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In Brazil, right wing candidate Jair Bolsonaro-PSL was elected as president (for the term of 2019-2022) with 57.8 million votes (55.13% of valid votes) in the run-off against Fernando Haddad-PT and will take office on January 1st, 2019, points out the analysis team at Rabobank.

Key Quotes

“The election for state governors, following the second round in 14 (out of 27) states, confirm a decentralization of power. Allies of the new government will play a bigger regional role as well.”

“Overall, the new composition of Congress (elected on October 7th) also points to fragmentation, with a historical number of parties involved. There was a large renovation in both houses and a number of newcomers emerging from out of the traditional political establishment.”

“Judging from a purely ideological top-down bipartisan perspective, passing key reforms (e.g. pension system) is theoretically feasible. However, despite the good performance of Bolsonaro’s allies in the parliamentary and state elections, the government will need to dialogue with other centrist parties to get support (especially for constitutional measures).”

“While the newly introduced barrier clause may help the government’s position in Congress, it is clearly not a game changer.”

“In coming weeks, the markets will scrutinize the announcement of names for the economic team and initial details on the priority list and actual proposals for the key reforms.”

“As per our FX forecasts, we project USD/BRL at 3.80 for end-2018, and 4.00 for end-2019. We continue to see risks largely biased to the downside for the short run, on a potentially positive domestic news flow until yearend.”