Brazil to Resume Reforms After Virus, Deputy Economy Chief Says
Brazil to Resume Reforms After Virus, Deputy Economy Chief Says
(Bloomberg) -- Economy Minister Paulo Guedes will resume his push for economic reforms, including an overhaul of Brazil’s complex tax system, as part of a strategy to create jobs in the aftermath of the coronavirus crisis, according to his deputy.
Marcelo Guaranys said government plans to reduce public spending and facilitate investment will be needed more than ever in the post-pandemic period, and that those broad-based efforts should not be replaced by a policy of granting benefits to only specific sectors of the economy.
“After the crisis, we will be in trouble. How are we going to unlock the economy? Creating benefits for the same sectors as always or structuring measures for everyone to win?” Guaranys said in an interview.
Even though the outbreak has wreaked havoc on Brazil’s economy, Guedes’ reform agenda is still in place, he added. “The diagnosis of what needs to be done has not changed. It involves tax, administrative and fiscal reforms, trade opening and regulatory improvement.”
The fiscally conservative minister is under intense pressure to loosen the purse strings to boost the economy, as the number of Covid-19 cases continues to surge in Brazil and President Jair Bolsonaro’s popularity begins to decline. The government is providing help to companies and informal workers during the crisis through emergency loans, and as a result public debt is rising fast.
The Economy Ministry has already spent 400 billion reais ($75 billion) in pandemic-related efforts, causing the primary budget deficit to balloon to around 675 billion reais ($126b) this year. Gross debt stood at 79,7% of gross domestic product in April and could reach 90% of GDP by the end of the year, according to the Economy Ministry’s estimates. The outlook is challenging because a “fear factor” around returning to work could persist into 2021, Central Bank President Roberto Campos Neto said during a press conference Friday.
Read More: Brazil April Net Government Debt Rises to 52.7% of GDP
Staying the Course
A series of political scandals in the Bolsonaro administration have dominated the news cycle in Brazil, but Guaranys said that won’t stop the Economy Ministry from pushing through reforms. Although within the government there are divergent opinions about the right economic strategy, he said Bolsonaro remains faithful to Guedes.
“Political problems create a smokescreen, but do not effectively contaminate the economic environment,” Guaranys said.
Two important signals suggest harmony between the executive and his economic team, according to Guaranys. On Thursday the president kept a promise to Guedes by vetoing a bill that could have increased public service wages through 2021. And in a video of a private cabinet meeting, Bolsonaro is heard strongly supporting the minister and his view that the economic recovery must come from private investment.
Ballooning unemployment figures could strip away any friction reforms might otherwise have run into, according to Guaranys. Nearly five million jobs were lost during the trimester ending in April, according to IBGE data published Thursday. Brazilian policy makers usually hit resistance when reducing workers’ benefits, such as the traditional payment of an extra month’s salary at the end of the year. But Guaranys said those efforts will be cast in new light as millions of people lose their livelihoods.
“Can’t I do it for this huge mass of unemployed?” he asked. “What is the point having these rules if we have 13 million unemployed in the country?”
Pessimism could lay the groundwork for reform as well. In a recent poll, 68% of Brazilians believe the crisis will impact the country’s economic productivity for a long time, versus 56% in April, according to Datafolha.
“All we have to do is to build the correct narrative,” said Guaranys.
Plan Forward
Despite the crises, Brazil is still a huge market in need of investments in infrastructure. “Capital will understand that,” he said, mentioning the success of airport auctions for the private sector amid the political turbulence caused by the Carwash anti-corruption probe that began in 2014.
Meanwhile, the ministry is evaluating the extension of an emergency assistance program for informal workers - its most visible economic plan to combat the crisis. Guaranys said such programs depend upon the country’s fiscal situation after June and must not become permanent or else risk “contaminating the future.” Emergency aid costs Brazil 50 billion reais per month.
Congress is stacked with pending bills that could signal legislators’ openness to Guedes’ plan forward, such as a bankruptcy bill aimed at helping companies pay off their debts and a bill that accelerates the sale of state-controlled companies. Guaranys pointed in particular to a reform that would create payroll tax exemptions as a fix for unemployment, since people would be more likely to get jobs if the contracts were more flexible.
Read more: Ten Bills Test Brazil’s Congress Appetite for Economic Reforms
Although the Treasury is considering using Central Bank profits and taking out loans to finance measures against the crisis, Guaranys said there is no concern about public debt management.
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