Brazil’s Economy Chief Fights Back to Keep Control Over Budget

(Bloomberg) -- Brazil’s economy minister is fighting to retain control over the budget as pressure for government spending grows amid the coronavirus pandemic and a political crisis triggered by the resignation of a key member of President Jair Bolsonaro’s cabinet.

For now, Paulo Guedes seems to have gotten the upper hand as Bolsonaro determined that a 10-year economic recovery plan unveiled last week without the minister’s approval be restructured to conform with his strategy, which relies on private investment and privatizations, according to three people familiar with the discussions.

The plan announced by Bolsonaro’s Chief of Staff Walter Braga Netto was likely to involve at least 30 billion reais ($5.4 billion) in public investment in infrastructure to generate “millions of jobs” after the pandemic was over. The idea quickly got the backing of centrist parties which Bolsonaro has been reaching out to as he seeks congressional support during a political firestorm caused by the resignation of Sergio Moro as justice minister on Friday.

Read More: Brazil’s Recovery Plan Shows Cracks in Bolsonaro-Guedes Relation

The departure of the former star judge, who lent weight to Bolsonaro’s anti-corruption credentials, left investors worried that another key pillar of his government -- Guedes’ market-friendly and liberalizing reforms -- was also at risk. Yet on Monday Bolsonaro publicly supported his minister, telling reporters outside the residential palace that “the man who decides about the economy is just one: Guedes.”

Spending Cap

That means Guedes will assume a key role in the recovery program and will adjust it accordingly, the people said, requesting anonymity because the discussion isn’t public.

Crucial for Guedes is the maintenance of a law that came into effect in 2017 and froze public spending for a decade, said a close aide to the minister. While Guedes remains at the helm, there’s no possibility that the law will be changed, the person said, asking not to be identified while discussing the minister’s thinking.

Speaking alongside Bolsonaro on Monday, the minister said the so-called spending ceiling is “what protects us against the storm.”

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