Brazil’s Finance Minister vows to “fight to the end” to save reforms

Brazil’s Finance Minister vowed to “fight to the end” to promote his iconic liberal reforms, despite Investors are paying more and more attention The administration of President Jair Bolsonaro has largely abandoned efforts to reform the economy before next year’s elections.

In an interview with the Financial Times, Paulo Guedes refuted the prediction that Latin America’s largest economy will return to recession next year, saying that his critics’ predictions have been wrong.

“We will once again surprise the world,” the minister said shortly after returning from his trade and investment mission in the Gulf region. “I’m not bragging about Brazil, I’m just saying that you have always underestimated us.”

Thanks to one of the largest government stimulus programs in developing countries, Brazil’s economy is expected to grow by more than 5% this year, recovering from a 4.1% contraction last year, and outperforming most parts of Latin America.

Guedes said that with the help of the private sector’s investment commitments of more than 100 billion U.S. dollars, the country has entered a “V-shaped” recovery, which will grow by 2.1% next year.

He refuted the local bank’s prediction that recently Radical rise in interest rates By the central bank Fight against inflation The increasing market turmoil leading up to the presidential and congressional elections in October 2022 will cause the economy to stagnate or shrink.

“certainly [the banks] wrong. Either they are wrong, or they are politically warlike. They are trying to influence the election. .. They still did not accept the election of Bolsonaro,” he added.

“Brazil is more likely to achieve some growth and elastic inflation [next year] Rather than lower inflation and no growth”.

Geddes, a former investment banker who was educated at the University of Chicago under Milton Friedman, won praise from the market when he took over as the head of a “super department” composed of multiple departments in 2019.

Investors like his ambitions for large-scale structural reforms, his pressure on fiscal integrity, and his commitment to control Brazil’s swelling public debt. But after some successes such as cutting government pension costs, privatizing assets of about 200 billion reais (US$35.6 billion), and granting central bank independence, Geddes’ commitment to fiscal discipline is now being questioned.

The Bolsonaro government is seeking Congress to approve a constitutional amendment that will bypass the mandatory spending ceiling to help pay for increased spending. Distributed cash to 14.6 million Brazil’s poorest families Before the election.

The legislative action triggered several key points Ministry of Finance official resigned last month And triggered a violent market reaction, the Brazilian real against the US dollar fell to close to the historical low of 5.5.

Guedes denied Bolsonaro’s new cash transfer plan, Brazil aid -He describes it as the “Milton Friedman minimum income concept”-shows that he has given up financial integrity.

“They put pressure on me [saying] “Oh, Paulo Guedes is becoming a populist.” No, that’s it,” he said, pointing to a department’s forecast, which shows that next year government spending will fall to 18.4% of GDP, and the spending ceiling will be broken instead of the 17.5% previously predicted. “We’re talking about it. The pace of fiscal adjustment has slowed. “

Guedes believes that the market has yet to realize that most of the additional expenditures are unexpected due to the sharp increase in the amount of government debt ordered by the court to be repaid. He described this development as a “meteor from outer space” that “flew over” the previous government and then “suddenly decided to fall on us.”

Wall Street economists don’t believe it. Alberto Ramos, chief Latin American economist at Goldman Sachs, said in a report: “Recent budget developments have greatly weakened the credibility and effectiveness of the main fiscal pillar, the constitutional spending ceiling. “

Mauricio Molon, chief economist at Logus Capital in Sao Paulo, stated that Geddes is “a very smart man with a liberal view of the economy, and he believes he will become the leader of Bolsonaro’s government. A powerful minister under. But it turns out that politics has the upper hand, and now he is a lame duck.”

After more than a dozen assistants left in the past two years, the minister’s image has become even more lonely, but he is still determined to continue to promote his liberal reforms until Bolsonaro’s term ends.

“This year we still have a chance” to pass tax reforms,” ​​he said. When it comes to the sell-off of Eletrobrás, the largest power company in Latin America, “we will fight to the last day.” Regarding changes to new government employee contracts, “we will fight to the end.” “.

But many initiatives remain in Congress. Analysts believe that as the election approaches and his Poll ratings drop, Bolsonaro will not spend precious political capital on potentially unpopular projects.

Despite headwinds, Geddes remains bullish, saying investors have failed to recognize the scale of the changes taking place in his country.

“We are changing the axis of the Brazilian economy. After 40 years of government-driven growth, we are moving towards private sector growth-it is decentralized, it is universal, and everything is over. The wind is over. [power], Oil, natural gas, electricity, coastal transportation, railways, airports, seaports, everywhere. “

As for the center-left opposition, “they keep beating the drums [saying] ‘This year will be a crash’. without crashing. ..’Next year will be a disaster’. Forget about it. This will not happen. “

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