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Bolsonaro Warned More Social Spending Could Hurt Re-election Bid

Bolsonaro Warned More Social Spending Could Hurt Re-election Bid

President Jair Bolsonaro has been warned by close political advisers that further boosting Brazil’s social spending could actually jeopardize his re-election chances next year. 

The government is always looking for opportunities to expand and strengthen social policies -- including Bolsonaro’s flagship Brazil Aid program that will pay 400 reais ($70.32) a month to some 17 million families -- but that can’t be done without fiscal responsibility, according to Citizenship Minister Joao Roma. 

Bolsonaro Warned More Social Spending Could Hurt Re-election Bid

“The social and the economic areas are two sides of the same coin,” Roma, who oversees the nation’s social policies, said Tuesday during an interview in his Brasilia office. “Social improvements have to come with fiscal responsibility, otherwise you’ll be giving with one hand and taking away with the other.” 

Calls for fiscal restraint have been repeatedly made by Economy Minister Paulo Guedes and his team, with varying degrees of success. But Roma and other cabinet members are now also expressing concern about the impact of additional public spending on financial markets and inflation expectations.

While Bolsonaro knows his new social program won’t be nearly as successful as the 600-real emergency aid given to the poor in 2020, he’s been warned of the inflationary risks of aggressively boosting public spending again, according to another member of the president’s political circle, who requested anonymity because the discussion isn’t public.

Bolsonaro’s popularity hit an all-time high of 40% in September 2020, when his government was handing out the aid to help poor Brazilians cope with the economic impact of Covid-19. Now, even as the president trails in early polls for next year’s elections, Bolsonaro would rather cap the handouts at 400 reais to avoid a market selloff than boost them to 600 reais if that means the currency devaluing to past 6 reais per dollar, the person said, requesting anonymity because the discussion isn’t public. 

Last year’s stimulus, massive for an emerging market country, drove poverty near a historic low. But it also had some unintended consequences: Public debt ballooned to 88.8% of gross domestic product by end-2020, and nervous investors dumped the Brazilian real, exacerbating an inflation problem that’s haunting the post-pandemic world.

While Brazil’s fiscal position has improved significantly, consumer prices rising more than 10% a year have become Bolsonaro’s main headache in the run-up to the October election as they’re eroding the purchasing power of Brazilians, particularly the poorest.  

Bolsonaro’s efforts to ensure payments of 400 reais next year, which included changes to a key fiscal responsibility law, have again unnerved markets over the past few months, leading the central bank to warn that additional pandemic stimulus could fuel inflation next year. The nation’s stocks are some of the worst performing in the world, and the real is on track for a fifth straight year of losses. 

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