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Brazil Economy Chief Vows Fiscal Control If Virus Hits Again

Brazil Economy Chief Vows Fiscal Control If Virus Hits Again

Brazil wouldn’t spend as much as it did this year if the country were to battle a second wave of the coronavirus, according to Economy Minister Paulo Guedes.

Expenditures during a second wave would be around 4% of gross domestic product, or about half the current amount, Guedes said Tuesday in an interview to Bloomberg’s Stephanie Flanders at the Emerging + Frontier Forum 2020.

Brazil Economy Chief Vows Fiscal Control If Virus Hits Again

Unsustainable expenditures will be removed and the government will leverage new political alliances to accelerate economic reforms, he added, noting that the number of virus cases in Brazil is currently falling.

Brazil is facing difficult policy decisions as it tries to move beyond a virus-driven recession. The government is spending roughly 587 billion reais ($109.2 billion) this year on emergency measures that have supported demand and saved jobs, while boosting President Jair Bolsonaro‘s popularity. Still, financial markets fear that Latin America’s largest economy is on the brink of a budget crisis, and Guedes has led calls for a quick return to austerity.

“Brazil was taking off when Covid hit us,” Guedes said. “This confidence of the market in our determination to be back to structural reforms is what forgives us for being so forceful in the response to the virus.”

Reforms, Privatizations

At the center of his recovery plans is a set of market-friendly reforms including an overhaul of tax and budget rules, as well as plans to sell off billions of dollars in state-controlled assets. The economy ministry forecasts GDP will expand 3.2% next year, though Guedes has said that number can improve.

On Tuesday, Guedes said priorities in the government’s privatization program include the postal service, Eletrobras, oil contracts owned by PPSA and the port in the city of Santos. He said he wants those assets sold by the end of next year.

Read More: Massive Blackout in Northern Brazil Imperils Eletrobras Sale

Eletrobras’ share price surged to an intraday high following the economy chief’s remarks, according to Ari Santos, a trader at H. Commcor DTVM Ltda. “Every time Guedes talks about privatizations, people put their fingers on the trigger.”

Budget Crisis

At the same time, the Bolsonaro administration has signaled plans to make some of the pandemic spending permanent through the creation of a new social program in 2021. The problem is that Guedes hasn’t convinced investors he can finance that initiative without breaking a crucial law that limits government expenditures.

Public debt is already nearing 100% of GDP as Brazil’s Treasury finances measures to boost health care and provide monthly stipends for informal workers. As the country’s debt profile deteriorates, many investors are refusing to buy anything but short-term bonds issued by the government in the local market.

Guedes said that Brazil has no troubles in rolling over its debt, and reiterated that private investment - rather than public spending - should drive growth.

The University of Chicago-trained economist also said he expects no general problems following Joe Biden’s win in the U.S. presidential elections. Bolsonaro is one of Donald Trump’s biggest allies in the region and has so far refrained from congratulating the U.S. president elect.

©2020 Bloomberg L.P.