On October 5, the day after the first round of Brazil’s general elections, the country’s financial markets were euphoric. Brazil is struggling with high debt and low growth, and investors are eager for leaders to reduce budget deficits, deregulate, cut taxes, and perhaps even privatize state assets. After nearly four years under the left-wing President Luiz Inácio Lula da Silva, known as Lula, who has been slow to implement such measures, investors hope a right-wing government will create opportunities for bold reform.

Rule by the right might be exactly what Brazil gets. The far-right Liberal Party made substantial gains in the legislature, becoming the single largest party in both the Senate and the Chamber of Deputies. Its presidential candidate, Flávio Bolsonaro, the son of the notorious former President Jair Bolsonaro, led the aging incumbent, Lula, by nearly two percentage points in the first round of voting. Lula has shown himself capable of impressive political comebacks, but Flávio Bolsonaro is still the favorite in the runoff vote scheduled for October 25.

Even if Bolsonaro wins, however, the prospects for the Brazilian economy are dim. The policies he has put forward are nothing close to the substantial fiscal consolidation program that will be necessary to bring down debt and stimulate private investment, and his determination to weaken Brazil’s political institutions creates the kind of uncertainty that scares investors away. Economic growth has been sluggish under Lula, whose administration has struggled to relieve the high debt burdens afflicting the public sector and households. What would truly doom the country to economic crisis, however, is the kind of authoritarian-inspired politics that a Bolsonaro government could usher in.

Brazil is in serious economic trouble. The country’s sovereign debt ratio has ballooned to 83 percent of GDP, fiscal deficits leave no room for additional government spending, and high interest rates are hurting consumers and investors. Meanwhile, the Iran war has raised the price of fuel and other goods, weighing on household balance sheets already strained by high debt and leaving many Brazilians desperate for leaders who can alleviate their daily hardships.

This predicament is years in the making. Before Jair Bolsonaro was elected in 2018, his predecessor, President Michel Temer, enacted a cap on public spending to contain Brazil’s runaway fiscal problems. Temer introduced the cap as a constitutional amendment to prevent future governments from changing the spending ceiling to suit their needs. Yet Jair Bolsonaro raised the cap several times anyway, which required convincing Congress to amend the constitution. In return, the executive branch effectively ceded control of the budgetary process to the legislature.

Lula therefore inherited a system in which he had little room for fiscal adjustment, and he made few attempts to fix the problem during his term. The result was high budget deficits and persistent inflation, which forced the central bank to raise interest rates substantially. In........

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