Brazil Needs Urgent Reforms but Political Risk Remains High

By Contributing Reporter

RIO DE JANEIRO, BRAZIL – Over the past couple of months, it’s become clear that political risk remains high in Brazil, and that the approval of the fiscal consolidation agenda should not be taken for granted.

Congressional party leaders appear to remain dissatisfied with Bolsonaro and, as a result, they have yet to provide him with a solid Congressional base and to commit to the federal
government’s legislative agenda.

The pre-Easter week has ended on a sour note, amid the delay of the conclusion of the first stage of the social security reform’s debate in Congress, at the Constitutional Commission (CCJ).

The failure is on two fronts. The first is the delay on the pre-established timeline for the reform’s approval. The second is the apparent leadership agreement to alter the draft of the reform already at this early stage of the debate process.

The episode illustrates the political difficulties the administration continues to face in Congress. There’s a broad consensus that the reform is needed, and it can be assumed political resistance is not towards the reform per se.

Resistance reflects rather the fact that Congress is still dissatisfied with the terms of power-sharing Bolsonaro is willing to provide. And that dissatisfaction is manifested in their resistance to the reform, which is vital to the success of the Bolsonaro administration.

Expect Sharp Rally of Local Assets

Local assets would rally sharply once the reform approval becomes clearer.  But that timing remains deeply uncertain, chiefly dependent on political considerations that are still too hard to assess.

After so many comings and goings, investors have every right to be cautious. However, the economic agenda proposed by the government goes beyond pension reform; their target is a more dramatic change. This broad project is what really matters and, if successful, it could justify a more optimistic view of the country’s prospects.