Brazil’s January 6 (8)
Pro-Bolsonaro protesters have invaded all three main government buildings in Brasilia in a similar act to the U.S. capitol invasion in January 2021. Around 1,200 protesters were arrested, and from now on pro-Bolsonaro protesters will likely be strongly repelled. Markets reaction are set to be limited as political stability is not affected. The biggest risk is that a stronger Lula emerges and is able to pass anti-market reforms, a scenario which is not our baseline at the moment.
Pro-Bolsonaro protesters have rioted at the three main official buildings of Brazil power. The National Congress, which houses the Senate and the Chamber of the Deputies, the Palace of Planalto which houses the Presidential office and the Supreme Court building. A great part of the facilities were wrecked which is likely to make part of the buildings unusable for a certain period.
Despite Jair Bolsonaro and Donald Trump rhetoric similarities and the almost synchronized date of the events, there were several differences between the U.S. capitol invasion and its Brazilian equivalent. Al the three main buildings of power were invaded in Brasilia, while in Washington only the Congress. Additionally, Trump was in power when the Capitol invasion happened which has likely given confidence to the invaders. Lula da Silva is in charge in Brazil and Bolsonaro is currently on vacation in Florida, making the Brazilian invasion even more remarkable.
Distrito Federal Governor, Ibanez Rocha is closely related with Bolsonaro and was in charge of the security forces that were monitoring the protest. The state security secretary Anderson Torres was Jair Bolsonaro former Justice Minister, and he is also on vacation in Florida. Pictures showing policemen buying coconut waters while invaders stormed the building are raising concerns that security was relaxed during the day allowing the invasion to materialize. The invasion was only controlled when federal intervention by the security secretary of the Distrito Federal was decreed, which allowed Lula to appoint an intervener to rule the security secretary of Distrito Federal with full power. Then, joint action between police and national security forces (submitted to the federal government), repelled protesters from the buildings.
In the aftermath, Supreme court minister Alexandre de Moraes decreed the imprisonment of Anderson Torres and has temporarily suspended Ibanez Rocha from his office for 90 days, while a full investigation of the events takes place. This seems to be a message to other state governors that allow similar acts to happen. 13 from the 27 state governors have supported Bolsonaro in the October general election. Meanwhile, around 1,200 pro-Bolsonaro protesters were arrested. Jair Bolsonaro tweeted from Florida about the events condemning the rioters, stating that he was not responsible for such acts.
Despite the dramatic events, we believe the invasion will not increase political instability but rather make for a stronger Lula. A flash opinion poll by Quaest showed that around 90% of the Brazilians condemn the invasion, and all Brazil three main government powers are set to support Lula in order to avoid any similar act. This will probably imply that every protest against Lula might be treated as anti-democratic protest, setting a bar between Lula and Bolsonaro protesters.
In terms of markets, the invasion is likely to provoke some volatility on the Brazilian Real and the Ibovespa but as political stability is maintained during the next few months, the losses see during this week are set to be reversed soon. The biggest risk comes that the stronger Lula is able to promote anti-market reforms, that ultimately damages Brazil fiscal sustainability. This is possible but we have kept unchanged our baseline scenario of moderate fiscal policies(here) but we will remain vigilant in case the anti-market reform risk materializes.