Mac Margolis is a Bloomberg Opinion columnist covering Latin and South America. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.” Read more opinion LISTEN TO ARTICLE 5:54 SHARE THIS ARTICLE Share Tweet Post Email

Photographer: MauroPimentel/AFP via Getty Images Photographer: MauroPimentel/AFP via Getty Images

Gauging by decibels, Brazil’s political outlook is anything but reassuring. Hardly a week passes without President Jair Bolsonaro or his splenetic First Family taking a swipe at democratic decorum. Bolsonaro’s attacks on the independent press and youngest son Eduardo Bolsonaro’s threat to restore emergency powers from Brazil’s days of military rule are just two of the latest episodes.

As if that weren’t clatter enough, now comes former President Luiz Inacio Lula da Silva, fresh out of jail on a Supreme Court rule change — allowing him to appeal his graft conviction in liberty and stir a left-wing revanche.

And yet to look at Brazil’s economy, blue skies beckon. Inflation is falling. Interest rates have never been so low. Following this month’s victory on pension reform, expected to save around $196 billion over the next decade, the government is pushing the most ambitious overhaul of the bureaucracy since the return to constitutional democracy 31 years ago. Investors are eyeing opportunities in one of the world’s most attractive energy frontiers, notwithstanding last week’s unimpressive auctions for drilling rights. A huge infrastructure remake stands to reap Brazil $65 billion over three decades, Eurasia Group’s Christopher Garman recently wrote clients.

So which Brazil is real? Both, it would appear. Unsettling as it may be, the chasm between Brazil’s toxic politics and its potentially transformative economic agenda has become a familiar anomaly. Odder still, investors are learning that the same schism thrives within the government itself. “Banks and companies are saying, ‘forget Bolsonaro. Look at the markets’,” said former finance minister Mailson da Nobrega, a partner at the consultancy Tendencias. “It’s as if this were the new normal.”

Yet the disconnect between reformers and dogmatists is hardly auspicious. Brazilian politics is umbilically connected to economic expectations and decisions. The only way the country can remake the profligate state, raise productivity, draw investment and lock in its modernizing agenda is to mute the internal dissonance and align political muscle behind structural change. That mission takes conviction and focus, both in short supply in a ruling claque thriving on cacophony and polarizing disruption.

A lot of Brazil’s forward march is actually inertia. The vital policy shifts now gaining traction were set in motion more than three years ago, when Bolsonaro was still a choleric culture warrior on the conservative fringe. The impeachment of Workers’ Party leader Dilma Rousseff in 2016 ended more than a decade of economic magical thinking that produced Brazil’s worst recession. Vice President Michel Temer took over and, despite his dismal approval ratings, drafted reforms that set Brazil on a new path.

One was the government spending cap, which put federal authorities on notice to live within their means or face legal consequences. Another was a sweeping pension reform, which — with some repackaging by Bolsonaro’s economic czar Paulo Guedes — finally cleared Congress and was signed into law Nov. 12.

Temer also unleashed state oil giant Petrobras to compete in the open market and rescinded protectionist local content rules. That paved the way for the next round of drilling tenders, which by 2030 could put Brazil among the world’s top five oil producers, Eurasia Group said.

Yet Brazil is not fated to succeed. The virtuous reform cycle that has emerged on Bolsonaro’s watch relies on good fortune and a fragile pact among unlikely partners. With Bolsonaro roiling diplomacy, attacking rainforest science and railing against a brand of communism that went out with the Cold War, the task of retooling the overextended bureaucracy and fixing the economy has fallen to Guedes and his technocrats. A surprisingly proactive legislature, led by the capable and institution-abiding congressional president Rodrigo Maia, has done the rest.

But this felicitous workaround has an expiration date. With local elections slated for late next year, the broad legislative consensus that rewrote the pension system is likely to dissolve over the more divisive plans now before Congress to slim down the state, overhaul an irrational tax code and stanch fiscal incontinence.

Brazil has 5,570 municipalities, each one loath to relinquish its slice of the federal tax pie. And don’t expect lawmakers, all of whom have hometown constituencies, to fall in line behind Guedes’s proposal to abolish small townships that subsist only on transfers of federal revenues — an existential threat to one in every five Brazilian mayors. Who knows what will befall unpopular reforms once Maia’s mandate as house speaker ends in early 2021?

It’s paradoxical that the hard right-wing agenda that propelled Bolsonaro into office — anti-abortion, home-schooling, banning (leftist) ideology from the classroom and the anti-crime bill — has gotten nowhere in Congress. Instead, what’s propped up Bolsonaro’s ratings are an incipient economic upturn and falling crime rates. Both are wins for long-term reforms and policy measures for which Bolsonarismo has paid little mind and dispensed even less political capital.

The return of an obstreperous leftwing adds another layer of complexity. Although Lula has pledged to amp up dissent, his long game is to revive the political left, not to sabotage salutary and necessary economic restructuring. Whether reformism can coexist with partisan fury as election season looms is an open question. On the ideological proving grounds, Bolsonaro and his inner circle wage permanent battle. “Every week we have a new outrage that is no longer a surprise but is shocking, nonetheless,” said Octavio Amorim Neto, of the Getulio Vargas Foundation. “That’s a sign that we can plunge into crisis from one moment to the next.”

Perhaps the combatants have taken notice. Bolsonaro recently visited Beijing, dropping the red-bashing that fueled his campaign. This week, Bolsonaro’s youngest son Carlos, the most vociferous of the clan, deleted all his social media accounts — maybe none too soon. If Brazil’s recent history is any guide, political luck also runs out.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.