What we learned from Brazil’s municipal elections

. Nov 17, 2020
elections sao paulo São Paulo Governor João Doria (left) wants to improve his presidential credentials by getting Bruno Covas re-elected as mayor of São Paulo. Photo: Patrícia Cruz/FP

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Today, we continue to unpack the elections — and understand the outcome. Plus, how markets interpret the results. And how the São Paulo runoff election could be delaying a coronavirus response.

What can the 2020 elections tell us about 2022?

Municipal elections are mainly focused on local issues that bear little connection with federal disputes.

However, they can serve as indications for political trends on the horizon. For instance: in 2000, a strong outing by the Workers&#8217; Party in important constituencies paved the way for its first presidential win two years later. And in 2016, an anti-Workers&#8217; Party sentiment pushed the party out of any city with over 200,000 voters — foreshadowing the 2018 conservative wave.</p> <ul><li>But given the peculiarities of 2020, can this year&#8217;s results serve as a predictor for 2022? We advise caution.</li></ul> <p><strong>Tepid elections.</strong> This was an election marked by a lack of enthusiasm, which makes it harder to see it as a trendsetting event. The pandemic and economic crisis distracted voters and prevented campaigns from holding rallies. Even on social media, the 2020 race failed to engage the electorate.</p> <ul><li>Moreover, the top political dogs in the country were largely non-participants —&nbsp;former President Luiz Inácio Lula da Silva and President Jair Bolsonaro failed to push their allies over the hump, and other party leaders largely stayed out of the race.&nbsp;</li></ul> <p><strong>A tilted electorate.</strong> On the whole, the results show a Brazilian electorate that is leading to the right — with the center-right in particular making strides. However, while some consultancy firms have been quick to present 2020 as a victory for the &#8220;moderates,&#8221; paving the way for success in 2022, there are some important factors to bear in mind:</p> <ul><li>A more conservative-leaning electorate is nothing new. Opinion polls <a href="https://www.gazetadopovo.com.br/republica/breves/pesquisa-preferencia-politica-brasileiros-direita-esquerda/">show</a> that over one-third of voters see themselves to the right of the center (a rate three times bigger than self-declared left-wingers).</li><li>There has never been a lack of candidates from center-right parties. What they lack is popular support. For millions of conservative voters, Jair Bolsonaro represented the only appealing candidate to the right of center. That could very well remain the case in 2022, depending on the conditions of the election. Center-right parties could, in 2022, once again see themselves dumbfounded by the migration of their voters to the president.</li></ul> <p><strong>Non-voters.</strong> Another question mark left by these elections regards non-voters. Abstention rates were higher than ever — but not <em>that</em> high. The total rate of abstention was 24 percent — up six percentage points from the last municipal election of 2016, and only 3.8 points higher than the national election in 2018.&nbsp;</p> <ul><li>We can&#8217;t say the pandemic was the main cause of low turnout. Because (1) Brazilians have largely given up on social isolation, and (2) there is no clear correlation between higher abstention and higher Covid-19 death rates in big constituencies.</li></ul> <div class="flourish-embed flourish-scatter" data-src="visualisation/4376261"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <ul><li>Meanwhile, the rate of spoiled ballots went <em>down</em> from the previous municipal elections, from 10.92 to 10.33 percent.</li></ul> <p><strong>Bottom line.</strong> While it may frustrate political pundits, it appears that the exceptional circumstances around 2020 have made this election more of an outlier than a bellwether for two years&#8217; time.</p> <hr class="wp-block-separator"/> <h2>How markets reacted to the elections</h2> <p>Investors were pleased to see the moderate right-wing Democratas party came out as the biggest winner of the first round — with important mayoral wins in key constituencies. The party is at the helm of both houses of Congress and has argued in favor of fiscal austerity and reforms. Moreover, financial markets&#8217; patience for Jair Bolsonaro appears to be running out.</p> <ul><li>Despite a wealth of evidence to show that Mr. Bolsonaro was never a reformist as a lawmaker, investors jumped on his bandwagon in 2018 due to their belief in Economy Minister Paulo Guedes. Nearly two years later, some of the main brokers in São Paulo have received a reality check, going from being staunch Bolsonaro defenders to <a href="https://twitter.com/hbredda?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor">open critics</a> of his underwhelming results.</li></ul> <p><strong>What lies ahead.</strong> Analyses from brokerage firm XP indicate that markets could become jittery about the government. They believe that Mr. Bolsonaro&#8217;s underwhelming performance as a kingmaker should make him even &#8220;more hesitant on reforms.&#8221; Meanwhile, they expect congressmen to push for more public spending to offset the effects of the pandemic — generating fears for the public deficit.</p> <ul><li>&#8220;The government must convince markets that the 2021 budget will tame the deficit. If no sign is made by Friday, a recent stock market rally could lose steam,&#8221; Victor Beyruti, an economist at brokerage Guide Investimentos, told <strong>The Brazilian Report</strong>.