Brazil elects Bolsonaro on pledge to cut debt, taxes, trade deals

Far-right candidate Jair Bolsonaro was elected as the new Brazilian President on Monday morning and he quickly made clear that reforming the country’s pension system, reducing deficit and debt will be his administration’s key priorities.

Bolsonaro, the former army captain who focused much of his campaign a pledge to fight against crime in a manner that many believed to have racial overtones, will seek to overhaul Brazil’s pension system which is seen by investors as too expensive to sustain. He also proposed a tax overhaul would generate some 10m jobs by cutting payroll taxes.

His top economic advisor and proposed economy minister, Paulo Guedes, said the country would also be seeking bilateral trade deals, criticising the restrictions of South America’s Mercosur trade bloc.

On Monday, the Brazilian real climbed 1.7% against the dollar to 3.6422 and a Tokyo listed Brazilian exchange traded fund jumped by 13%.

“We will break the vicious cycle of growing debt, substitute it with the virtuous cycle of smaller deficits, falling debt and lower interest rates,” Bolsonaro said.

Brazil has not voted in a leader with a background in the armed forces since the 21-year authoritarian military regime came to an end in 1985. Bolsonaro has stated plans to appoint a number of retired military officers to his cabinet.

Andres Abadia, senior international economist for Pantheon Macroeconomics said: “Markets likely will cheer today. The BRL will continue to rebound, equities likely will rally and bond spreads will tighten.

“Attention will move towards the alliances/support that Mr Bolsonaro will need to muster in parliament to pass austerity measures, including a pension reform. It won’t be easy in a deeply divided country. Mr Bolsonaro has said his government would be a 'defender of democracy and the constitution' which will start to ease some fears about his commitment to democracy, but risks remain.”