Bolsonaro Hears Stimulus Pleas While His Economic Chief Resists
Bolsonaro Backs Economy Minister Amid Rising Political Tension
(Bloomberg) -- Lawmakers from centrist parties are putting pressure on Brazil’s President Jair Bolsonaro to boost spending even if it forces Economy Minister Paulo Guedes out of the government, according to three people familiar with the discussion.
Bolsonaro has approached those parties to shore up support in Congress, potentially setting up a clash with his economy minister’s plan to resume a market-friendly agenda of fiscal reforms and privatizations after the coronavirus pandemic wanes. If Guedes leaves the government, then most of his team will follow, said two other people with knowledge of the matter.
The economy ministry declined to comment. Early on Monday, Bolsonaro publicly said he supports Guedes amid financial market concerns about strained ties between them.
“The man who decides about the economy is just one: Guedes,” Bolsonaro said as he left the presidential residence in Brasilia, after meeting with the economy minister and other cabinet members. “We are concerned about maintaining total fiscal responsibility with public expenditures.”
Bolsonaro’s statements came as his government faces its strongest political crisis yet following the resignation of Justice Minister Sergio Moro on Friday and speculation that Guedes might be next. Guedes was tapped by Bolsonaro to privatize billions of dollars in state-controlled assets and shrink the size of the state by cutting spending. Still, his policies have been pushed aside amid pressure for stimulus to fight the coronavirus outbreak, fueling investor fears that he may be on his way out.
Speaking alongside Bolsonaro in the morning, Guedes said that Brazil’s economic policy has not changed, and that he is in charge of the budget. The government will continue to seek structural reforms to lure investments.
Latin America’s largest economy will bounce back faster than expected, Guedes said, adding that he and the president are on “the same path.”
Privately, Guedes is aware that legislators from parties such as PL, PP, PSD and Republicanos want to weaken his position, but he believes Bolsonaro still supports him, according to a member of the economic team. Despite the president’s public backing, pressure for more spending continues to rise, said two members of Guedes’ staff. The latest challenge for the minister was last week’s launch of a 10-year recovery plan by Bolsonaro’s Chief of Staff Walter Braga Netto which would heavily rely on public investment.
Read More: Brazil’s Recovery Plan Shows Cracks in Bolsonaro-Guedes Relation
Those demands may also lead to possible extension of the emergency aid that the government is currently providing informal workers for a period of 3 months, according to two economic team members. Such a decision would add on to the costs of the program which already total more than 100 billion reais ($17.5 billion).
Later on Monday, Vice President Hamilton Mourao said “some public funds” will have to be used to finance infrastructure projects when the pandemic passes, but the spending will remain within budget limits.
Brazil’s real fell 2.4% to 5.72 per U.S. dollar in afternoon trading on Monday, extending its world-leading slump this year to 29%. While Bolsonaro’s support for Guedes is positive, it doesn’t completely eliminate political tensions stemming from Moro’s departure, according to Jefferson Lima, head trader at CM Capital.
Plunging Confidence
Bolsonaro’s administration is grappling with the impact of coronavirus pandemic, which has shuttered stores, grounded flights and canceled events. The economy ministry has argued that, while the government will have to boost emergency spending in the short term, years of budget deficits leave little room for a program of economic reconstruction based on government funds.
The president’s remarks came minutes after business school Fundacao Getulio Vargas, or FGV, reported that a key measure of consumer confidence plunged to the lowest level on record in April. Social isolation measures aimed to slow the spread of the virus are hurting Brazilians’ finances, FGV wrote in a statement.
Consumers have cut expenses on essential services and goods, while expectations of purchases in upcoming months also dropped. Put together, the readings indicate demand will likely lag even after commerce reopens, according to the statement.
Separately, analysts surveyed by the central bank cut their estimates for the performance of the economy this year for the 11th straight week. They now expect gross domestic product to shrink 3.34% in 2020, from a contraction of 2.96% previously. Some organizations such as the World Bank and International Monetary Fund expect a contraction closer to 5%.
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