</li></ul> <p><strong>Elections on the radar.</strong> All eyes of the market are on São Paulo. Center-right Mayor Bruno Covas is favored to win a runoff election, but an upset by left-wing activist Guilherme Boulos is not deemed impossible.</p> <p><em>— with Natália Scalzaretto</em></p> <hr class="wp-block-separator"/> <h2>Sweeping the coronavirus under the rug?</h2> <p>During a largely civilized debate on Monday, the two candidates for the São Paulo runoff election, Bruno Covas and Guilherme Boulos, traded barbs on their proposals for dealing with the pandemic. While the coronavirus was not a huge factor for the electorate in the first round, a looming second wave could make its way to the top of voters&#8217; priority list.</p> <ul><li>Hospitalizations in the state of São Paulo are up 18 percent —&nbsp;but the state government has delayed making a decision on restrictive measures until November 30, that is, one day after the election.</li></ul> <p><strong>&#8220;Green phase.&#8221; </strong>Currently, Greater São Paulo and five other regions in the state are in the “Green Phase” of São Paulo’s reopening plan, allowing a wide range of non-essential services to operate with reduced hours and capacity. At the end of the month, the state capital could be pushed back to the “yellow” or “orange” phases of the program, thus enforcing more restrictions on commerce and the population.</p> <ul><li>Restrictive measures are no longer supported by citizens. Walking past restaurants and bars on a given weekend in São Paulo would give no impression that a pandemic continues to rage in the city, as the population&#8217;s lack of adherence to social distancing is clear to see.&nbsp;</li></ul> <p><strong>Why it matters.</strong> Mr. Covas is an ally of state Governor João Doria, which gives the impression that Mr. Doria&#8217;s reasons for delaying Covid-19 restrictions were in order not to disturb Mr. Covas&#8217; re-election chances.</p> <ul><li>São Paulo is Brazil&#8217;s economic capital, largest city, and the epicenter of the outbreak. So far, the city alone has registered over 330,000 cases and nearly 14,000 deaths.&nbsp;</li></ul> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Pessimism.</strong> A Kantar survey shows that 67 percent of Brazilians expect the country&#8217;s record unemployment rates to rise even more in the next few months. One year ago, that pessimism was shared by just 55 percent. Moreover, only 18 percent of people are at ease with their current job status or source of income. As we showed last month, economists do predict that <a href="https://brazilian.report/business/2020/10/23/brazil-unemployment-hits-new-records-but-worse-is-yet-to-come/">unemployment will shoot up</a> once federal aid programs expire in December.&nbsp;</li><li><strong>Obama on Bolsonaro.</strong> Promoting his new memoir, “<a href="https://www.nytimes.com/2020/11/15/books/barack-obama-promised-land-memoir-publishing-bookstores.html">A Promised Land</a>,” former U.S. President Barack Obama gave a 40-minute interview to Globo, Brazil&#8217;s leading TV network. Mr. Obama refrained himself from talking about Jair Bolsonaro in detail (&#8220;I don&#8217;t want to give an opinion on someone I haven&#8217;t met&#8221;), but said U.S. President-elect Joe Biden (who served as his VP) offers the Brazilian president an opportunity for change — just days after Mr. Bolsonaro <a href="https://brazilian.report/power/2020/11/11/bolsonaro-tantrums-a-known-but-effective-diversionary-tactic/">threatened Mr. Biden</a> with &#8220;gunpowder.&#8221;</li><li><strong>Payments. </strong>PIX, the Central Bank&#8217;s <a href="https://brazilian.report/podcast/2020/11/04/explaining-brazil-podcast-banking-instant-payment-pix-up-steam/">new instant payment system</a>, went fully operational on Monday after two weeks of trials. Right off the bat, however, the bank has faced its first challenge to make PIX a success: information. A survey by payment company Stone shows that 24 percent of vendors in Brazil feel they do not properly know how the system works. Their main doubts concern usability, cost, and data security. While 64 percent of vendors say they know what PIX is, 77 percent of them say they do not know whether they are ready to make transactions with it.</li><li><strong>Tech. </strong>The federal government is fully embracing biometric technology, especially facial recognition tools that will be used to ensure the security of citizens&#8217; online interactions with government agencies. On Monday, a <a href="https://www.convergenciadigital.com.br/cgi/cgilua.exe/sys/start.htm?UserActiveTemplate=site&amp;infoid=55478&amp;sid=11">new decree</a> gives federal institutions the legal grounds to implement biometric solutions to validate digital signatures within the next few weeks.&nbsp;</li><li><strong>1 week, 3 presidents.</strong> The Peruvian Congress elected lawmaker Francisco Sagasti to be the next head of state, after the country went 24 hours without a president. Manuel Merino, who took office as caretaker last week (after Congress <a href="https://brazilian.report/latin-america/2020/11/10/the-future-peru-following-ousting-of-another-president/">ousted Martín Vizcarra</a>), resigned after six days due to intense opposition from Peruvian citizens — which led to deadly protests. All this instability comes as Peru battles one of the world’s <a href="https://brazilian.report/coronavirus-brazil-live-blog/2020/10/06/peru-to-hit-1000-covid-19-deaths-per-million-people/">highest Covid-19 death rates</a>, and one of its worst economic recessions.

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