ANALYSIS-Brazil’s Guedes finds influence waning as Bolsonaro takes up spending reins

By Jamie McGeever BRASILIA, Sept 16 (Reuters) – Paulo Guedes has faced his share of political challenges in his 19 months as Brazil’s economy minister, but rarely has his influence as ‘super minister’ over the government’s economic agenda been in as much doubt as it is now. Guedes has seen […]

By Jamie McGeever

BRASILIA, Sept 16 (Reuters)Paulo Guedes has faced his share of political challenges in his 19 months as Brazil’s economy minister, but rarely has his influence as ‘super minister’ over the government’s economic agenda been in as much doubt as it is now.

Guedes has seen his proposal for a social welfare program publicly rejected by President Jair Bolsonaro. He is taking a back seat in talks with lawmakers over economic reform.

And, the ultimate anathema to him, the political tide appears to be ebbing toward greater government support for the post-pandemic economy.

Guedes has proved his doubters wrong before, most notably last year when congressional debate over pension reform was at its most bitter and speculation was mounting that he might just walk away.

He bounced back more emboldened: bullish that his market-friendly agenda of spending cuts, deregulation and slashing the state was progressing and would deliver strong and sustained economic growth.

Pandemic politics changed things, however. Perhaps for good.

“This is the moment of greatest isolation for Guedes,” said Creomar de Souza, founder of Brasilia-based consultancy Dharma Political Risk And Strategy. “The biggest difference is now his whole vision of controlling public spending seems to have been defeated in the presidential palace.”

Bolsonaro this week distanced himself from Guedes, criticizing the way his economy minister planned to pay for ‘Renda Brasil’, a social welfare program the government wanted to roll out as a replacement for the popular ‘Bolsa Familia’.

The Economy Ministry, according to local media, had proposed funding it by making cuts to benefits for the elderly and disabled, which Guedes said was a media “distortion.”


In an attempt to quell speculation surrounding Guedes’ future late last month, the Economy Ministry issued a statement saying he was not resigning.

His lofty standing in the eyes of investors can be gauged by how Brazilian markets reacted that day. The currency BRL= hit a three-month low, stocks fell 1.5% .BVSP, and some interest rate futures had their biggest rise since May DIJF21.

Bolsonaro and Guedes insist there is no major disagreement between them and that they are both committed to reducing Brazil’s record budget deficit and debt to bring the public finances back on track.

But Guedes, a Chicago school-trained fiscal conservative, has had his wings clipped by his populist boss, whose approval ratings have soared due to the billions of dollars of aid dished out to Brazil’s poorest to help them through the economic crisis caused by the coronavirus pandemic.

Guedes has insisted all pandemic-related spending must end on Dec. 31, and there is no provision for any additional welfare program in the 2021 budget proposals. But the political sands are shifting.

“I think Paulo Guedes has already lost the war. The question is whether he remains at the front, or deserts,” said one senior lawmaker who has worked closely with Guedes.

“Congress is reformist when it is focused on reforms. But there is a lot of pressure for public spending, and I no longer see much enthusiasm for reforms,” he said.


This is not a sudden split. In April, Guedes was absent from the unveiling of a ‘Pro-Brasil’ program for investment in ​​infrastructure that had the fingerprints of the army generals in Bolsonaro’s cabinet, not Guedes.

A proposed constitutional amendment that would cut public sector spending and give the president sweeping new powers, unveiled this month, also bears Bolsonaro’s hallmarks as much as Guedes’.

According to Guedes, the bill will save at least 300 billion reais ($57 billion) over ten years.

But Guedes has been known to err on the optimistic side of estimates: from economic growth forecasts to predictions of trillions of reais of private sector investment and spending waiting to be unleashed as soon as the conditions are right.

The trouble is, from a fiscal perspective, conditions do not look like being right for some time.

“The fiscal outlook keeps worsening,” economists at Citi wrote in a note this week, issuing gloomier fiscal forecasts.

They now see the government’s budget deficit, excluding interest payments, reaching 948 billion reais ($180 billion), or 13.7% of GDP this year, wider than government forecasts of 866 billion or 12.1% of GDP.

Bolsonaro also recently downgraded to non-urgent a tax reform bill sent to congress in July. Guedes has been a champion of simplifying Brazil’s arcane tax system.

According to Citi’s economists, congress may not approve these reforms until next year, by which time the public finances will be in even worse shape and Guedes’ challenges even greater.

($1 = 5.2550 reais)

(Reporting by Jamie McGeever Editing by Stephen Eisenhammer, Daniel Flynn and Rosalba O’Brien)

(([email protected]; +55 (0)11 97189 3169; Reuters Messaging: [email protected]))

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