A strong start for Bolsonaro
Brazil's new president, Jair Bolsonaro, was sworn into office on 1 January. Recently published polls suggest that Bolsonaro's approval ratings are quite high, hovering around 70%, providing him a tailwind at the start of his term.
Bolsonaro's continued popularity will be closely tied to his ability to advance his economic agenda. He has eschewed the traditional tools of pork and patronage to gather legislative support, and instead he will rely mostly on his popularity to secure congressional support.
A limited window for reform
Bolsonaro has an ambitious, market-friendly economic agenda. He has promised to liberalize the economy and promote free trade to help boost productivity levels that have lagged in comparison to other emerging markets.
Bolsonaro's main economic challenge will be to address the country's severe fiscal imbalances, including its unsustainable pension system. Pension reform will be critical this year – without it, debt dynamics could deteriorate and the economic recovery would likely come to an end. We expect that Bolsonaro will be able to deliver on at least a moderate version of pension reform this year, which could help boost confidence in the economy.
Despite his market-friendly orientation, Bolsonaro faces a limited window of time to enact these reforms. His sons' involvement in emerging corruption scandals also poses an acute risk to his public support, particularly given his anti-corruption platform and the environment of widespread distrust in the political elite.
Even if moderate pension reform succeeds, political conditions will likely deteriorate as the year goes on. Demands are high for Bolsonaro to improve public services and address urgent social issues such crime, but any improvements in these areas will only materialize over the long-term. This is likely to create significant voter frustration over time, and thus further diminish his legislative support.