Brazil Economy Czar’s Frustration Grows Over Lost Budget Battles

(Bloomberg) -- Brazil’s economy minister is growing tired of losing budget battles in Congress and fears that, without the support of President Jair Bolsonaro, public spending will soar to levels he and his team consider unsustainable, according to three people familiar with his thinking.

Paulo Guedes hasn’t asked to resign, but he’s been giving stronger signs that his future in the administration isn’t certain anymore, the people said, asking not to be named because the discussions aren’t public.

The latest lost battle happened Wednesday night, when lawmakers approved a bill providing financial support to states and municipalities during the coronavirus pandemic -- with tweaks that will cost public coffers 50 billion reais ($8.6 billion) by the end of 2021. The original proposal determined freezing salaries of public servants for 18 months as a condition for states to receive 125 billion reais in aid, but lawmakers exempted several groups, including police officers and health workers, from that rule.

When the economic team asked Bolsonaro to back them in negotiations with Congress, they found out that the president himself had given the green light for the changes, the three people said. As Guedes grew increasingly frustrated with the situation, Bolsonaro’s Chief of Staff Walter Braga Netto and Government Secretary Luiz Eduardo Ramos intervened to ease tensions, the people added.

Bolsonaro’s press office and the economy ministry declined to comment on the story.

Concerns about the future of Guedes’ liberalizing agenda, coupled with an aggressive monetary easing campaign by the central bank, caused the Brazilian real to tumble to an all-time low on Thursday.

Voice of Reason

Bolsonaro, in a bid to appease his economy minister, gave him a public display of support on Thursday, promising to veto the changes approved by lawmakers and telling reporters that, in economic matters, “Guedes is the voice of reason.” The minister, in turn, helped Bolsonaro campaign for the reopening of businesses during a visit to supreme court justices, saying that “the economy is beginning to collapse.”

Bolsonaro later said Guedes controls “99% of the economic agenda” and that the country won’t print money because it would bring inflation back.

Beyond the public show of unity, however, it’s still unclear whether the president will make good on his veto promise and risk angering key members of his support base such as police officials. Even if he does, Congress may still reject the presidential veto.

And that is only the first of many other budget battles ahead. Pressure for the government to loosen the purse strings has been growing as the coronavirus pandemic wrecks Latin America’s largest economy, now expected to shrink as much as 7% this year, and threatens Bolsonaro’s approval ratings.

Guedes’ economic team already anticipates pressure from lawmakers to extend a program that grants a monthly payment of 600 reais to informal workers, according to three people familiar with the matter.

As it stands, the government is spending 130 billion reais to make those payments during three months, leading this year’s fiscal deficit to balloon to more than 600 billion reais, or about 8% of GDP, excluding interest payments.

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