Bolsonaro’s Social Plan Has Investors Fearing Budget Crisis
Bolsonaro Pledges Austerity After Backlash Against Social Plan
(Bloomberg) -- President Jair Bolsonaro said Brazil needs to keep providing assistance next year to those who lost their income during the pandemic, adding to investor fears that his government is about to throw fiscal responsibility rules out the window.
“We need an alternative for about 20 million people who won’t have anything to eat come next January,” Bolsonaro said in video posted on his social media. “If we wait until 2021, we may have very serious social problems in Brazil -- and that’s a polite way of saying social unrest.”
Brazilian stocks fell for a second day since the government suggested tapping an educational fund known as Fundeb and limiting payments mandated by court decisions to finance Bolsonaro’s new program, dubbed Citizen Income. The proposals were seen by investors and budget experts as a way to skirt a constitutional cap that limits the growth of public expenses, as well as an accounting trick to find budget room by delaying other payments.
The benchmark Ibovespa stock index closed Tuesday with losses of more than 1% while swap rates rose as investors priced in bigger chances that fiscal problems may end up forcing the central bank to raise interest rates.
“Postponing the payment of a liability is not a permanent or stable funding source for a new permanent social entitlement program and may even be legally challenged,” Goldman Sachs senior economist Alberto Ramos wrote in a report to clients.
Plan Unchanged
While the president reaffirmed his commitment to budget responsibility and said he continues to “obey” his fiscally-conservative Economy Minister Paulo Guedes, he also said it’s up to those who criticize his government’s proposal to come up with a better plan.
Later, the rapporteur of the bill creating Citizen Income said the sources of financing for the new program have not changed. “I spoke with the president today and he said it’s confirmed,” Marcio Bittar said in an interview.
Finding ways to finance his program has become a challenge for Bolsonaro, who has rejected previous proposals by his economic team to cut social spending in other areas to make room in the budget.
More vulnerable Brazilians are currently receiving emergency payments that will be phased out by the end of the year. Such cash handouts have sent Bolsonaro’s popularity soaring to a record even as the country became a global hotspot for the coronavirus, with more than 140,000 related deaths.
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