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Brazil’s Guedes says political conflict is affecting the economy

BRASILIA, Aug. 20 (Reuters) – Brazil’s Economy Minister Paulo Guedes said Friday that political conflict is contaminating the economy, overshadowing positive news about economic growth and the prospect of a much smaller primary budget deficit next year.

Guedes spoke to investors when the country’s political climate became even more tense after far-right President Jair Bolsonaro addressed the Senate on Friday to indict a Supreme Court judge. Critics have accused Bolsonaro of sowing doubts about the Brazilian electoral system so that if he loses he can question next year’s election results.

The political clashes are getting worse, said Guedes.

“There is a lot of political noise – understandable, but it has to be reduced,” said Guedes.

Guedes also said the budget deficit would decrease to 0.3% of GDP in 2022, compared to 1.7% this year.

Previously, Special Finance and Budget Minister Bruno Funchal said on the legal news website Jota that there was scope to reduce the primary budget deficit in 2022, which is currently set at 170 billion reais.

Brazil can expect a budget surplus in 2023 as the economy begins to grow again and recovers from the COVID-19 pandemic, Funchal said.

However, Funchal said fiscal uncertainty has caused market turmoil in recent weeks as the real currency weakened against the dollar as investors worry about the national debt and judicial payments the government owes.

Funchal said any increase in those liabilities is now the biggest challenge facing the Treasury Department, which if left untreated, will hurt spending on social programs and other government policies.

The 2022 budget that the Department of Commerce will submit to Congress will include paying reais 89 billion ($ 16.57 billion) in court-ordered obligations, and discretionary spending needs to be reduced to accommodate this, Funchal said. Discretionary spending is forecast at 120 billion reais next year, Funchal added.

Funchal said the 2022 budget will allocate reais 35 billion to the Bolsa Familia welfare program for Brazil’s poorest families, as much as this year.

Guedes said the program’s monthly payments to Brazil’s poorest families will increase to an average of around 300 reais in 2022. Guedes webcast assured investors that this would stay within the constitutionally mandated spending limit.

($ 1 = 5.3711 reais)

Reporting by Marcela Ayres; Editing by Jonathan Oatis and Will Dunham

Our Standards: The Thomson Reuters Trust Principles.

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