Neither Lula nor Flávio Bolsonaro 'have the stomach' for the reform Brazil needs, says Economist

The British magazine The Economist published a report on Thursday (22) stating that "Brazil's strange economy needs serious reform" but that "neither Lula nor Flávio Bolsonaro have the stomach" for it.

The BBC News Brasil research aggregator shows senator Flávio Bolsonaro (PL) two percentage points ahead of president Luiz Inácio Lula da Silva (PT) in voting intentions for president in the second round, in the election that will be held on Sunday (25).

The report says that "democrats around the world trembled" when Flávio Bolsonaro —"son of a former president who plotted a coup d'état"— was ahead of Lula in the first round. But, according to the publication, "capitalists also trembled, but with enthusiasm."

"This was a resounding verdict on Lula's economic conduct. GDP growth exceeded (pessimistic) forecasts, unemployment is low and inflation remained close to the range of 1.5% to 4.5% set as a target by the Central Bank of Brazil (BCB)", says the Economist.

"However, his disregard for public accounts and his hostile rhetoric towards the business sector scare the markets. The primary surplus (that is, before interest payments) that he inherited turned into a deficit, and the IMF projects that public debt will reach 97% of GDP this year, compared to 84% in 2022."

Flávio Bolsonaro is compared to Javier Milei, the Argentine president who promoted pro-market reforms in his country "with some success" but also "with a lot of pain", according to the Economist, highlighting the senator's promises to reduce the number of ministries, digitize the public sector and sell federal government buildings.

But for the magazine, this reform promised by the senator "is implausible" — "he would be lucky to get half the savings promised with such adjustments."

"It would take genuine Milei-style fervor to tackle Brazil's economic problems — problems that arise from a complex combination of high public spending, persistent inflation and low savings rates."

The Economist states that one of Brazil's main problems is the high cost of borrowing in the country, as a result of high interest rates and high public spending.

The magazine states that no recent government has tackled the problem of high public spending, and that Lula was no different.

"The only way out of this mess is fiscal adjustment — the famous 'belt tightening'. This would reduce inflation, lower the real interest rate and free up capital for productive uses," says the Economist.

"Bolsonaro's team speaks, in a reserved tone, about reforms, but the candidate himself has rejected changes to the pension system or indexation mechanisms."

"If Lula makes a surprising turnaround in the second round, it is unlikely that he will suddenly become a defender of fiscal rigor," says the magazine.

The Economist states that "any president would have difficulty convincing three-fifths of the members of both houses of Congress — the quorum necessary to dismantle the constitutional constraints that drive spending."

"The market may prefer Bolsonaro to Lula; but, whoever is elected, the result will end up being a disappointment", concludes the report.