A Tale of Two Populists in Brazil and Mexico

by Feb 2, 2019

In 2018, the two largest countries in Latin America elected two “populist” leaders as president, uprooting “mainstream” political orders in Brazil and Mexico. Both men in their sixties were born in small towns, of humble roots. One chose a military academy for his education, entering Brazil’s Army and rising to captain. The other studied in Mexico’s largest university and soon went into politics. Both married in their twenties and achieved middle class status. Both have married again and joined smaller political parties in the late eighties, rising through the ranks.

BRAZIL’s Jair Bolsonaro won the presidency in second round voting October 2018 by 55% of the popular vote defeating the Worker Party (PT) candidate. The key issues raised in the campaign included political corruption, high unemployment and law and order. Brazil’s President Lula (2013-2010) was convicted of “money laundering” and “passive corruption” and serving time in Sao Paulo in the prison he previously inaugurated. His predecessor Dilma (2011-2016) was impeached for failing to act against corrupt Petrobras officials. Both presidents were of the Worker’s Party (PT).

Vice President Temer, of PMDB party, assumed office as a ‘caretaker’ government, attempted “fiscal” and pension reform, without success. Brazil’s press criticized him for conflicts of interest, and his approval dropped to single digits before the election.

Bolsonaro has been compared to Donald Trump due to his ‘’spontaneous” and often insulting remarks toward homosexuals and women. He served as a Congressman from Rio de Janeiro from a small party. His platform pledged more order from the military and to reform Brazil’s pension system and to deregulate its economy. His initial policies promoting the private sector are popular in the business community. Since his election, Brazil’s stock market index, Ibovespa, has risen over 20%.

Bolsonaro’s appointments are generally viewed as “market-oriented” and “competent”:

  • Chief of Staff, Onyx Lorenzoni, is a politico from the South, businessman and veterinarian
  • Economy Minister, Paulo Guedes, is an investment banker, economist, with PhD from Chicago
  • Justice Minister, Sergio Moro, from Curitiba, was the federal judge who exposed corruption from the ‘Car Wash’’ scandal. He is protected by a significant security team.

Key challenges for Bolsonaro government:

  • Political support (his Partido Social Liberal has 52 of 513 seats in Congress)
  • “Untoward remarks”
  • Employment growth

Key indicators:

  • Unemployment rate – currently at 12% of Labor Force
  • Brazilian Real/US Dollar rate – currently at BRL 3.70 to US Dollar
  • Brazilian stock market (Ibovespa) currently at 96,000 (or EWZ on NYSE at ‘44’
  • Public opinion poll (Ibope) – around 58% Brazilian voters
  • GDP growth – barely 1% in 2018, is optimistically estimated to reach 3.0% in 2019

Investment Opportunities:

  • IT sector: has grown by double digits in recent years, despite minimal economic growth — especially in consulting and cloud services
  • Agriculture: Soybeans exports have increased to China, and sugar, orange juice and wheat production should grow in 2019.
  • Environmental: Despite Bolsonaro’s ‘’dialing back’’ some protections, most Brazilian corporations and governments plan to invest more in environmental remediation (ref. VALE’s recent disaster in Minas from dam break.)

PNWA support: Our team has senior executives in Sao Paulo, Rio de Janeiro (as well as the Southern Cone) with decades of friendships in the business communities and in Brasilia DF. Contact: Stephen E. Murphy, Senior Advisor, Latin America. SEMurphy@pnwa.com;

 

 

MEXICO’S Andres Manuel Lopez Obrador (commonly called “AMLO”) won the presidency with in excess of 53% of the vote, with his MORENA (Movimiento Regeneración Nacional) coalition in July 2018. This was AMLO’s third presidential run, and his MORENA coalition also won a majority of the seats in Mexico’s Senate and Congress, as well as four governorships.

Before being sworn in on 1 December 2018, AMLO held two important plebiscites. The first, held last October, called for a referendum to cancel construction of Mexico City’s $13.5 Billion airport project. The referendum resulted in a vote to cancel the airport project to replace Benito Juarez International Airport in CDMX, even though only 1% of electorate participated. After the vote, investor confidence plummeted – especially among holders of airport bonds. Notwithstanding this, after being sworn in, AMLO ratified the vote to cancel the new airport.

The second resulted in the approval of several proposals, including a proposed “Maya Train” in the Yucatan peninsula (with an estimated cost in excess of US$8 Billion). The “Maya Train” project has faced opposition in the region.

After assuming power, AMLO decreed the closing of all of the ProMexico office worldwide, and has moved to replace most of Mexico’s consul generals and ambassadors around the world with his own choices.

A major issue in the election was corruption and AMLO promised “to purify public life” on taking office.

AMLO has publicly praised former president Lazaro Cardenas, who nationalized Mexico’s petroleum in the 1930’s, and former president Hugo Chavez of Venezuela. He has not picked many public fights with Donald Trump but has recently granted entry to thousands of Central American migrants in caravan to the U.S.-Mexico border.

AMLO’s appointments to key ministries have been well received, though some question their influence on the president’s decision-making:

  • Finance Secretary, Carlos Manuel Urzua Macias, served in the same capacity in Mexico City’s government and received his PhD in Economics in the University of Wisconsin
  • Economy Secretary, Graciela Marquez Colin, is an academic with a PhD in History from Harvard
  • Foreign Affairs, Hector Vasconcelos, has his PhD from Oxford and served as Mexico’s ambassador to Denmark, Norway and Iceland.
  • Interior, Olga Maria Sanchez, is a former Supreme Court judge, holding several doctorates of distinguished universities.

Key challenges for AMLO:

  • Keeping the many electoral promises made on eliminating corruption, improving equality
  • Keeping petroleum flowing, given recent pipeline shut down to prevent drug lords siphoning
  • How AMLO deals with drug cartels and domestic violence
  • How AMLO deals with the Trump Administration and the new USMCA trade agreement

Key indicators:

  • Unemployment rate is officially listed 4.0% of labor force (although many feel it is much higher) –will it continue low?
  • GDP growth is low, 2+% for 2018-2019 – will political uncertainty hurt investment?
  • Mexico Peso to US Dollar: currently 19:1 – will currency depreciate or hold firm?
  • Mexican stock market (“EWW”) has declined 5% since AMLO’s election.

Key sectors and opportunities:

  • Maquiladora (re-assembly) operations include thousands of multinational companies
  • Tourism expenditures surpassed $25 billion, with 31 million+ visitors in 2018
  • Petroleum – will reforms under previous administration to open sector to multinational ‘’service contracts’’ be honored or not?

PNWA Support: Stephen Walroth-Sadurni has been named Senior Advisor, Mexico and Central America, and has offices in Miami and Seattle, and a correspondent office in Mexcio City. Stephen is also president, U.S. – Mexico Chamber of Commerce | NW Chpater and can be reached by email at: walroth.s@walsadlaw.com.