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Top priority for next Brazilian president: keep Goldfajn on board.

All eyes will be on the next Brazilian president’s first steps towards a much-needed fiscal adjustment. That will likely be Jair Bolsonaro – who is well ahead of Fernando Haddad as the final round of voting approaches on 28 October.

The markets have rallied on Bolsanaro’s rising polls. That’s largely because investors feared the PT (Workers Party) winning a fourth straight election. Memories of ousted president Dilma Rousseff’s fiscal laxity are too fresh not to overpower Haddad’s attempt to portray himself as a fiscal moderate.

But Bolsonaro will be a step into the unknown. He’s currently outsourcing economic policy to Paulo Guedes, a founding partner of BTG Pactual, by saying he knows nothing about economics. However, that alignment hasn’t been working too well: Guedes raised the prospect of financial transaction tax and privatizations of the large Brazilian state companies before Bolsonaro poured cold water over both proposals. 

Guedes then pulled out of some public events and there is an open question about his commitment to the Bolsonaro project. If tensions have appeared in a pretty one-sided campaign then the chances for the longevity of the partnership that will be exposed to raw politics and tough decisions don’t look good.

Everyone knows that Brazil needs a rapid fiscal adjustment, which means (among other things) pensions reform. Investors will be looking for good, credible news – and quickly – about how the next government intends to move to a swift primary fiscal surplus.

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