Disappointment guaranteed
Brazil’s next president will either be a vengeful nepo-baby or a doddering leftie
Latin America’s biggest country is headed for more polarisation and stagnation, or worse
Illustration: Ben DenzerFEW COUNTRIES are as lucky as Brazil.
It faces no threat of invasion. Its economy is more resilient to Donald Trump’s senseless tariffs than almost anywhere else.
It enjoys relatively friendly relations with both superpowers.
Above all, it is awash with coveted resources.
Yet as Brazil gears up for a general election on October 4th, an old adage, that it is the country of the future and always will be, once again rings true.
Instead of capitalising on its advantages, Brazil is all but certain to opt for another four years of polarising gridlock.
Neck and neck in the polls are Luiz Inácio Lula da Silva, the 80-year-old incumbent known as Lula, and Flávio Bolsonaro, the eldest son of Jair Bolsonaro, a former populist president serving a 27-year sentence for plotting a coup after losing his bid for re-election in 2022.
Think Bernie Sanders versus Donald Trump junior, if the younger Mr Trump had connections to the criminal underworld.
The ballot is an unpopularity contest.
Brazilians fear that Lula will run the economy into the ground, whereas choosing Flávio could mean culture wars, environmental havoc and uncomfortably close relations with President Trump’s administration.
Neither candidate will receive the thumping mandate that is needed to tackle Brazil’s fiscal malaise or institutional dysfunction.
Hovering over the election is a sordid corruption scandal involving bunga-bunga parties and a playboy banker, which has ensnared the entire political class as well as the powerful Supreme Court, hitherto the last line of defence against the self-serving elite.
The stakes could scarcely be higher.
The government is living far beyond its means and its creditors are becoming restive.
Mr Trump treats Latin America as a personal playground, abducting Venezuela’s president, propping up Argentina’s, endorsing like-minded right-wing populists in a series of elections and blowing up boats in the Caribbean.
If Brazil, the region’s biggest country and a rival centre of gravity, comes into close alignment with America, he will be even more emboldened.
To top it all, the winner of the election will appoint four of the 11 justices on Brazil’s Supreme Court, shaping the country for a generation.
Green and gold
Brazil is a veritable El Dorado.
As the rest of the world wrestles with a shortage of oil and of renewable alternatives, Brazil is overflowing with both.
In August Petrobras, the state oil firm, discovered its first crude in the Equatorial Margin, the world’s fastest-growing oil province, off the north-eastern coast of South America.
That will in time boost its already prodigious production from the “pre-salt” fields off its eastern coast.
Fully 89% of Brazil’s electricity is supplied by renewables, mostly hydropower.
Wind and solar energy have grown so fast the grid often cannot absorb all the output.
The surplus green energy could power data centres and make Brazil a hub for the production of low-carbon steel and clean aviation and shipping fuel.
The abundance in energy is matched in food.
As recently as the 1970s severe hunger was common, driving millions of migrants, including a young Lula and his seven siblings, from the arid north-east to the mega-cities of the south.
Then advances in agricultural research opened the interior up to cattle-ranching and farming.
This year Brazil is set to overtake the United States as the world’s leading agricultural exporter.
It is now king in beef, coffee, cotton, orange juice, soyabeans and sugar cane.
Last year Mr Trump had to rescind tariffs he imposed on Brazilian farm goods during Mr Bolsonaro’s trial after they helped push up food prices in America.
There is wealth below the soil, too.
Brazil boasts the world’s second-largest store of rare earths, a group of minerals used in many high-tech goods that are produced and processed almost exclusively by Chinese firms.
Brazil could thus be central to Western countries’ efforts to secure alternative suppliers.
European and American emissaries are “harassing us for deals on rare earths, in a good sense”, says a diplomat in Brasília, the capital.
This cornucopia of energy, food and minerals made Brazil the biggest recipient of foreign direct investment among developing countries last year bar China.
It attracted $77bn, far ahead of India’s $39bn.
“Brazil has hard assets that will grow in value in a world of greater geopolitical conflict,” says Christopher Garman of Eurasia Group, a consultancy in New York.
Constellation of complaints
Yet grave problems are holding the economy back, despite outsiders’ enthusiasm.
Real interest rates of 9% are throttling growth.
They have spurred a rise in corporate defaults and household indebtedness (see chart 1).
Lula faces a similar predicament to Joe Biden, another geriatric leader whose re-election campaign struggled because voters felt gloomy about the economy.
Over half of Brazilians say the economy is in a bad or very bad state, a share that has crept up in recent months.
Some 9m firms are in default, up from 4m a decade ago, when Brazil was in recession.
Debt repayments eat up 30% of average household income according to Tendências, a consultancy in São Paulo, the highest level since it began counting in 2004.
The root of the problem is the government’s own heavy borrowing, which is pushing up rates for everyone else.
Its debts amount to almost 100% of GDP.
The deficit is over 9% of GDP.
The government pays a higher share of GDP in interest than any big countries except Egypt and Pakistan.
Brazil’s history of hyperinflation and recessions makes lenders especially wary.
Much of the debt is linked to local interest rates, meaning every time they go up, so do its servicing costs.
Over three terms as president, from 2003 to 2011 and since 2023, Lula has spent lavishly on handouts and subsidised credit.
On September 17th, for instance, he increased payments under the government’s flagship welfare programme, Bolsa Família, by 15%.
Brazilians have happily spent their windfall, which has kept the economy growing and unemployment low.
But productivity has stagnated and consumers appear to be slowing down.
Economists expect annual growth to average around 1% in 2027 and 2028.
Earlier this month Lula offered an alarming solution: “We need to put an end to all this nonsense of running a surplus and maintaining fiscal discipline.”
Inevitably, Brazil is falling behind.
In 1980 Brazilians were markedly richer than Chileans and Colombians, not to mention Turks and Chinese, when measured by GDP per person adjusted to account for the cost of living.
Today Colombians have caught up and the others are all much richer (see chart 2).
The Bolsonaros, dyed-in-the-wool populists, are little better.
Mr Bolsonaro broke a spending limit that had been imposed in 2016 to regain market confidence.
To boost his chances of re-election, he tripled the amount of cash handed out under Bolsa Família and almost doubled the number of recipients.
Although Flávio pledges fiscal sobriety, in July, when his approval ratings began to trail among women, he promised 70m of them free phones and internet.
Both candidates will struggle to tackle the interest groups that are driving spending up.
One is pensioners, who have managed to lock in constant increases to payouts.
The minimum wage in Brazil is adjusted annually based on inflation and GDP growth during the two prior years.
Pensions are indexed to the minimum wage, as are disability allowance, unemployment insurance and other benefits.
This means that for every increase of one real ($0.19) in the monthly minimum wage, annual public spending rises by 400m reais.
This indexation is devouring the federal budget: 90% of it now goes on mandatory spending, mostly pensions.
On current trends there will be no money left over for discretionary spending by 2029, precipitating a government shutdown.
This geronto-coddling robs the young of better schools, health care and roads.
Brazil spends 10% of GDP on pensions, about the same as Japan, even though its population is far younger.
Meanwhile it invests just 18% of GDP, less than half the share of India.
Pampered bureaucrats are another strain on the budget.
The constitution says that no official can earn more than Supreme Court judges, who receive $8,865 a month.
Yet more than 67,000 civil servants make far more thanks to untaxed housing, transport and other allowances.
These “super-salaries”, as the local press dubs them, lift the median earnings of judges and public prosecutors to 48 times the national figure.
(America’s best-paid judge earns just six times the national median wage.)
“Brazil has been taken hostage by public servants at the very top,” says Guilherme Coelho of Republica.org, a research outfit that looks at waste in government.
Undeserved tax breaks are a third burden.
Corporate-tax loopholes, some of which have been knitted into the constitution, cost a whopping 7% of GDP a year, up from 2% in 2003.
“Here companies don’t compete for a share of the market, but a share of the government,” says an economist.
Doctors, lawyers and other professionals also enjoy sweetheart deals.
In theory both candidates are determined to fight entrenched interests.
Lula has scrapped some tax breaks and made it harder to create new ones.
An adviser to Flávio enthusiastically bashes “parasites” in the state.
Daniella Marques, who leads economic policy for his campaign, has praised Javier Milei, Argentina’s libertarian president, as “a great example”.
But when pressed, his team offers few specifics.
In practice the winner will struggle to rein in such spending.
Pension reform is as politically difficult in Brazil as it is everywhere else.
Over the past decade a series of weak presidents has ceded control of a quarter of discretionary spending to members of Congress, to dole out in their districts with little oversight.
Much of the money has ended up in friends’ pockets rather than in local schools or clinics.
Over the past four years Lula has been unable to restore order.
The next parliament is likely to be dominated by right-wing parties, which could make it even harder for him to govern.
Flávio, too, has failed to win over many of them. To advance his agenda, either man would have to keep buying off Congress.
Congress is not the only institution with questionable motives.
In 2023 the Supreme Court allowed judges to rule in cases that involve firms or individuals with connections to their own relatives.
Eight of Brazil’s ten current Supreme Court justices have relatives working for law firms representing cases before the court.
Unscrupulous clients hire them in the hope that they will receive special treatment.
The ubiquity of influence-peddling has become clear through the collapse of Banco Master, a fraud-riddled lender.
Its boss, Daniel Vorcaro, threw lavish parties for politicians and judges, flying in sex workers from Russia, Venezuela and elsewhere.
He had a preference for foreign prostitutes because they could not understand their clients’ conversations.
At a Halloween party thrown at a nightclub called “Madame Satan”, 120 women attended alongside only 20 men, mostly politicians.
“Davi’s going crazy asking if the Swiss girls are coming” read a text message between the banker and his fixer, in an apparent reference to Davi Alcolumbre, the head of Congress (he denies this).
After Mr Vorcaro was arrested trying to flee on a private jet last November, federal police worked their way through his eight mobile phones.
Almost half the Supreme Court had links to him, it turns out.
Messages suggest that Mr Vorcaro paid for an escort for one justice, bought a $4m stake in a hotel owned by another and hired the wife and sons of two further judges on lavish but vague contracts.
Brazil’s institutions have thus arrived at a point of mutually assured destruction.
Only the Supreme Court can investigate politicians for crimes, such as corruption.
And only politicians can impeach Supreme Court justices, which they are promising to do. Congressmen have an incentive to target judges investigating them, while judges have an incentive to target congressmen who want to impeach them.
That the Banco Master scandal involves the entire elite means that a backroom deal could eventually let everybody off.
Disorder; no progress
Neither front-runner can tackle the rot.
Flávio is part of it.
He claimed never to have met Mr Vorcaro, which made the leak in May of a recording of the two of them speaking embarrassing, especially because he called the banker “my brother” and asked for $25m to pay for a film about his father.
Almost $11m was forthcoming, most of which ended up in a bank account linked to Flávio’s actual brother, Eduardo, who lives in Texas.
Flávio has also been investigated for allegedly pocketing the salaries of fake workers while serving on Rio’s local council (he denies it) and for his links to local criminals.
A particularly infamous contact was Adriano da Nóbrega, a former police captain who went on to run a death squad.
Flávio nominated Nóbrega for a medal after he was jailed for homicide and gave jobs to his wife and mother.
(He says he was unaware they were on his payroll.)
Meanwhile, though Lula has not been implicated in the Banco Master case, some of his allies have.
His party continues to be tarnished by previous corruption scandals and his son is being investigated for influence-peddling.
Illustration: Ben DenzerThe campaign has been petty and insubstantial.
Flávio’s main proposal is to pardon his father and impeach the judges who jailed him.
This month the former head of the air force, Carlos Baptista Junior, published a book detailing how Mr Bolsonaro tried to persuade him and the other military chiefs to stage a coup, floating ideas about how to annul the election he had just lost.
Mr Bolsonaro dropped the plan only after the army chief warned him, “If you do that, I’ll have to arrest you.”
Like his father, Flávio has cast doubt on Brazil’s voting machines, falsely claiming the same kind were used in a stolen election in Venezuela—a complete fabrication.
It is unclear if he would accept a Lula victory.
Flávio’s other proposals are fluff.
He says he will decree that “Brazil belongs to the Lord Jesus Christ” and chemically castrate rapists.
Victory would spell a close alignment with Mr Trump.
Flávio and his family have lobbied the Trump administration to impose tariffs and sanctions on Mr Bolsonaro’s enemies.
At campaign rallies, supporters have paraded with American flags and inflatable effigies of Mr Trump holding Lula by the scruff.
Flávio appears willing to acquiesce to America’s expansive demands over rare earths.
The White House wants Brazil to notify it before the sale of any firms or assets involving critical minerals and to limit investment by “foreign entities of concern”, in effect giving the United States a veto over the use of Brazil’s minerals.
Nevertheless Faria Lima, Brazil’s equivalent of Wall Street, is cautiously lining up behind Flávio in the hope that he will make good on his talk of spending cuts.
Lula, for his part, talks about investing in defence and artificial intelligence.
He has a solid record of reducing deforestation.
He has championed laws to spur investment in data centres and in rare earths, albeit with heavy state involvement.
“We want to build a supply chain with value-added, not simply export raw materials in a colonial way, leaving behind only holes in the ground,” says Guilherme Boulos, a minister working on Lula’s campaign.
Yet there is no money to pay for Lula’s ideas and he does not have a credible plan to right the government’s finances.
At rallies he rambles on for hours, mainly about his past glories and life-story.
His much younger wife has taken to posting videos of him working out to prove he is fit.
In public he wears a Panama hat to hide scars from the removal of a mole and an operation after a fall in the bathtub.
Brazil is not a lost cause.
Even as politics descends into debauched scandal, a robust civil society, thriving free press and independent national police force are holding the powerful to account.
“At least in Brazil corruption investigations actually happen,” notes Celso Rocha de Barros, an academic. Journalists in India and Turkey may look on with envy.
Brazil has vanquished hunger, hyperinflation, military rule and a coup attempt in just a few decades.
Despite dysfunction, it muddles through.
The next presidential term, however, is likely to be a shambles.
Neither leading candidate seems willing to fix the government’s finances.
Neither will have the backing he needs in Congress to institute meaningful reforms.
Neither Congress itself nor the courts can fix Brazil’s institutional rot, since they are both implicated in it.
Things will get worse before they get better.
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