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President Jair Bolsonaro is bad for Brazil’s economy

November 13, 2021

IN SEPTEMBER 2019 Paulo Guedes, Brazil’s Economy Minister, told Congress that he could “make history” by keeping the budget under control, adding that “the political class should not hunt ministers and beg for money”. Now Mr Guedes supports a sneaky attempt by the government to bypass the constitutional limit on public spending in 2016, which was a crucial step in reorganizing the country’s finances. He and President Jair Bolsonaro are presiding not only on the return to fiscal incontinence, but also on other economic problems that plagued Brazil: rising inflation, high interest rates and low growth. And budget tricks, in turn, have created uncertainty about the future of the country’s most important social program.

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In the 2018 elections, Bolsonaro’s alliance with free-market economist Guedes did a lot to convince businessmen to vote for a former hard-right army officer who had never shown interest in liberal economics. Mr. Guedes promised a radical reform of the swollen and inefficient state of Brazil. That promise, however, has only resulted in some useful pension savings, central bank legal independence, and minor regulatory simplifications. Now the reform offensive is over, replaced by Bolsonaro’s scramble for money to buy political support and popularity.

To avert an impeachment for his mismanagement of the pandemic and his family’s misdeeds (which they deny), Mr Bolsonaro allied with the Centrão, a grand coalition of conservative pig barrel lawmakers. When Covid-19 struck, the government declared “a state of disaster” and allowed it to offer large temporary handouts despite the spending c -. Poverty fell in Brazil in 2020, contrary to the regional trend, and Mr Bolsonaro’s popularity rose. In March, the government won an emergency constitutional amendment that punched a hole in the spending c – to allow at least some payments to continue. Now the president’s declining  -proval rating reduces his chances of a second term in next year’s elections.

A new constitutional amendment would punch two more holes. This would allow the government to postpone court-ordered payments (such as refunding excess taxes). And it would take advantage of a recent surge in prices by indexing the budget to December’s annual inflation rate (probably over 10%) rather than June (8.4%). These changes would earn the government an additional 100 billion reais ($ 18.2 billion) next year, estimates Marcos Mendes, a former Senate economic adviser.

Some of this money would go to Auxílio Brasil, a revised poverty reduction program. This also includes Bolsa Família, the successful poverty reduction program launched in 2003 by then President Luiz Inácio Lula da Silva. But it will make it more complicated and unsafe, notes Marcelo Neri, a poverty specialist with the Getulio Vargas Foundation, a think tank. The government has increased the average sustained benefit by 18% to 217 reais per month. However, Mr Neri points out that inflation has eroded 32% of its real value since 2014. Mr Bolsonaro has also promised a temporary bonus so that all 17 million families in the system will receive at least 400 reais per month, but only until December 2022. Not coincidentally, this is shortly after the election.

Another large chunk of the extra money would be used for less worthy causes, including around 18 billion reais to fund obscure budget changes given to individual lawmakers in return for their support for Mr Bolsonaro overpriced public contracts. These were an innovation of the centrão. This week a majority in the Supreme Court ruled these secret clauses illegal. That didn’t stop the House of Commons of Congress from  -proving the constitutional amendment on November 9th. It is unclear whether it will get through the Senate.

In any case, there are costs. A defeat would call Auxílio Brasil’s future funding into question. But victory would be Pyrrhus. Four of Mr. Guedes’ senior staff resigned last month because they opposed the change (the official gloss was for “personal reasons”). Fiscal policy concern is the “main fuel of inflation,” says Zeina Latif, an economist in São Paulo. The purpose of the spending c – was to stop the relentless surge in public spending to please insiders, which is neither redistributive nor efficient in overcoming the growth-inhibiting bottlenecks. His weakening shows that Mr Bolsonaro is not only bad for the environment, human rights and democracy, but also for Brazil’s economy.

This article  -peared in the The Americas section of the print version under the heading “Following the money”

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