Spotlight: Brazil's political future

Victories by right-wing candidates in Brazil’s legislative elections will mean that, even if he wins the presidential runoff on October 30, leftist opposition leader Luiz Inácio Lula da Silva may not be able to implement deep reforms or pass a progressive agenda through congress.

"The profile of the elected congress shows that in Brazil there has not been a shift to the leftist side as has recently happened in other Latin American countries," Luciano Rostagno, chief Latin America strategist at Banco Mizuho, told BNamericas.

“Brazil’s congress will remain pro-business, favoring a liberal economy, with a less pronounced role for the State.”

Under this scenario, congress will pursue next year tax and administrative reforms, which economists consider crucial to reduce fixed expenses for public servants. 

"Congress will likely be sensitive to the need to advance tax and administrative reforms, but likely on its own terms," Alberto Ramos, chief Latin America economist at Goldman Sachs, told BNamericas. 

President Jair Bolsonaro’s PL party won 99 seats in the lower house, 31 more than it currently holds. Center-right parties, such as União Brasil and PP, will be the third and fourth largest in terms of seats in the lower house, according to figures compiled by parliamentary advice service DIAP.

The coalition of leftist parties, including Workers Party, PCdoB and PV also gained ground, and will have 79 lawmakers compared with 76 currently. However, it will not be enough to form a majority.

Right-wing forces also gained a majority in the senate. Sunday's election covered only a third of the current 81 senators. PL will have 14, six more than currently, PSD 12, MDB 10, União Brasil 10 and Lula’s Workers' Party 9.

The congressional elections suggest that Bolsonaro has a serious shot at winning the runoff, even though he trailed Lula by around five percentage points on Sunday. But even if Lula wins, he will face a severe challenge to get proposals through congress.

"Lula remains the favorite to win the election in the second round, but the election result will be tight as the economic scenario tends, thanks to inflation deceleration, to be more favorable to Bolsonaro," Mario Sergio Lima, a senior political analyst at Medley Global Advisors, told BNamericas.

Market participants valued the results because they make the abandonment of spending cap rules unlikely. 

"If elected, former president Lula may find it difficult to co-opt the needed congressional support for his key policy initiatives. In the end, if elected, [he] will likely be able to build a coalition and govern but his base of support may not prove very reliable," said Ramos. 

Lula obtained 48.4% and Bolsonaro 43.2%. Polls suggested previously that Bolsonaro would not gain more than 36%.