With Brazil's presidential runoff days away and the race effectively tied, Luiz Inácio Lula da Silva and Flávio Bolsonaro are rolling out expensive promises to lure undecided voters, while offering few details on how they would pay for them. The campaign largesse is colliding with one of the biggest challenges awaiting whoever wins on Oct. 25: stabilizing Brazil's public debt.
Since the first round earlier this month, Lula has unveiled proposals expected to cost more than 50 billion reais ($10 billion) in the coming years, even as he pledges to preserve fiscal discipline. The proposals include free public transportation on weekends, cash back on energy and other bills through an instant payment system, and debt forgiveness for millions of small entrepreneurs.
Bolsonaro, meanwhile, is promising sweeping spending cuts but has yet to say where they would fall. He is simultaneously proposing higher pensions, tax breaks and a cashback program for consumers. For investors, the question is becoming less about which candidate sounds more fiscally responsible and more about which campaign promises will survive once the election is over.
Bloomberg Economics' Adriana Dupita says "there's simply no fiscal space for all these programs" without a tax increase that neither candidate appears willing or able to pursue. "Retreating on campaign promises will upset voters, not doing so will upset investors, and there's a material risk that a compromise solution ends up cutting any honeymoon short, with markets under stress and popularity eroding at the onset of the new presidential mandate," she said.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing