the new president will face.

While Mr. Guedes has repeatedly vowed to push an unpopular measure through Congress, Mr. Bolsonaro has again sent mixed signals.

“We can’t penalize those who have already acquired rights,” Mr. Bolsonaro said of the draft reform in a recent interview. “We can play with things, we have ideas and proposals in that sense, but no one will be penalized.”

Markets are optimistic his tune will change once the campaign is over.

“The problem isn’t the policy orientation,” said Chris Garman, a Brazil expert at Eurasia Group, pointing out that Mr. Bolsonaro spoke to dozens of economists over the last year, looking for someone with the right liberal credentials. “The problem is, how much can they get done?”

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