Brazil’s 2018 Presidential Elections

Despite political and economic uncertainty, investors can, at least, count on a robust anticorruption framework

Brazil’s general elections will take place on 7 October 2018, when ballots will be cast for a new president, 54 senators and 513 federal deputies. Local elections for state deputies and governors across 26 states plus the Federal District will also take place.

The upcoming presidential election is arguably the most unpredictable in Brazil’s recent history, with a 21 August opinion poll indicating that 30 percent of registered voters are undecided and that the leading presidential candidates have not individually garnered enough popularity to avoid a run-off on 28 October. A significantly polarised electorate, disenchanted with the political establishment, has opened the door to non-mainstream candidates who are serious contenders for the presidency, sowing considerable uncertainty into the local business environment and among investors.

Voter polarisation

Over the past two years, major political turmoil at the federal level has deepened the ideological divide among Brazilian voters. In 2016, Brazilian president Dilma Rousseff – a left-leaning technocrat who was the protégé and successor of the immensely popular president Luiz Inácio Lula da Silva (“Lula”) – was impeached and removed from office on grounds of fraudulent accounting. These proceedings were largely the result of her inherent political weakness and inability to garner congressional support for her administration’s agenda which, ultimately, hindered her ability to govern. However, Rousseff’s impeachment has been deeply controversial and a major factor in the political polarisation of the Brazilian electorate.

Lula, on the other hand, was sentenced to 12 years imprisonment in April for corruption and related crimes uncovered by the Car Wash Operation, a public prosecutor-led anticorruption task force that has led to the imprisonment of previously untouchable businessmen and elected officials across the political spectrum.  Car Wash has been the driving force behind the current wave of popular intolerance toward corruption in the public and private sectors, with 84 percent of the population supporting the operation according to a recent poll. Yet, the Car Wash task force has been accused of political bias and, with the arrest of Lula, has deepened the political divide.

Main Campaign Issues

Public Security. For the first time, public security will be front and centre of the presidential race, as all national security indicators have worsened in recent years. According to the Fórum Brasileiro de Segurança Pública (“FBSP”), a Brazilian think tank, 63,880 murders were registered in 2017, a record high since the initial publication of this data set, in 2007. Although public security is generally under the remit of state governments, the federal government also holds some responsibility. Since February 2018, for example, the Brazilian army has had formal command of Rio de Janeiro State’s security forces.    

Economy. Brazil has been experiencing a slow recovery since the 2016 economic recession, with 12.4 percent unemployment, rising inflation and sluggish economic growth prospects. Given this scenario, candidates are dedicating a large portion of their campaigning to economic strategy, with a focus on economic growth and job creation. Proposals vary from frontrunner Jair Bolsonaro’s support for market-friendly labour reform, free trade and liberal economic policies, to Ciro Gomes’s defence of greater state control over the economy and higher public spending.

Corruption. According to Transparency International’s (“TI”) 2017 Corruption Perceptions Index, between 2016 and 2017 Brazil’s rank has dropped from 79 to 96 out of 180 countries, with 180 being the most corrupt. The worsening of Brazil’s position has been closely associated with the extensive media coverage and public support for the Car Wash operation and several other anti-corruption investigations.

A strong and stable anticorruption framework

Despite the uncertain political and economic outlook for Brazil, the implementation of recent anti-corruption reforms and the continued success of Car Wash has significantly improved the local compliance environment, levelling the playing field for investors who abide by international anti-corruption standards such as the UK Bribery Act and the US Foreign Corrupt Practices Act.

Following the wave of anticorruption demonstrations that took place across the country in 2013, the Congress passed the Anticorruption Act, which was based on the UK Bribery Act and the US Foreign Corrupt Practices Act. Since then, there has been a growing trend in compliance-related developments, which are gaining greater importance in the public and private spheres. For example, in 2016, Brazilian congress passed the State-Owned Companies Act, which requires state-owned companies to develop and keep track of integrity and compliance programs, inclusive of third-party risks.

The above measures are essential to provide a degree of stability for international investors, considering the fraught economic and political context over which the 2018 election will occur. While it is too early to tell who will become the next president of Brazil, he or she will have to contend with intense public and legal scrutiny over the real or perceived ethical conduct of the presidency, cabinet, and political supporters.

According to the polls, while Bolsonaro and Lula are currently the front runners, they also have the highest rejection rates (37% and 30%, respectively) among the electorate.

Mayors, Governors and the President are elected for a four-year term by absolute majority vote with a two-round system. In case no candidate obtains over 50 percent of the votes in the first round – scheduled for October 7 – the top two candidates will compete in a second round on October 28.

Due to Brazil`s electronic voting, adopted since 1996, results are published after the closing of the polls on election day.

Haiti, Nicaragua and The Rapid deterioration Of security Environments

Over the last quarter, two significant episodes of civil unrest within the Latin American region have made international headlines and highlighted the security implications of a quick escalation of violence. Haiti and Nicaragua serve as similar case studies of the risks facing businesses and foreign nationals when a rapid deterioration of the security environment leads to a halt to commercial activities and the evacuation of travellers and personnel.

