Financial market and productive sector no longer see room for third way in elections

​Bankers, managers and businessmen increasingly see the possibility of a third way for the next presidential elections as small. Since the PSDB previews, the command of the country’s main financial and business institutions has thrown in the towel and is now betting on a polarization between Jair Bolsonaro (PL) and Luiz Inácio Lula da Silva (PT).

Subject to anonymity, the leaf heard three bankers, two investment fund managers and sector representatives from industry, agribusiness and commerce.

With some nuances, everyone is unanimous in predicting a second round between Lula and Bolsonaro. For them, the viability of a “middle” candidate is increasingly distant.

Two factors support this assessment. At the end of September, the main bankers in the country were still betting on a third way with the release of the governor of Rio Grande do Sul Eduardo Leite (PSDB-RS) as presidential candidate.

However, the confusion of the PSDB’s caucuses at the end of November further removed this expectation of success for the so-called third way. In the dispute, marked by problems in the application developed for voting, the governor of São Paulo João Doria beat Leite by 54% to 45% of the votes.

The president of one of the most important investment banks said that the change in tone of the toucans, who exchanged accusations in public — and the lack of unity in building a strong name — made a terrible impression on the market. to face Bolsonaro and Lula.

Another episode that dampened the spirits of this group of bankers was Sérgio Moro’s early announcement of the election for Podemos.

They believe that the former minister of Bolsonaro was too quick to launch himself as presidential candidate and that his strategy with this movement, in fact, is aimed at a seat in the Senate.

For them, Moro, who started polling intentions with around 4%, has a ceiling, which should be restricted to 10% and will give up the presidency to run as a senator.

The problem, still in the evaluation of these executives, will be senator Álvaro Dias, who is also seeking reelection in the only seat in Paraná that will be opened in the elections. If Moro persists as presidential candidate, they are betting on a pulverization of the electorate, something that further strengthens the polarization in the second round.

Despite the discredit, the command of the main financial institutions in the country still awaits the turn of the year and movement between parties, considering possible party mergers and the construction of new slates with the possibility of an alternative. Even so, they regard this scenario as something remote.

They emphasize that, at this moment, the picture points to a decision between Lula and Bolsonaro, with the PT stronger in terms of support, given an assessment that he would be better able to build a team in the Ministry of Economy capable of repairing the damage that Bolsonaro accomplished by discrediting his Economy Minister Paulo Guedes.

For them, over three years, Guedes presented good promises of a liberalist nature, but Bolsonaro prevented these deliveries from being carried out with a political agenda marked by populism, with an eye on the campaign for reelection.

Bankers also see a more populist Lula in his return to the political scene, but consider that future financial gains for the country and for business will be greater with the PT than with Bolsonaro.

They make this analysis based on the current deterioration in public accounts with the approval by Congress of the Proposal for a Constitutional Amendment to precatório and an increase in the value of aid to the poorest to be guaranteed by Auxílio Brasil, a reinvention of Bolsa Família.

For these executives, the financial market considers that these measures endorsed by the parties of the so-called centrão, Bolsonaro’s support base in Congress, mean the end of the spending ceiling and led investors to demand a higher risk premium for bonds and investments in Brazil. The rise in the future interest rate curve is proof of this movement.

In an eventual second term of Bolsonaro, bankers believe that there would be a double stake in this policy of fiscal deterioration. With no room to cut expenses, with more than R$100 billion in new mandatory annual expenditures included in the budget, they see no other way out than raising taxes, as Bolsonaro has never shown any evidence that he intends to reduce tax incentives. The renewal of payroll exemptions was the main evidence of this policy.

With Lula, they also see a more populist direction with the possible resumption of the BNDES directing credit to production. But they assess that there would be more commitment to demonstrate to the market a consistent signal of recovery in fiscal rigor, something they consider essential for the country to regain investor confidence.

In the productive sector, there is a division. A part of the business community supports Lula, and another, Bolsonaro. The current president enjoys support from part of the industry, such as Fiesp (Federation of Industries of the State of São Paulo) and part of agribusiness, especially producers in the Midwest and South.

However, according to reports from representatives of both sectors, these groups that currently support Bolsonaro have already signaled to former president Lula that they may change sides if the second round is confirmed between Bolsonaro and the PT.

An important interlocutor of small and medium-sized companies with the Bolsonaro government also recently shared this position with the president’s direct advisors.

In response, Bolsonaro has been strengthening his strategy with these groups to avoid a possible stampede.