Lack of details keeps banks cautious about Bolsonaro’s plans

Despite the financial market’s initial euphoria with the first-round results of the elections, executives at retail banks are cautious about a possible administration of Jair Bolsonaro (Social Liberal Party, PSL). They consider that, even though the candidate’s proposals for the economy point to the direction they consider correct, there is still little clarity about how they will be implemented.

Mr. Bolsonaro has the benefit of the doubt, even because the sector rejects the economic policy adopted in the administration of Dilma Rousseff, who is of the same Workers’ Party (PT) of runoff contender Fernando Haddad. Yet six bankers who spoke with Valor — especially those linked to the lending market — expect more details of the measures and reckon the real economy will take time to react in a more consistent way.


Messrs. Bolsonaro and Haddad both miss a project, says an officer at a large bank. Although divergent, the two programs are vague, this source says.

Another concern this executive manifested is that many of the measures that Mr. Bolsonaro’s team proposes depend on two-thirds majority in Congress — something not so simple to attain, despite the base that the PSL constructed in the vote.

This source, who works in retail banking, says that credit has been recovering with the economy’s stabilization of the last two years, and it would be enough “not to do much” to continue improving. “The ideal was to maintain the current economic team, and credit would walk on its own legs,” this person says.

Central Bank President Ilan Goldfajn has already been contacted by aides to Mr. Bolsonaro about his interest in staying in the post, but hasn’t manifested a position so far.

An executive at another bank argues that the negotiation with the legislative will not be easy, and that is crucial for passing reforms. For this source, it is important that the next president passes the pension reform soon, within six months, to sustain his credibility. “Agility is the issue. You must know how to do it with mastery,” he says.

Asked whether he is optimistic because of the lead that the PSL candidate obtained in the first round, this banker says that 2019 will be “challenging, but we must believe in the country.” He points out that small businesses are charging ahead, even because “they don’t have plan B,” while large businesses are waiting to see what the polls’ result will represent to the economy.

On Wednesday, Brazilian stocks and the real fell in reaction to comments made by Mr. Bolsonaro and Deputy Onyx Lorenzoni (Democrats, DEM, of Rio Grande do Sul) indicating they will not embrace the current government’s proposal for the pension reform. Mr. Bolsonaro also expressed resistance to the privatization of Eletrobras.

Mr. Bolsonaro’s relationship with his economic adviser, Paulo Guedes, also worries. The economist, very pro-market, is well regarded by bankers, but considered of strong temperament. The fear is that he may end up getting out of the government in case he has no autonomy to act. “Guedes is less patient than Joaquim Levy, minister of Finance of Dilma Rousseff who withstand for some time the government meddling in fiscal measures,” a director of a large bank says.

An executive of the credit-recovery market says that, even if there are measures of fiscal adjustment, it will take at least one year until the positive effects are felt in the real economy. This executive’s expectation is that unemployment falls slowly and the GDP grows between 1% and 2% a year for three or four years.

Investment bankers, for their part, are much more optimistic. One executive at a foreign bank operating in Brazil says it is incomparable the improvement in the institutional environment to the country that Mr. Bolsonaro brings in relation to Mr. Haddad.

In this executive’s opinion, the PSL candidate consolidates a notion that Brazil doesn’t tolerate corruption anymore, considering the charges brought against the PT and other parties by Operation Car Wash. In a way, he says, defeating the PT in the polls would bring the perception to investors that Brazil is a more mature market from the political standpoint. For the executive, who has to consult the headquarters abroad for new projects, it is important that potential clients “are less exposed to an environment with corruption,” which reduces the operations’ risks.

Another investment banker says that the market “absolutely doesn’t buy” the return of a government in the style of Ms. Rousseff’s. If Mr. Bolsonaro in fact adopts a policy of streamlining the state and privatizations, the country’s risk perception tends to fall and the rating to be upgraded — this would attract more foreign capital and create a virtuous cycle. “If he manages to temper Paulo Guedes, it may be the best government in history.”

In practice, this source says he believes a potential Bolsonaro administration will be in the middle ground. For political accommodation, it is improbable that the adjustment that his team signaled will be fully implemented, but what matters is the direction, he says. The banker also thinks that the presidential candidate will lower the tone of his controversial speak. “Today, there is fear of Bolsonaro because of social issues, not economic ones. If he wins, in practice, neither will it be the wonder that one expects in economic terms nor the disaster in social terms,” he says.

The bank executives say that Mr. Haddad may also not be so negative for the economy as expected. One analyst who covers publicly traded financial institutions says that in case the PT candidate adopts a less “aggressive” economic policy than in his government plan, which leads to more public spending, the economy may react well. “Banks want the maintenance of the status quo.”

This analyst says banks operating in Brazil are well-capitalized, but need the result of the elections and a clearer scenario for the next government to resume lending more in the country.

By Talita Moreira and Flávia Furlan | São Paulo
https://www.valor.com.br/international/news/5916017/lack-details-keeps-banks-cautious-about-bolsonaros-plans