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Brazil: A New Frontier?

January 2019 - 3 min read

Following the country’s national election, Barings’ Latin American equity team takes a look at how Brazil is positioned and what reforms the new president may consider to boost the economy.

Jair Bolsonaro’s election as Brazil’s president in October 2018 was momentous: this was the first time since the establishment of the country’s 1988 constitution that a clear right-leaning mandate had won a national vote. Many market commentators have recognized that his appointment has the potential for positive economic transformation, however, we expect President Bolsonaro and his team to face some challenges in attempting to achieve their goals.

Brazil has experienced one of the most severe recessions in its history with three years of uninterrupted economic decline. While the economy has been able to register a moderate recovery, this remains well below expectations, with unemployment remaining in excess of 10% and the recovery to date has been narrow in nature, with the country’s agribusiness the key contributor. Corruption has also featured predominantly in recent years with the “Lava Jato” (translated as car wash) bribery scandal which embroiled successive governments under the leftist Workers’ party, or PT, whose founder and former president Luiz Inácio Lula da Silva was jailed for corruption earlier in 2018.

Cabinet nominations so far have showed promise with notable selections for the Ministries of Finance (Paulo Guedes) and Justice (Sergio Moro). Guedes, a University of Chicago PhD economist, takes inspiration from the reforms instigated in Chile during the 1980s, pledging to reduce Brazil’s legacy of overbearing bureaucracy while ushering a more American style of capitalism to South America’s largest economy. Moro is a prevalent and well respected judge who has led the “Lava Jato” investigations, placing former president Lula in jail for corruption. We believe his appointment is intended to send a clear message that this administration wants to rebuild trust with voters.

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