On the weekend of 6 July, widespread civil unrest broke out in Haiti following a series of sizable fuel price increases announced by the government, which were in compliance with International Monetary Fund (IMF) austerity recommendations. Violent demonstrations and public rioting quickly spread in and around Port-au-Prince, and reached other cities such Cap-Hatien. Over the course of the weekend, at least three people died, including a policeman attacked by rioters and a protester shot by security forces. Furthermore, numerous businesses and stores were looted and vandalised. Although the rioting abated by 9 July, a transport workers’ strike that same day saw travel and logistics come to a standstill, causing significant commercial disruptions and preventing locals and foreign nationals alike from travelling throughout the country. Specifically, numerous foreign nationals, including US foreign aid and religious workers, found themselves trapped and unable to safely leave the country. This predicament was exacerbated after various flights to the international airport in the capital were cancelled. The US State department – which has already authorised the extraction of non-essential US government personnel – advised stranded citizens to find shelter where they could while the unrest continued.

Similarly, in Nicaragua, the overhaul of the state pension system in April triggered mass protesting, which quickly escalated into a country-wide anti-government insurrectionary movement and significant political violence. The uprising has left at least 200 people dead to date, including anti-government activists, state security officials and members of pro-government paramilitary mobs. Furthermore, there have been numerous cases of looting, vandalism and the destruction of property throughout the capital and other major cities. The deterioration of the security environment triggered a number of evacuation and disengagement plans for foreign nationals residing in the country. For example, the US Peace Corps evacuated 160 personnel within the country, while non-essential personnel from the US embassy in Managua were flown out of the country over security concerns.

In both cases, the rapid escalation from protest movement to rioting and political violence was likely driven by existing underlying political tensions. In the case of Haiti, widespread poverty and the piecemeal reconstruction of the country since the 2010 earthquake and 2016’s Hurricane Matthew has undermined popular support for the government, while in Nicaragua the reforms carried out by the increasingly authoritarian Daniel Ortega government have soured support from both the citizenry and business communities. However, from the outside, such indicators may not be readily visible. In Nicaragua’s case, for example, the country had experienced year-on-year growth in foreign direct investment between 2016 and 2017, with tourism numbers increasing by almost 22 percent between 2015 and 2017. Yet security environments can change very quickly, and at short notice. It is thus important for travellers and commercial entities with business interests in volatile jurisdictions such as Haiti and Nicaragua to maintain an ongoing awareness of the local underlying socio-political tensions and their security implications. In so doing, the requisite prevention measures can be put in place to both mitigate against and prepare for a quick change in the security environment.

When faced with a rapidly deteriorating environment, the need to evacuate personnel safely and effectively can often occur quickly with limited or no warning.

An uncertain future for  Brazil’s new privacy law?

On 14 August 2018, the Brazilian congress passed the General Data Protection Law, a sweeping data protection reform that brings Brazil into step with international best practice. The law, known by its acronym in Portuguese, the ‘LGPD’, introduces extensive new requirements for organisations operating in Brazil which handle personal data. Organisations now have an 18 month grace-period to prepare before the law is enforced from February 2020.

For European companies operating in Brazil the LGPD will be very familiar, as it closely mirrors the EU General Data Protection Regulation (GDPR), which came into force on 25 May this year. The GDPR led to widespread changes to the way businesses have approached privacy in the EU, and it is expected that the LGPD will have the same effect in Brazil. The new law will oblige Brazilian businesses to appoint a data protection officer and report data breaches to regulators and affected individuals. It will also enshrine extensive new rights for individuals over their data, ranging from the right to request a copy of their data, to the right to have their data deleted under certain conditions. Already, these new obligations are being interrogated by industry observers in Brazil. Early points of contention include how the law will practically impact credit history data collection, as well as concerns around disclosure of personal data based on the new rights which could threaten medical confidentiality. As organisations operating in Brazil update their privacy practices over the next 18 months, officials and executives alike will be closely following the lessons learnt across the water in the EU, as companies grapple with the logistical and legal challenges of changing their approach to data security and governance.

Core to the success of the new law will be effective enforcement. On paper, the law imposes a robust sanctions regime which is comparable to the GDPR. Those who fail to comply with the law could face fines of up to BRL 50 million or 2 percent of global turnover. However, serious questions remain about how the law will be enforced in practice. As it stands, the bill lacks crucial legislation for the formation of a National Data Protection Authority (ANPD), after President Michel Temer exercised his power of veto to strip these provisions from the bill before it was signed into law. Publicly, the rationale for the veto has been attributed to a legal technicality. However, it seems likely that the move is designed to allow President Temer to direct the creation of the ANPD on his own terms. There is still a chance that the Brazilian Congress could overturn the veto. However, with the attention of Congress firmly directed towards the ongoing presidential election campaign, it is likely that any vote on the bill will be pushed into the long grass of early next year.

Despite these setbacks, President Temer has indicated that he intends to broadly maintain proposals for the ANPD and will introduce a new bill in short order. Nevertheless, delays in the formation of the ANPD continue to concern defenders of the LGPD, not least because the bill makes no fewer than 49 references to a national authority in the text. Ongoing debate over whether the authority should be independent, or supervised by the Ministry of Justice and Ministry of Science, adds to the possibility that the authority could lack the independence and specialist resources required to effectively enforce the law.

The impact the new law will have hangs on the fate of the ANPD. If Brazil is to avoid leaving the LGPD toothless, the ANPD must be well-funded and have a clear mandate. However, despite uncertainty over enforcement at home, Brazilian businesses operating in an international setting are increasingly being asked to demonstrate their data protection efforts to partners and customers required to comply with multi-jurisdictional data protection laws such as the GDPR. As a result, forward-looking businesses in Brazil will look to change their approach to privacy irrespective of the LGPD, as good data security becomes good business.