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Brazil Presidential Election: October 28 (Runoff)

October 25, 2018

Brazilian democracy sets policies impacting patent, innovation and life sciences on Sunday presidential election.

Jair Bolsonaro and Fernando Haddad have advanced to the second round of Brazil’s presidential election. They will face each other in a runoff on October 28, when Brazilians will choose their president from 2019 to 2022. Bolsonaro is the frontrunner according to the latest voting intention poll published this Tuesday.infografico2

This Client Alert was prepared by Licks Attorneys Government Affairs & International Relations group to provide information on Bolsonaro’s and Haddad’s campaigns and proposals.

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Results of first round

Congressman Jair Bolsonaro won the first round of the presidential election and came short of an outright victory. His performance (49 million or 46% of the valid votes) and that of his party, the Liberal Social Party (PSL), were better than what polls had predicted, and Bolsonaro is now generally considered the favorite to win the runoff this Sunday. An international consultant company predicts he has a 75% chance of becoming Brazil’s next president.

The Workers’ Party (PT) candidate Fernando Haddad had 31 million votes (29% of the valid votes) and was second place in the dispute, followed by the left-wing Democratic Worker’s Party (PDT) candidate Ciro Gomes, who had 13 million votes (12% of the valid votes) and the right-wing Brazilian Social Democracy Party (PSDB) candidate Geraldo Alckmin, who had 5 million votes (4.7% of the valid votes).

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Bolsonaro obtained the largest number of votes in 17 of the 27 Brazilian states. Haddad won the largest number of votes in 10 states, taking all the Northeast region. Only in Ceará was the PT’s candidate second after left-wing PDT’s candidate Ciro Gomes. The PT had better results in the states where there was a higher concentration of beneficiaries from public policies and social programs when the party was in government. Also, the electorate’s geographic distribution partially reproduces the social cleavage between the PT and the PSDB. Since 2006, the PT’s results are better among poorer and less educated voters, while Bolsonaro gained more support among the strata with the highest revenue and level of education.infografico6

Jair Bolsonaro (Liberal Social Party – PSL)

Bolsonaro is a former military officer who entered politics in 1988, when he was elected to the Rio de Janeiro State Assembly. He has been a member of the House of Representatives since 1991, having served seven consecutive terms. He has made his political career in different political parties. Now Bolsonaro is running for the once very small PSL, which, after the October 7 general election, became the second largest party in the House of Representatives.

Bolsonaro is known for his far-right political views, particularly on morals and values and a hardline approach to law and order. As to his views on economic issues, he has teamed up with classical liberal economists like Paulo Guedes, a University of Chicago-trained economist and co-founder of an investment bank, who has proposed privatizing all state firms and implementing an ambitious tax reform, and was tapped to be Bolsonaro’s finance minister. Despite that, Bolsonaro has frequently praised the nationalist, state-driven economic policies implemented by the military government in the 1970s and 1980s and he opposes Temer’s plan to overhaul the pensions system. For his pro-business rhetoric (his government program contains a case for economic liberalism) in comparison with his adversary’s more social concerns, Bolsonaro’s good performance in the voting intention polls have caused the stock market to surge, showing that he is the market’s preferred candidate.

Some of the most important policy proposals in the Bolsonaro campaign, such as reforming the pensions system, will require amending the constitution. In order to do that, Bolsonaro will need to curry support in Congress. After the October 7 voting, the prospects of him building a stable coalition in Congress have increased, as his party exceeded expectations and got 52 congressmen and 4 senators elected. The PSL is the party that had the biggest growth in seats at the National Congress. Bolsonaro had already gathered the informal support from the powerful bullet, beef and bible caucus. His base has the potential of reaching 300 votes according to representative Onyx Lorenzoni, who was tapped to be Chief of Staff if Bolsonaro is elected. A more conservative Congress tends to back the policies of a right-wing president in comparison with a leftist head of government.

This provides an opportunity for Brazil to pass legislation seeking to plug the country’s yawning fiscal deficit and regain the confidence of investors. However, the candidate’s high rejection rate will reduce his political capital to take unpopular measures. Bolsonaro has vowed to reduce and not to form his cabinet with an eye to gaining support from political parties, a move that may disintegrate the support he is likely to have.

As to the industries that may be impacted by Bolsonaro’s policies, we do not anticipate new state regulations generally. The economists tasked with Bolsonaro’s government program are devising measures seeking to increase the economy’s productivity, such as moving forward with the Regulatory Agencies General Statute and lowering duties for imported goods. Also, while Bolsonaro stated that workers should choose between jobs and rights, he has not publicly praised the labor reform that reduced state intervention in labor relations and was recently passed by president Michel Temer. Further, Bolsonaro was absent during the voting of a bill passed to regulate ride-hailing apps in Brazil, but he declared he was against that bill, which he considered unconstitutional. Bolsonaro rejected taxing this service.

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Fernando Haddad (Workers’ Party – PT)

The PT had the longest stretch of one party in government since the end of the Military Regime in the 1980s. Luiz Inácio Lula da Silva, one of the party’s founders and its most known member, was first elected president in 2002. After serving two consecutive terms, his successor Dilma Rousseff was elected president in 2010 and then reelected in 2014. However, in 2016 amid a strong economic recession – with a GDP decrease of 3.8% in 2015, the worst result in 25 years – Rousseff’s government lost support in the National Congress and the president suffered an impeachment. The party then faced the biggest political and institutional crisis in its history. Brazil’s current President Michel Temer, who took office after Rousseff’s impeachment, was the Vice-President on the last ballot won by the PT.

In January 2018, in the context of the Car Wash Operation, the largest public criminal investigation in Brazil’s history, the Federal Court of Appeals for the Fourth District sentenced former President and then candidate for the PT Luiz Inácio Lula da Silva. Following the decision, the superior courts denied the habeas corpus filed by Lula’s defense. On April 7, Lula turned himself in to the Federal Police and was sent to prison.

Although Lula was arrested, the PT registered him as its official presidential candidate under the Superior Electoral Court (TSE) on September 15. On August 31, the TSE decided to bar Lula’s candidacy and the party had only eleven days to name its new candidate. Fernando Haddad was officially announced as the new presidential candidate on September 11. He was the second most voted candidate, with 29.2% of the valid votes in the first round.

Haddad holds a law degree, a Master’s degree in Economics and a PhD in Philosophy. He was Mayor of São Paulo (Brazil’s largest city) from 2013 to 2017 and Minister of Education from 2005 to 2012. His views largely correspond to those of his party, and his government program presents economic measures that favor boosting growth through public spending and investment rather than cutting expenses. The candidate says he would revoke the Labor Reform and the Spending Cap passed by President Temer’s government. He is against the privatization of public companies and believes that the State should drive the national economy, stimulating private consumption, amplifying credit at low costs and reducing banking concentration.

The PT has a history of presenting proposals for the development of the national industry. The party was a supporter of the Generics Statute, sponsored by one of its members and sanctioned by the President in 1999. In Haddad’s government program there are proposals of investment in the healthindustrial complex with the intention of Brazil becoming less dependent on imported products.

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Looking ahead

The next president will confront daunting challenges. The economy has not fully recovered from the recession and 13 million Brazilians remain unemployed. Brazil’s high and unsustainable deficits risk tipping the country back into recession if significant measures are not taken to avert a fiscal crisis. The next administration will have to implement unpopular measures such as spending cuts, increasing taxes, and a pensions reform in a moment of deepening political polarization.

Due to Brazil’s fragmented party system (30 parties will have seats in the House of Representatives in the next session, up from 28), passing laws is a difficult task. The next president will need to build stable coalitions in order to take urgent action.