President Jair Bolsonaro is bad for the Brazilian economy

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IN SEPTEMBER 2019 Paulo Guedes, Brazil’s economy minister, told Congress he could “make history” by keeping the budget in check, adding that “the political class should not run after ministers, begging for money “. Now, Guedes is backing a sneaky attempt by the government to sidestep the constitutional ceiling on public spending set in 2016, which was a crucial step towards getting the country’s finances back on track. He and Jair Bolsonaro, the president, president not only to a return to fiscal incontinence, but also to other economic ills that have plagued Brazil: rising inflation, high interest rates and weak growth. And the budget shenanigans have in turn created uncertainty about the future of the country’s flagship social program.

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In the 2018 election, Mr Bolsonaro’s alliance with Mr Guedes, a free market economist, went a long way in persuading businessmen to vote for a former hard-right army officer who did not had never shown any interest in liberal economics before. Mr. Guedes promised a radical reform of the inflated and ineffective Brazilian state. But that commitment only resulted in some useful savings on pensions, legal independence from the central bank, and minor regulatory simplifications. Now the reform campaign is over, replaced by Mr Bolsonaro’s race for money to buy political support and popularity.

To avoid impeachment for his mismanagement of the pandemic and the misdeeds of his family (which they deny), Mr. Bolsonaro has allied himself with the center, a grand coalition of conservative lawmakers. When covid-19 hit, the government declared a “state of calamity”, allowing it to offer large temporary handouts despite the spending cap. Poverty fell in Brazil in 2020, bucking the regional trend, and Mr. Bolsonaro’s popularity increased. In March, the government won an emergency constitutional amendment, cutting a hole in the spending ceiling, to at least allow some payments to continue. Now, the president’s plunging approval rating is reducing his chances of a second term in next year’s election.

A new constitutional amendment would punch two more holes. This would allow the government to delay court-ordered payments (such as reimbursement of excess taxes collected). And it would exploit a recent jump in prices by indexing the budget to December’s annual inflation rate (likely above 10%) rather than June’s (8.4%). These changes would give the government an additional 100 billion reais ($ 18.2 billion) to play with next year, believes Marcos Mendes, a former Senate economic adviser.

Part of this money would go to Auxílio Brasil, a revamped poverty alleviation program. This will integrate Bolsa Família, the anti-poverty program launched in 2003 by then-president Luiz Inácio Lula da Silva. But that will add complexity and uncertainty, notes Marcelo Neri, poverty specialist at the Getulio Vargas Foundation, a think tank. The government has increased the average permanent benefit by 18% to R $ 217 per month. However, Mr Neri points out that inflation had eroded 32% of its real value since 2014. Mr Bolsonaro also pledged a temporary bonus, so that the 17 million families in the program will receive at least 400 reais per month, but only until December 2022. It is no coincidence, it is just after the elections.

Another large chunk of the extra money would go to lesser causes, including around R $ 18 billion to fund opaque budget amendments that award overvalued government contracts to individual lawmakers in return for supporting Mr Bolsonaro. This is an innovation designed by the center. This week, a majority of the Supreme Court declared these secret clauses illegal. That did not prevent the lower house of Congress from approving the constitutional amendment on November 9. We do not know if it will go through the Senate.

In all cases, there will be costs. A defeat would cast doubt on the funding of Auxílio Brasil in the future. But the victory would be Pyrrhic. Four of Mr Guedes’ main aides resigned last month because they opposed the amendment (the official gloss was for “personal reasons”). Concerns about fiscal policy are the “main driver of inflation,” says Zeina Latif, an economist in São Paulo. The spending cap was intended to halt the relentless rise in public spending to satisfy insiders, which is neither redistributive nor effective in overcoming bottlenecks that hold back growth. His weakening shows that Mr. Bolsonaro is not only bad for the environment, for human rights and for democracy, but also for the Brazilian economy.

This article appeared in the The Americas section of the print edition under the headline “Following the Money”


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