Brazil Economy Minister Staying Put for Now, Fears Spending

Brazil’s economy chief, facing growing pressure to loosen the purse strings, will stay in the job as long as President Jair Bolsonaro keeps the country on track to fiscal austerity, according to a government official familiar with the minister’s thinking.

Brazil Economy Minister Staying Put for Now, Fears Spending

Paulo Guedes has been warning his boss about the risks of giving up on austerity, and both men agree in principle with the idea, said the official, who asked not to be named discussing government affairs. There are hard choices ahead, however, and the minister wouldn’t continue in the government if the president were to bypass a spending cap rule that investors consider Brazil’s last line of defense against runaway budget deficits.

The Economy Ministry declined to comment.

One of the main challenges ahead is how to finance Bolsonaro’s new social program, Renda Brasil, which he intends to launch next year to replace emergency payments made to informal workers during the pandemic. Such handouts are contributing to widen the government’s primary budget deficit to an estimated 800 billion reais ($144 billion) this year, from 95 billion reais in 2019.

Guedes, a University of Chicago-trained economist, has been growing isolated in his fight for austerity both at home and abroad, as many countries plan to spend their way out of recession.

Earlier this week, the president rejected Guedes’ original idea to preserve the spending cap by redirecting money from other social initiatives into Renda Brasil. Although Bolsonaro said he remained close to his minister, the news fanned investor concern about the country’s fiscal outlook, causing the Brazilian real to weaken as much as 2.2% on Wednesday. They are expected to meet again on Friday to discuss alternatives to fund the program.

If Bolsonaro decides to keep all existing social programs, the amount Renda Brasil will pay to each family will certainly drop, and it’s up to Bolsonaro to make a political decision on the matter, the person said.

Discussions around Renda Brasil will continue over the next few weeks and, for now, the government will extend emergency payments until the end of the year. After September, however, the 600 real monthly stipend will probably be cut by half, and government may also reduce the number of people who receive it, the official said.

Guedes wants Renda Brasil to be part of a larger post-pandemic plan that also includes the reduction of payroll taxes, as well as measures to give the government more control over the budget, the person said. The economy ministry has already sent congress a constitutional amendment that would allow it to reallocate funds within the budget, making it easier to launch the social program without violating the spending cap.

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