After the conversion of Bolsonaro, the free market guru must convince Brazil

BRASILIA (Reuters) – After making a fortune with contrarian paris on the financial markets, Brazilian economist and investor Paulo Guedes is making his boldest bet today.

Jair Bolsonaro – who has spent decades as a member of Congress fighting to raise public sector wages and oppose privatization, "he says, will open a golden age of politics Orthodox and market-friendly if he wins Sunday's elections.

The two have known each other for less than a year.

This is enough to make Guedes, aged 69, one of Bolsonaro's best advisors and a "super minister" in his administration for all economic matters.

Guedes, fund manager and former professor, said he had dismissed former Bolsonaro army captain of the industrial model run by the nation's military government in 1964-1985. Pharaonic infrastructure projects helped fuel growth over the period, but ultimately fueled an explosion in public debt and hyperinflation.

Now, Bolsonaro, a firm believer in dictatorship, says he's supportive of cutting pensions and selling state-owned companies with the aim of reducing the Brazilian government. During the election campaign, he repeatedly repeated his detailed questions about the economy, saying he would act as Guedes suggested.

This prospect delighted investors, who skyrocketed Brazilian stocks and currency while Bolsonaro had a huge lead over left rival Fernando Haddad before a second round on Sunday.

Guedes says that Bolsonaro, a pugnacious man, is just the man who must deliver a breath of free-market medicine to Brazil and surpass the current center-left political consensus that has seen Brazil switch from crisis to crisis.

Co-founder of a Brazilian investment bank that became Banco BTG Pactual SA (BPAC3.SA), Guedes bet millions of dollars against the failure of the economic stabilization plans of the late 1980s and early 1990s. It remains a sharp criticism of decision makers of that time, who still have a great influence in the centrist circles.

"I'm joking that Jair is learning a lot faster than many of them, even though he likes to jump into class so he can run after the votes," Guedes told attendees at an event in Brasilia in August.

Guedes holds a Ph.D. from the University of Chicago and has taught at some of the most prestigious schools in Brazil, as well as at the University of Chile during the reign of General Agosto Pinochet, and few are question his orthodox references.

Bolsonaro promised to give him free reign over a new ministry combining the responsibilities of the ministries of finance, planning and trade.

In a recent television interview about who else could fill that role if Guedes left his administration, Bolsonaro compared their relationship to a marriage.

"There is no plan B," he said.

Skeptics warn, however, that a single advisor will struggle to control mercury Bolsonaro, whose economic policy of the free market is hard.

For example, Bolsonaro opposed the sale of state-run power generation assets, as opposed to the privatization of the Vale SA iron ore mine (VALE3.SA) two decades ago.

Alexander Schwartsman, former director of the Brazilian central bank, said that without Bolsonaro openly defending market-friendly proposals during the election campaign, there is no way to ensure that Guedes will be allowed to implement them.

"It seems like people believe in a fairy tale," he said. "Bolsonaro's personal beliefs do not fit such a program … I do not know if he's naive or cynical."

PUBLICLY AT ODDS

Indeed, the campaign revealed deep lines of fracture between Guedes, Bolsonaro and the other members of his team.

Guedes proposed to privatize the state oil company Petroleo Brasileiro SA (PETR4.SA) and the State lender Banco do Brasil SA (BBAS3.SA). Retired General Oswaldo Ferreira, however also a minister in waiting, said that these companies would remain managed by the state for "strategic" reasons.

Guedes called for the swift approval of a pension reform going along the lines proposed by President Michel Temer. But Congressman Onyx Lorenzoni, the cabinet chief proposed by Bolsonaro, rejected the decision this year, calling Temer's proposal "terrible".

When Guedes launched the idea of ​​a tax on financial transactions, similar to an unpopular tariff known as CPMF, Bolsonaro himself said the economist had made a mistake.

As the contradictions mounted, Guedes is you, canceling press interviews and public appearances.

He has kept a particularly low profile since this month's prosecutors said they were investigating possible mismanagement of public pension funds in one of his vehicles. # 39; investment.

Guedes and the pension fund denied any wrongdoing.

Guedes refused a request for an interview.

Knowledge openly speculates on how a former academic with no government experience will handle the day-to-day politics of Brazilian politics.

Ricardo Faria, fund manager at RCF Capital, has expressed concern at meetings with Guedes organized by investment banks.

"Our only question was whether Paulo was really involved in the project. I asked him twice: Paulo, are you going to have patience?

He said: "Without a doubt," recalls Faria, "After 24 years of social democracy, he said that Brazil was ready to give up this legacy and try four years of the liberal right. is determined to help. "

The most difficult task may be to convince hundreds of legislators to reduce Brazil's social security system and slash the federal budget on which they rely for their spending on pork barrels.

"The important thing is not just market approval; it's convincing Congress. The main challenge is political, "said Guilherme Afif, former deputy governor of Sao Paulo, presidential candidate in 1989 with an economic program designed by Guedes.

"A sparrow does not spend the summer," he added.