Bolsonaro’s New Strategy to Pass Reforms Sidelines Economy Chief

Brazilian President Jair Bolsonaro is sidelining his austerity-focused economy minister in negotiations with lawmakers and putting a trusted general to improve relations with congress as he seeks to pass key reforms, according to the new government leader in the lower house.

House representative Ricardo Barros said negotiations led by Bolsonaro’s Chief of Staff Walter Braga Netto, a four star general, will likely be more productive as, unlike it often happened under Economy Minister Paulo Guedes, proposals will only be taken to congressional leaders once they achieve consensus within the administration and receive full presidential backing.

“When we go to Rodrigo Maia with the government’s position, we will have more peace of mind because there will no longer be a conflict,” Barros said in an interview, referring to the influential lower house speaker, who publicly broke up with Guedes last week.

Bolsonaro’s New Strategy to Pass Reforms Sidelines Economy Chief

The spat with Maia comes as the minister sees his power challenged by lawmakers and even fellow ministers who are trying to convince Bolsonaro to keep spending big in the aftermath of the pandemic. The president, who used to refer to Guedes as a one-stop shop for all economic matters, has been giving mixed signs of support for his austerity agenda, allowing other cabinet members to speak their minds in areas that used to be exclusive to the economy chief.

Guedes confirmed on Wednesday he has withdrawn from political negotiations and, while Barros and Maia say reforms will go on as planned, investors worry the minister may be loosing the battle for austerity just as pandemic spending drives the country’s gross debt to nearly 95% of GDP this year. Brazil is one the world’s hardest hit countries by the virus, with more than 4 million cases and more than 127,000 deaths.

New Tax

Barros, a veteran lawmaker and member of a group of centrist parties that has sealed an alliance with Bolsonaro this year, said Bolsonaro’s new strategy will streamline negotiations with party leaders, and may allow for key bills to be approved this year.

He said the second part of the government’s tax proposal remains on hold until Bolsonaro decides whether to endorse a new levy on digital transactions proposed by Guedes. While the economy minister maintains that an additional source of revenue is needed to eliminate payroll taxes and help companies hire more workers, lawmakers say he is trying to reinstate an old and unpopular tax on financial transactions, known as CPMF, which was extinguished in 2008.

Bolsonaro also needs to find consensus about how to finance Brazil Income, a new social program he intends to launch next year to replace emergency payments to informal workers during the pandemic. Another difficult proposal seeks to overhaul the public sector to reduce government spending on civil servants. Both could be approved this year, despite municipal elections in November, Barros said.

“Although these are complex themes, the timing is good,” he said.

©2020 Bloomberg L.P.

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