BRASILIA (Reuters) – Brazil’s President Jair Bolsonaro hit back on Tuesday at accusations his government is using accounting gimmicks to fund a new minimum income program without breaking its spending cap, its most important fiscal rule.
Bolsonaro launched his charm offensive as Brazilian markets wobbled for a second day on fears the spending spree shows he is unwilling to rein in record deficits and debt.
He pleaded with markets for constructive suggestions instead of criticism, pointing out that “everyone” including financial markets will suffer if the economic crisis worsens.
“If Brazil is bad, everyone is bad. Brazil is one. If it has problems, everyone suffers. Market people won’t have any income either,” Bolsonaro said outside his official residence in Brasilia.
“We obviously want to be on good terms with everyone. But I ask you, please help with suggestions, not criticism. When you do criticize someone it should not be the president,” he said.
Earlier, Bolsonaro took to social media to counter criticism he is pushing the scheme with an eye on the 2022 presidential election, while stressing that fiscal discipline and the spending cap are the “rails of the economy”.
“My government seeks to anticipate the serious social problems that may arise in 2021 if nothing is done to meet the needs of all these people who have lost everything, or almost everything,” he wrote on his social media sites.
Alongside Economy Minister Paulo Guedes on Monday, Bolsonaro announced a new welfare transfer program for the poor called ‘Renda Cidada’, an extension and expansion of the current ‘Bolsa Família’ cash transfer program.
Paying for Renda Cidada will involve an accounting maneuver allowing the government to tap into 55 billion reais ($9.7 billion) in the budget earmarked for future court-ordered debt payments to businesses and individuals, and cash set aside for education.
Brazilian stocks and the currency fell, while interest rates futures rose as investors viewed it as an accounting gimmick not to break the spending ceiling fueled by populist, political motives. Markets failed to recover any ground on Tuesday.
Emily Weis, emerging market strategist at State Street in Boston, noted that the pandemic has exposed some of the administration’s “vulnerabilities”, particularly between the market-friendly Guedes and the more populist Bolsonaro.
“It’s a very fine line to walk – providing fiscal support where needed … but at some point it comes to the next stage of the plan, and ‘how do we pay for this? and what does it mean for debt sustainability?” Weis said.
“That risk will extend into next year.”
(Reporting by Lisandra Paraguassu and Jamie McGeever; Editing by Chizu Nomiyama and David Gregorio)