How the ‘Trump of the Tropics’ is about to Shake up Global Politics

Brazil just celebrated its general elections on Sunday.

And, fake news was rampant.

Photo montages of candidates wearing doctored t-shirts…rumours of politicians getting cosy with the Venezuelan government…candidates promising to fight homophobia with new baby bottle designs — will let you Google that one on your own time — were all circulating through social media.

Many moving through WhatsApp, a free messaging app that has become quite popular in Brazil. According to Pew Research, the number of Brazilians owning a smartphone (54%) has more than doubled since the last election, which means that much of the campaign has been fought on mobile devices.

The truth is that, even without fake news in the picture, this election has been a heated one.

Brazil has gone through some turbulent years since hosting the Football World Cup in 2014.

The Car Wash scandal, a money laundering operation, has seen many of the top politicians and businessmen of the country jailed.

Just before the Rio Olympics in 2016, the then-president Dilma Rousseff got impeached.

The current presidential election saw former president and candidate Luiz Inacio Lula Da Silva from the Workers Party (PT) suffer a shooting during the campaign earlier this year.

He was looking like the favourite to win…until he was jailed for corruption and money laundering.

For a moment there, it looked like he would still be running from jail. Yet the courts barred him from running early in September.

Another candidate got stabbed by a madman during an election rally and has been campaigning from the hospital.

Brazil’s struggling economy

The economy has been struggling in recent years.

Annual GDP growth has fallen from about 8% in 2011 to 1% this year. Unemployment has risen from around 6% to 12.1% in the last four years. Yet the big problem is that public debt has ballooned in the last three years, as you can see in the graph below.

Brazil's ballooning debt

Source: Bloomberg

[Click to open in a new window]

One of the main problems is the pensions. According to Bloomberg, pensions amount to 12% of Brazil’s GDP and are expected to rise as the population aged 65+ is set to triple by 2050.

And did I mention the city of Rio de Janeiro declared bankruptcy after the Olympics?

It is easy to understand why then the main topics of this election have been corruption, insecurity and the economy.

Whoever wins the government will have their work cut out for them.

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Who did Brazil vote for?

While there were thirteen candidates on the race last Sunday, the main fight was between two: Jair Bolsonaro and Fernando Haddad…right wing against left wing.

And, as the election showed on Sunday, Brazilians are divided…left and right…north and south.

As you can see in the map below, Bolsonaro got 46% of the votes — close to the 50% needed to win on the first round but not enough — and Haddad 29%.

Map of the Brazilian election vote

Source: Valor

[Click to open in a new window]

The thing is, they both have two completely opposing views as to how to get Brazil out of the hole.

The market favour Bolsonaro, an ex-army captain who wants to crack down on crime. In fact, markets in Brazil and the Brazilian real are rallying today after his near win on the first round.

He has based his campaign on attacking the PT and hasn’t said much on his economic policies but his advisor, Paul Guedes, is in favour of government cuts and privatising state-controlled companies.

Yet Bolsonaro is controversial to say the least.

He has been nicknamed ‘Trump of the Tropics’ because of his populist stance. He has made polemic comments on women and minorities. In fact, he has sparked a huge women’s protest and the movement #elenao (not him) across Brazil.

He has also praised the former military dictatorship that ruled Brazil between 1964 and 1985 and has said he would reject election results unless he wins.

The other candidate is Fernando Haddad, who’s a moderate leftist from the PT party. He is a university professor and former major of Sao Paulo, Brazil’s largest city. He is Lula’s replacement in the presidential race and while he supports pension reform he wants more interventionist policies.

It has been crazy run up to the election…and it is still not over. The two candidates will now face off in a second round on 28 October.

How Brazil’s politics affect the rest of the world

But, why should you care about what is going on in Brazil?

Brazil is the largest country in South America and the eighth largest economy in the world.

At a time when there are concerns for emerging markets like Argentina and Turkey, things aren’t well in Brazil either.

It is true that Brazil’s problem is different from Argentina and Turkey. The latter have been struggling with currency depreciation and inflation.

Brazil instead has low inflation, yet their public debt is rising fast.

What happens there in the coming election could impact the world economy.

Best,

Selva Freigedo,
Editor, Markets & Money

PS: Financial expert Vern Gowdie explores why a credit collapse could occur in 2018, and how you can protect your assets. Click here for free action plan.


Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.


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