Fence-Sitting Lawmakers Cast Doubt Over Brazil's Flagship Reform

(Bloomberg) -- It was another lackluster week for Brazil’s make-or-break pension reform, as President Jair Bolsonaro struggled to cozy up to party leaders and his economy minister clashed with lawmakers over the flagship bill.

On Thursday, Bolsonaro sought to build bridges with political parties he had long criticized, but failed to get firm backing in talks with leaders that together represent about 200 of the country’s 513 deputies. The day before his economy minister, Paulo Guedes, was broadsided in a lower house hearing that showcased the government’s lack of cohesion and strategy in Congress.

Three months into power, Bolsonaro is struggling to make headway on the bill that’s deemed essential to put Brazil’s public finances back in order. Arguing that it doesn’t engage in old-style politics, his administration has largely shunned political parties and orchestrated several crises that soured ties with allies, including the powerful lower house chief Rodrigo Maia.

"The PSD party is independent and that means it won’t vote in bloc to support the reform," party head Gilberto Kassab told reporters on Thursday, marking a break from its tradition of backing recent presidents on high-profile legislation.

Meanwhile, Bolsonaro struck a more optimistic tone, saying on Twitter that there was unity with lawmakers regarding the reform’s importance, and that talks with party members were happening at "high levels."

Guedes’s Debut

A well-organized opposition raked Guedes over the coals in his lower house debut on Wednesday, prompting the University of Chicago-trained economist to lose his temper on several occasions. Insults to a legislator’s mother and grandmother featured prominently. The session was halted, and security escorted Guedes out.

To read more: Sparks Fly as Brazil Economy Czar, Lawmakers Clash on Reform

“The opposition is creating situations to embarrass the government,” said Mauricio Santoro, professor of political science at Rio de Janeiro’s state university. “What surprises me is how easily the ministers are falling into these traps. It’s a consequence of the lack of political experience by many of them, including Guedes.”

Still, investors saw some progress in the fact that Bolsonaro was approaching party leaders at all. The currency and stock exchange recovered on Thursday after tumbling the day before. The real gained the most among emerging market currencies in late afternoon trading, while the Ibovespa jumped as much as two percent.

“I thought Guedes was absolutely fantastic. If the government expressed 10 percent of his passion, the reform would be passed without question,” James Gulbrandsen, a Rio de Janeiro-based money manager at NCH Capital, who’s been a strong advocate of the administration. “If people were selling because of the session yesterday, I think that was a very poor decision.”

Marcos Cintra, the secretary of Brazil’s tax agency, said Thursday on social media that Guedes’s performance showed he’s able to face down opposition and defend his ideas on his own to approve legislation with society’s support. “We are all Paulo Guedes” was a trending topic on Brazil Twitter on Thursday morning.

--With assistance from Vinícius Andrade, Julia Leite and Murilo Fagundes.

To contact the reporters on this story: Simone Iglesias in Brasília at spiglesias@bloomberg.net;David Biller in Rio de Janeiro at dbiller1@bloomberg.net

To contact the editors responsible for this story: Raymond Colitt at rcolitt@bloomberg.net, Matthew Malinowski

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