Bolsonaro’s Push for Social Spending Fuels Market Selloff
Bolsonaro’s Push for Social Spending Fuels Market Selloff
(Bloomberg) -- President Jair Bolsonaro rejected his economy minister’s plan to finance a new social program without additional spending, fanning investor concerns about the country’s fiscal outlook and the future of Paulo Guedes himself in the administration.
Bolsonaro said Wednesday he will not send Congress a proposal for the so-called Renda Brasil program as presented by Guedes’ team. The market-friendly minister sought to redirect funds from other social initiatives to finance the president’s signature social program, which he intends to launch next year when emergency stimulus measures will have expired.
“Yesterday, we discussed the potential proposal for Renda Brasil and I said it was suspended. We will discuss it again,” Bolsonaro said. “I can’t take from the poor to give to the poorest.”
The real weakened as much as 2.2% to 5.6320 per dollar in early afternoon trading on Wednesday, leading losses among the world’s major currencies. Stocks slid 2.7%, the most in emerging markets. Swap rates rose across the curve and the long end widened by 25 basis points.
Guedes’ Future
While many countries plan to spend their way out of recession, Guedes argues Brazil can’t afford another year of record budget deficit. That would erode investor confidence in the country’s finances, drive interest rates higher and eventually derail the economic recovery, he says. Yet the minister is increasingly isolated in his defense of fiscal austerity.
Bolsonaro considers his economy chief is showing little sensibility toward political and social issues but doesn’t want him to step down, according to two government officials familiar with the president’s thinking. Instead, he is pressuring for a program that does a better job of attending to Brazil’s social realities and will hold another meeting on Friday to discuss new ideas, they said, asking for anonymity because they aren’t authorized to comment publicly on the matter.
The economic team fears that Bolsonaro may want to bypass the public spending cap to finance Renda Brasil, according to two people with direct knowledge of the situation. The spending ceiling is seen by investors as a crucial commitment to fiscal responsibility as it limits increases in public expenditures for two decades.
“It seems the economy minister has remained, but his economic agenda is gone,” said Reinaldo Le Grazie, a former director at Brazil’s central bank and head of the investment committee of Panamby Capital hedge fund.
Bolsonaro’s office didn’t immediately respond to a request for comment while the economy ministry declined to comment.
Political Challenge
Underscoring Guedes’ political challenges, even lawmakers who don’t routinely support Bolsonaro sided with the president this time.
“Guedes has no vision. His plan was excessive. He is a banker and as such he can only listen to his own voice,” Simone Tebet, a centrist senator who heads a congressional constitutional committee, said in an interview.
Lower House Speaker Rodrigo Maia, a staunch supporter of fiscal discipline, said Bolsonaro “made the right analysis” of the situation in Congress, adding that it’s difficult to end several social programs in order to launch a new one.
Bolsonaro’s approval ratings have been rising during the pandemic, which has claimed the lives of more than 116,000 Brazilians, largely due to monthly stipends for informal workers and other costly stimulus measures.
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