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Privatize Petrobras? See the generals of Bolsonaro first

The risk to the financial markets is that the military will gain importance in a possible Bolsonaro administration and will leave aside its main economic adviser, Paulo Guedes



Right-wing candidate and presidential election favorite Jair Bolsonaro has become a darling of the market in part by championing major privatizations in the energy sector. But investors can handle enthusiasm. Plans are being revised at a time when Bolsonaro indicates generals for his campaign.

The reserve captain with a track record of supporting nationalism in congressional voting has recently come to support the view that oil exploration and power generation must also be seen through the lens of national security. The deputy has vowed to appoint up to five generals to his cabinet and offer security forces their most important role in decades if elected.

Risk to the financial markets is that these generals gain a preponderance in a possible Bolsonaro administration and leave aside their main economic adviser, Paulo Guedes, who is pressing for the privatizations of Petrobras and Eletrobras.

Conflicting signs of the campaign have made the shares of both companies much more volatile than the Ibovespa in the run-up to the second round on October 28.

For six months, Guedes, an investor from the University of Chicago, reigned as the voice of the campaign for economic policy. A breach of Bolsonaro’s relationship with Guedes may generate a market reaction, Fitch Solutions said in a report.

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“Bolsonaro’s voting history in Congress showed a clear preference for nationalist and protectionist policies that can be reaffirmed,” Fitch said. “A break with pro-market advisors can generate a significant policy shift.”

Guedes began sharing the program’s formulation with the military, which report directly to Bolsonaro, after the candidate’s stronger-than-expected victory in the first round on Oct. 7. It was not long before the candidate started to back off.

Change of address

On October 9, Bolsonaro, whose inflammatory comments on race and crime show parallels with Donald Trump, changed the discourse regarding the Brazilian Power Plants, as Eletrobras is formally called.

In a televised interview, he was concerned about the possibility of China buying the company and expanding its influence in Latin America’s largest economy.

In addition, he said that Petrobras‘ “kernel” should be preserved, which differs from Guedes‘s speech in favor of total privatization.

Suppose you have a hen house in the back of your house and live on it. When privatizing, you are not guaranteed to eat a boiled egg. Are we going to leave the energy in the hands of others? Said Bolsonaro.

Bolsonaro’s campaign did not respond to e-mail and phone calls for comment.