Dear Friends,

The strategy of breaking with the traditional way of doing politics in Brazil, endorsed by the votes of 57 million Brazilians, is inherently “flawed” because it does not contemplate an alternative that will reduce the tension between the branches of powers. The decision to have more “presidentialism” and less “presidentialism by coalition” (let alone “parliamentarism in disguise”), requires intelligent and structured political coordination, that is, a strategy. The lack thereof puts the government in a terrible situation, whose contours, over time, tend to fade away, and remain clashes, isolation and social mobilization.

The clashes between the government and, the Legislative branch in particular, have occurred right from the start. There is no problem with that in itself, as long as they observe the limits of democracy and the greater public purpose of all branches, namely: defending Brazil.

For this engine to function properly, institutions must work, and fortunately so it has been. However, the friction between the Executive and the lawmakers has advanced beyond “normal tension”, and has begun to resemble non-cooperation. For some, outright blackmail. This is democracy at work!

The economic scenario we are working on and we hope will be established, is one of clashes between the powers, after all, the rupture with the “old” politics is given and this is the President’s modus operandus. But solutions must arrive in the short term, without compromising the economic agenda in Congress. We focus our assumptions on the political perspectives for passing the remaining key reforms (Tax and Administrative), and less on the risks of governance conditions. The advancement of reforms would encourage the timid evolution of the confidence indexes, draw the attention of foreign investors, and engage, once and for all, the advance of economic activity. This was and is our belief! Anyway, the tension can and will continue, the environment will not be ideal, but the reformist impetus cannot be compromised or diminished – from both sides, government and the legislative.

No less important is the threat of the New Coronavirus (Covid-19), which is powerful enough to shake up markets and economies. It is possible that the outbreak has a broader range than expected, with more significant impacts, especially in Asian countries, but as a rule, if similar to previous falls, it will be short-lived. Still, for us Brazilians, this deadline can be crucial.

An externality like this, given the particularity of our economic situation, can compromise the advances desired at the moment. We hope not. Relieving this situation implies, once again, taking the reforms forward. In fact, at a time when economies are expected to suffer, and even markets typically enter the “correction” field (10% to 20%), in a highly volatile environment, history suggests that the eventual economic downturn is temporary, and may become an opportunity for long-term investors with an appetite for risk.

The environment of the beginning of the second year of Bolsonaro’s term, therefore, is challenging, whether in the political or economic field. However, there is still time to build a different future. Balance and serenity are in order!


To read full report, click here.