[Video: https://youtu.be/kyzhZBcsi7c]
This week on The Spillover, Rebecca Patterson and Shannon O’Neil, senior vice president of studies at CFR, discuss Brazil’s October 25 presidential runoff and whether either leader can deliver what both voters and markets want.
Brazil’s runoff presidential election is on October 25. Patterson notes that incumbent Luiz Inácio Lula da Silva and Flávio Bolsonaro, the son of the jailed former President Jair Bolsonaro, are “effectively tied” in the polls, although “prediction markets still favor Bolsonaro by a wide margin.” O’Neil adds that, over Brazil’s history, “the person who wins the first runoff has gone on to win the final vote almost all of the time,” which leaves the race in Bolsonaro’s favor. It is “his to lose,” she adds. To Patterson, there is “this disconnect between what Brazilian voters want and what the markets want and are applauding. . . . Investors are applauding Bolsonaro’s campaign pledges to institute austerity and stabilize the country’s debt dynamics.” But “Brazilians are saying they want a tough leader,” she continues, “they want someone who’s going to be strong on crime and especially the drug trade, and someone who’s going to address cost of living issues.” O’Neil agrees, saying “I don’t think the regular voters are thinking about debt to GDP ratios…They’re thinking about their own debt issues.”
Fiscal reform will be hard for either candidate. O’Neil explains that “so many of the spending parts of the federal government are written into the Constitution,” and that centrist parties in Congress will help pass legislation only “in return for cabinet positions and in return for earmarked spending.” Patterson adds that “The first year after a president is elected, that’s when they do the politically unpopular stuff because you have a mandate.” But O’Neil doubts Bolsonaro would use his early window for budget cuts, saying “everything the campaign has told us is [that] it’s not going to be fiscal reforms. It is going to be trying to get his father out of jail.”
Elsewhere in Latin America, the picture is just as mixed, with each country facing its own version of the same tension between fiscal discipline and public frustration. In Argentina, O’Neil says, “for the markets and for the sort of fiscal consolidation that we’re talking about here, hopefully Milei will be reelected because he will continue on this path,” warning that a swing back to populism could restart the old spending cycle in the country. In Venezuela, oil is flowing with support from the Trump administration, but “the economy over the last decade plus has probably shrunk 70 to 75 percent,” O’Neil argues. In Mexico, O’Neil says, the biggest challenges are largely homegrown, with an elected judiciary, crime, and questions around “clean, affordable energy.”
Globally, a bigger question looms: can any leader solve all these problems? Patterson closes by asking whether there is any political party platform in the region “that will make markets happy and voters happy.” O’Neil admits she has not heard of one, but suggests the answer may lie in how gains from artificial intelligence are divided: “if there are gains to be had, can we share them more equally? So that people, regular people, their households and the like, feel like they’re gaining along with the capital that’s invested behind all of these big forces that are transforming the world economy.”
Mentioned on the Episode: