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Election of Far-right President in Brazil Cheered by Trump, Markets

Two men talk underneath a display of Brazil's Bovespa index at Sao Paulo's Stock Exchange, Oct. 29, 2018.
Two men talk underneath a display of Brazil's Bovespa index at Sao Paulo's Stock Exchange, Oct. 29, 2018.

Jair Bolsonaro, a far-right former Army captain who won Brazil's presidential election in convincing fashion, rode a wave of enthusiasm on Monday from giddy supporters, bullish investors and budding ally U.S. President Donald Trump.

Bolsonaro, who early in his legislative career declared he was "in favor" of dictatorships and demanded that Congress be disbanded, vowed on Sunday to adhere to democratic principles while holding up a copy of the country's Constitution.

U.S. President Donald Trump said he had an "excellent call" congratulating Bolsonaro and tweeted about their plans to "work closely together on Trade, Military and everything else!"

Markets also cheered Bolsonaro's victory, sending Brazil's benchmark Bovespa stock index to an all-time high on his pledges to balance the federal budget and privatize state firms.

Bolsonaro's win alarmed critics around the globe, given his defense of Brazil's 1964-1985 military dictatorship, vows to sweep away leftist political opponents and a track record of denigrating comments about gays, women and minorities.

His victory brings Brazil's military back into the political limelight after it spent three decades in the barracks following the country's return to civilian rule. Several retired generals will serve as ministers and close advisers.

"You are all my witnesses that this government will defend the constitution, of liberty and of God," Bolsonaro said in a Facebook live video in his first comments after his victory.

The president-elect's future chief of staff told Reuters his first international trip would be to Chile — one of the South American neighbors that swung to the right in recent elections.

An outspoken Trump admirer, Bolsonaro also vowed to realign Brazil with more advanced economies such as the United States, overhauling diplomatic priorities after nearly a decade and a half of leftist rule.

Jair Bolsonaro, presidential candidate with the Social Liberal Party, waves after voting in the presidential runoff election in Rio de Janeiro, Brazil, Oct. 28, 2018.
Jair Bolsonaro, presidential candidate with the Social Liberal Party, waves after voting in the presidential runoff election in Rio de Janeiro, Brazil, Oct. 28, 2018.

The 63-year-old former paratrooper joins a list of populist, right-wing figures to win elections in recent years such as Trump, Philippine President Rodrigo Duterte and Hungarian Prime Minister Viktor Orban.

Trump's friendly call augurs closer political ties between the two largest economies in the Americas - both now led by conservative populists promising to overturn the political establishment.

Mauricio Santoro, a political scientist with Rio de Janeiro State University, said he was concerned that the tense and violent atmosphere that enveloped Brazil's election campaign may continue.

"It's a worrying scenario. It's possible that even with his win, we could see a further wave of violence among Bolsonaro's supporters against those who backed his opponent," Santoro said.

Bolsonaro supporters carried out several attacks in the run-up to Sunday's vote, in particular targeting Brazilian journalists, according to a tally kept by Abraji, an investigative journalism group.

Bolsonaro himself was stabbed at a rally last month and will need to undergo surgery in mid-December.

Easy Win

Bolsonaro won 55.2 percent of votes in a run-off election against left-wing hopeful Fernando Haddad of the Workers Party (PT), who garnered 44.8 percent, according to electoral authority TSE.

The fiery lawmaker's rise has been propelled by rejection of the leftist PT that ran Brazil for 13 of the last 15 years and was ousted two years ago in the midst of a deep recession and political graft scandal.

Thousands of Bolsonaro supporters cheered and set off fireworks outside his home in Rio de Janeiro's beachfront Barra de Tijuca neighborhood as his victory was announced.

"I don't idolize Bolsonaro and I don't know if he will govern well, but we are hopeful. People want the PT out, they can't take any more corruption," said Tatiana Cunha, a 39-year-old systems analyst in the midst of the noisy celebrations.

Investors cheered Bolsonaro's ascent, relieved that he could keep the PT out of power and hopeful that he would carry out fiscal reforms proposed by his orthodox economic guru.

Brazil's benchmark Bovespa stock index rose as much as 3 percent to an all-time high in opening trade, led higher by shares of state-owned firms and blue-chips.

State lender Banco do Brasil SA rose nearly 5 percent and state oil company Petróleo Brasileiro SA opened 4 percent higher at an 8.5-year high.

Brazil's currency, the real, gained around 10 percent against the dollar this month and interest rate futures have tightened dramatically as Bolsonaro's prospects improved.

Investors are particularly heartened by his choice of Paulo Guedes, a Chicago University-trained economist and investment banker, as future economy minister.

Guedes, who wants to privatize an array of state firms, said on Sunday the new government will try to erase Brazil's budget within deficit in a year, simplify and reduce taxes, and create 10 million jobs by cutting payroll taxes. New rules will boost investment in infrastructure, he told reporters.

Big Challenges

Still, Fitch Ratings on Monday highlighted the "deep fiscal challenges" confronting Bolsonaro's team, as weak growth and a huge budget deficit give little room to maneuver.

"The exact details of how his administration plans to achieve (its) objectives are limited," wrote Fitch analysts led by Shelly Shetty. "The lack of fiscal space, a high unemployment rate and a sluggish economic recovery will also likely limit economic policy options."

Onyx Lorenzoni, a fellow congressman whom Bolsonaro has tapped as chief of staff, told journalists that Guedes would be responsible for structuring an independent, autonomous central bank with targets.

Asked about Brazil's currency, Lorenzoni said Bolsonaro would offer businesses more predictability, but ruled out an exchange rate target.

In a separate interview with Reuters, he said the president-elect would meet with Guedes and other members of his team on Tuesday. He will oversee the transition from Rio this week and fly to the capital Brasilia next week, Lorenzoni added.

In parallel, representatives for Bolsonaro will begin meeting this week with President Michel Temer's team to start work ahead of the Jan. 1 inauguration.

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