Why Brazilian business elites are preparing to make the president a far-right flamethrower

SAO PAULO / BRASILIA (Reuters) – Brazil's economy has quietly asked far-right presidential candidate Jair Bolsonaro to win the highest national office this month, fearing a return to the left in the biggest Latin American economy.

The country's foreign exchange and equity markets have come closer to favorable polls from Bolsonaro, a member of the Firefighters' Congress better known for its attacks on gays and Afro-Brazilians than for its free market. During a 27-year legislative career, Bolsonaro has repeatedly voted to preserve state monopolies and reform Brazil's public pension system.

But his selection of a reputed University of Chicago banker, Paulo Guedes, as an economic advisor, is sufficient for many investors and business owners. Some consider Bolsonaro as the least bad alternative in a race that announces itself as a clash between the far right and the far left.

The pollsters predict a second round between Bolsonaro and the former mayor of Sao Paulo, Fernando Haddad, candidate of the party of left workers, or PT, who broke into the polls. Many economists accuse the state policies of the PT, which has ruled Brazil for much of the past 15 years, to tip Brazil into a deep recession, whose vestiges are still weighing on the economy.

Luciano Hang, owner of the privately-owned Havan chain of stores, is one of the few leaders to openly support Bolsonaro, whose unflinching admiration for the former Brazilian military dictatorship and the frequent denigration of women and minorities alienated layers of the electorate.

Still, Hang estimates that "more than 80 percent" of the 300-member board of a company he belongs to supports Bolsonaro, now that the more moderate candidates in an overcrowded presidential field seem to be disappearing.

"Brazilian businessmen and entrepreneurs in all sectors of the population are supportive of Bolsonaro and will actively campaign for it," said Hang.

Bolsonaro's growing acceptance among Brazilian business elites underscores how a polarized political landscape drives moderates to extremes and how markets are disrupted by an open and unpredictable race. These fears have already slowed the country's mergers and acquisitions and IPO markets, and last month Brazil's real currency hit a record high against the dollar.

Bolsonaro is currently one of 13 presidential candidates vying for the first round of voting on Oct. 7, with 27 percent of the votes likely, according to a poll last week by polling station Ibope.

But it remains to be known whether he will eventually prevail. If no candidate obtains the majority in the first round, as expected, the first two voters will compete in the last round of voting, October 28, when the same poll shows that Bolsonaro lost 4 points against Haddad.

Haddad, an economist, has met with important investors to quell fears of a return to power of PTs. Known for his bookstore and quiet behavior, Haddad played his orthodox positions on inflation, exchange rates and deficits.

He nonetheless acknowledged that he would abandon the labor and expense reforms of unpopular outgoing President Michel Temer. And he made it clear that his administration would run the state-owned oil company Petroleo Brasileiro SA or Petrobras as a development vehicle and defeat Embraer's commercial aviation sales project to Boeing Co.

Haddad recently tweeted that the market was "an abstract entity terrorizing the public".

SUPER MINISTER

Bolsonaro's admirers, for their part, point out that his choice of Guedes adviser is a reason to put an end to his candidate's rhetoric of division, his authoritarian leanings and his extremely changing views on the Brazilian economy. Bolsonaro, for example, once suggested that former president Fernando Henrique Cardoso be shot for privatizing former state-owned companies, including Vale's iron miner.

On the other hand, Mr. Guedes, currently head of the asset management company Bozano Investimentos, is a strong supporter of the privatization of Petrobras and the government-controlled lender, Banco do Brasil SA.

When elected, Bolsonaro promised to make Guedes a sort of super minister in charge of finance, planning and trade, with great latitude to define economic policy.

Guedes held a series of meetings with investment banks, business leaders and international investors to convince them to take the Bolsonaro movement train. The banker also met with members of the Ministry of Finance at least three times to signal continuity with Temer's reform program, including changes to the country's insolvent pension system.

"Paulo Guedes gives credibility to Bolsonaro's candidacy," said Claudio Pacini, head of the Brazilian stock market at US broker INTL FCStone in Miami. "With the fear of the rise of the left, both things dampen Bolsonaro's favor."

ALLIANCE SHAKY?

But some wonder how long the Bolsonaro-Guedes partnership could last, even if the candidate is elected.

"Bolsonaro is a recent convert to pro-market liberalism – this is not his thing, he has never been," said Monica de Bolle, director of Latin American Studies at SAIS (Johnson Hopkins School of Advanced International Studies) in Washington.

These doubts were exacerbated last month when Guedes proposed to relaunch an unpopular tax on financial transactions known as CPMF, in order to generate much needed income. This idea was quickly brought down by Bolsonaro from the hospital where he was recovering. Last month, he was stabbed by an attacker with mental disorders at a rally.

Guedes canceled at least two public appearances scheduled shortly thereafter, fueling speculation that he had actually been muzzled by the campaign for the time being.

Guedes refused to comment on the disagreement. But Bolle de SAIS sees the turbulence ahead.

"It seems obvious that Paulo Guedes would not be the last in a Bolsonaro government," she said.

Many people also wonder if Bolsonaro could govern effectively when he was elected. In Congress for almost three decades, he has not written any major bill. His Social Liberty party, the ninth party to which he belongs, has only a few votes in the Brazilian legislature. He would need to build alliances with other parties to accomplish anything, a task in which he has little experience.

"The government is bankrupt and Bolsonaro has no ally to lobby for budget cuts, and it's not a tradition to sue them," said a senior banker at the company. one of the largest Brazilian lenders.

For the business community, the banker said that voting for Bolsonaro was a choice between "the terrible and the awful extreme".