20181009-法国巴黎银行-NEW_CONGRESS_MAY_HELP,_BUT_DIFFICULTIES_REMAIN_7页_538kb

Brazil Election Analysis Summary

Core Content

The document provides an analysis of the 2018 Brazilian elections, focusing on the implications of the new Congress composition for the future governance and economic reforms under the next administration. It highlights the political landscape, the performance of key parties, and the challenges faced by both presidential candidates, Jair Bolsonaro (PSL) and Fernando Haddad (PT), in passing critical reforms.

Main Points

1. Election Outcomes and Political Shift

• The 7 October 2018 elections saw a significant shift in Brazil's political landscape.
• Voters expressed strong support for anti-establishment and newcomer politicians, likely due to widespread disillusionment with traditional political figures following the "car wash" (Lava Jato) scandal.
• Jair Bolsonaro (PSL) won the first round with 46% of the vote, significantly surpassing the expected 40% and the runner-up Fernando Haddad (PT) by 17 percentage points.
• Bolsonaro and Haddad will compete in a runoff vote on 28 October.

2. Congress Composition Changes

• The new Congress is expected to be more right-leaning than the previous one, with a high rate of renewal.
• PSL saw a dramatic increase in its representation in the Lower House, gaining 52 seats, making it the second-largest party behind the PT (56 seats).
• The Senate also experienced significant changes, with 85.2% renewal. The PT, PMDB, and PSDB all lost seats.
• High-profile PT candidates, such as Eduardo Suplicy and Dilma Rousseff, failed to secure Senate seats, indicating the party's weakened influence.

3. Implications for Governability

• The new Congress is more right-leaning, which could make it more favorable to Bolsonaro's agenda if he wins the presidency.
• However, governability remains challenging due to high political fragmentation.
• The Centraão coalition (center-right parties) is critical for passing reforms, but it is politically volatile.
• Party loyalty is weak, and dissention is common, even on key legislative votes.

4. Reform Challenges and Opportunities

• The new president will have a narrow window of opportunity to pass essential reforms, especially in the early months of the mandate.
• Bolsonaro may benefit from the "coattails" effect of his strong first-round performance.
• Economic reforms, such as the social security reform, are crucial for economic recovery and will require broad political support.
• There is a risk of complacency if market sentiment improves, which could delay necessary reforms.
• A weak economy without pension reform could further complicate the reform process.

Key Information

• Bolsonaro's PSL gained 52 seats in the Lower House, up from 1 in 2014.
• Centraão is a key group of center-right parties that may support the new president.
• The PT's influence has declined, with 57 seats in the Lower House and no Senate seats.
• The new Congress is expected to be more right-leaning, with 29 parties in the Lower House and 85.2% renewal in the Senate.
• Governability is expected to be difficult, regardless of who wins the presidency, due to fragmentation and volatility.
• Economic reforms are essential for long-term stability, but passing them will be challenging without broad support.

Conclusion

The 2018 elections have led to a shift in political power and a more right-leaning Congress, which could benefit Bolsonaro if he wins the runoff. However, governability remains difficult due to the fragmented political landscape and the volatility of the Centraão coalition. The new president will need to act quickly and negotiate effectively to pass critical economic reforms, especially in the early months of the term. The risk of delayed reforms due to complacency or economic downturns is significant, and the political environment is unlikely to ease in the near future.