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Bolsonaro clips wings of Guedes as generals unveil stimulus – Metro US

Bolsonaro clips wings of Guedes as generals unveil stimulus

Brazil’s Economy Minister Paulo Guedes attends a news conference, amid
Brazil’s Economy Minister Paulo Guedes attends a news conference, amid the coronavirus disease (COVID-19) outbreak in Brasilia

BRASILIA (Reuters) – Brazil is drawing up a new wave of fiscal stimulus in its battle against the economic ravages of the new coronavirus, but the most notable aspect may be what is missing: the fingerprints of Economy Minister Paulo Guedes.

The “Pro-Brazil” plan for investment in ​​infrastructure, mining, energy and regional development was announced at a Wednesday news conference by Presidential Chief of Staff Walter Braga Netto, an army general, alongside Infrastructure Minister Tarcisio Freitas, a former army engineer.

Guedes was nowhere to be seen, stirring questions in Brasilia about President Jair Bolsonaro’s commitment to fiscal discipline and boosting private investment over public spending.

Although the “Pro-Brazil” program is still in early planning stages, with no spending targets announced, two people familiar with the matter said that investments by the infrastructure ministry alone could rise to 30 billion reais ($5.5 billion), up from 18 billion reais in its current three-year budget.

At around 0.4% of gross domestic product, that is not particularly big in economic terms. But it could pack a much heavier political punch: the latest indication that the military influence in Bolsonaro’s cabinet is on the rise, and the influence of ‘super minister’ Guedes is on the wane.

“Symbolically, yesterday was a terrible moment for Guedes,” said Creomar de Souza, founder of Brasilia-based consultancy Dharma Political Risk And Strategy. “It looked like Bolsonaro and the military are now deciding economic policy and that Guedes is no longer the most important voice on these issues.”

Privatization czar Salim Mattar, who reports to Guedes, said the plan announced by Braga Netto “is a little different from the Economy Ministry’s plans.”

When asked on Wednesday evening why Guedes was not at the unveiling of the “Pro-Brazil” plan, after departing a cabinet meeting early, Bolsonaro said that Guedes “participated a little and will participate quite a bit next week.”

Guedes, who rolled together the authorities of three ministries into one, was heralded as one of the far-right president’s two ‘super ministers’ whom the former army captain turned to on taking office in January last year.

The other high-profile civilian member of the cabinet, Justice Minister Sergio Moro, has spearheaded Bolsonaro’s ‘law and order’ agenda, but threatened to quit on Thursday if the president swapped the head of the federal police, a source said.

DIVISIONS EXPOSED

Public investment and state enterprises, which Bolsonaro and the generals in his cabinet have traditionally supported, is anathema to Guedes. The current crisis, and debates over how best to respond to it, has exposed these divisions.

What Guedes represents for economic policy has been clear from the outset: sweeping reforms to shrink the state, overhaul the pension system, privatize state firms, deregulate the economy and reform the tax system to spur private-sector growth, attract foreign investment and spark a long-awaited recovery.

The economic fallout from the coronavirus pandemic has frozen that agenda and forced the government to roll out emergency stimulus, even as Guedes warned it would be fleeting.

The sum of all fiscal measures and pledges so far to protect jobs, companies and commerce amounts to around 1 trillion reais. The government expects its 2020 primary budget deficit to reach at least 600 billion reais, about 8% of gross domestic product.

Guedes and senior members of his team have repeatedly said this spending splurge is a one-off and that the fiscal brakes will be applied again in 2021 once the crisis has passed.

Otherwise, he has warned, so-called “Brazil risk” could rear its head again, sending foreign investors to the exits, the currency plunging and interest rates sharply higher.

“Guedes is not going to go along with this idea of state-funded investments. If he does, it will be a humiliating defeat,” said Jose Francisco Goncalves, chief economist at Banco Fator in Sao Paulo.

The building block of the government’s fiscal policy is its spending cap, which limits growth in the annual budget spending to the previous year’s rate of inflation. Guedes and colleagues have said repeatedly that it will not be touched.

But on Wednesday, when asked if it could be altered to fund “Pro-Brazil” investments, Bolsonaro said “nothing is ruled out.”

(Reporting by Jamie McGeever and Lisandra Paraguassu; Additional reporting by Marcela Ayres; Editing by Brad Haynes and Alistair Bell)