The Brazilian Economy under Bolsonaro

Jair Bolsonaro has recently won the Presidential election in Brazil. Bolsonaro is the latest entrant to the group of ultra-right wing leaders who are now leading an important economy. Bolsonaro has been compared to Donald Trump because he has been publicly rude to women, advocates jailing of his political opponents and such other policies. However, Bolsonaro is not exactly the same as Trump since Trump was a political rookie. On the other hand, Bolsonaro is a political veteran. He has been active in politics for a couple of decades.

However, coincidentally Bolsonaro seems to have developed an economic worldview which is very similar to Donald Trump. In this article, we will have a look at some of the major economic issues facing Brazil. These relevant issues have been listed down below:

Background of the Brazilian Economy

Until the past decade, Brazil was considered to be one of the most important emerging economies in the world. This is the reason why Brazil was included in the upcoming BRICS economies. Brazil faced a major economic boom until the year 2013.

The GDP of Brazil had grown by a multiple of 40 in just 13 years! The problem is that during the same period state spending and corruption went out of control. Brazil bagged the rights to host the 2014 World Cup. However, it ended up spending too much money trying to build stadiums and create other facilities to host the cup. Also, during the same time, large-scale corruption in the Brazilian government came to light. Many senior officials including the President of Brazil were accused of benefitting from corruption.

Since 2014, the Brazilian economy has been down in the dumps. The unemployment, as well as the deficit, is at historic levels. Many Brazilians believe that tough times call for tough measures. This is the reason why they have elected Jair Bolsonaro and hope that he will be able to fix the economy.

Bolsonaro’s Economic Policies

Pension Reforms: One of the biggest problems facing the Brazilian economy is the overwhelming amount of money that needs to be paid out as a pension. The Brazilian government pays out more than 8% of the nation’s GDP as pensions. These excessive payments are the most obvious reason that the Brazilian economy is in deficit. However, pensions are not merely an economic problem. Since pensions affect the livelihood of a large number of retired Brazilians, it is more of a political issue. The previous government already tried to undertake pension reforms but failed. Investors are now backing on Jair Bolsonaro’s quirky antics to help rationalize the massive annual expenditure that Brazil faces every year.

Privatization: The Brazilian economy is driven by the state. Most important companies in Brazil are owned by the state. Petrobras, Electrobras and Banco de Brazil are examples of such companies. There is widespread belief that these companies are run in an inefficient and corrupt manner. This is the reason why the new President Jair Bolsonaro wants to privatize these firms.

Bolsonaro does want to sell of these firms and raise money for the country. However, he is not comfortable selling them off to China. Bolsonaro, like Trump, has won the election on anti-China rhetoric. Hence, if he allows Chinese investors to buy critical infrastructure in Brazil, he will be seen as contradicting himself. Bolsonaro has been critical of foreign interests buying critical Brazilian companies. He believes it is like these countries are not buying Brazilian companies but rather buying Brazil itself.

Tax Cuts: Jair Bolsonaro’s proposed tax policies are remarkably similar to Donald Trump. Bolsonaro wants to drastically cut down on corporate and personal income taxes. He believes that these tax cuts along with simplification of the tax code will lead to massive increases in corporate investments. Brazil has been facing a massive unemployment problem over the past few years. President Bolsonaro believes that tax cuts will create millions of jobs and are the perfect answer to the unemployment problem.

Bilateral Deals: Donald Trump has been a vocal opponent of the North American Free Trade Agreement (NAFTA). He believes that other countries are gaining at the expense of America in such trade deals. He wants to abandon these trade deals in favor of more bilateral deals with countries.

The same is the case with Jair Bolsonaro. He has been vehemently opposing the Mercosur pact that Brazil has with other South American countries. He believes that the pact is needlessly binding and restrictive and that it does not allow Brazil to reach its full potential.

China Policy: Bolsonaro has been criticizing China. However, China is the biggest buyer of Brazilian goods. In fact, the slowdown in the Brazilian economy was caused because the Chinese started buying fewer Brazilian goods. Since Bolsonaro’s rhetoric has been similar to Trump, he has been invited by the Trump government to form an alliance. However, such an alliance would be detrimental to Brazilian interests since at the present moment the Chinese are major stakeholders in their economy.

To sum it up, Bolsonaro has eerie similarities with Trump. He has raised the same economic issues and used the same public opinions to win the Presidential race. However, unlike Trump, he has inherited an economy which is in a mess. Hence his policies will have to remarkably different in order to be effective.

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