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Brazil Economy Chief Sees Reforms Continuing After 2022 Vote

·4-min read

(Bloomberg) -- Discover what’s driving the global economy and what it means for policy makers, businesses, investors and you with The New Economy Daily. Sign up here.

Brazil’s economy czar has a candid assessment of his three-year relationship with Jair Bolsonaro: both men trust each other and continue to push for key reforms, although the president’s support for his minister’s pro-market agenda has been waning.

Paulo Guedes told Bloomberg News on Thursday that key proposals to overhaul the country’s tax system and curb public-sector costs will be approved this year, as well as bills allowing more privatizations to move forward. Going forward, whomever is elected will have no option other than following the path of reforms to keep the economy growing, he added.

Challenges abound, however, as a congressional probe into the government’s handling of the pandemic consumes lawmakers’ energy. In a few months, attention will turn to next year’s presidential election, while Bolsonaro is increasingly forced to give in to opposing demands from centrist parties in exchange for congressional support.

“Bolsonaro has already supported 98% of the liberalizing agenda and now he’s been supporting 65% of it,” Guedes said during a wide-ranging interview at his office in Brasilia. “I intend to help him carry out this commitment. As long as it’s working, it’s alright.”

Guedes himself looks to 2022 with a liberal attitude. After joining Bolsonaro’s presidential campaign in 2018 with ambitious free-market ideas inspired by the University of Chicago, he now quips about the possibility of backing a candidate who fully endorses his proposals.

“What if a Brazilian Ronald Reagan or Margaret Thatcher shows up, willing to privatize everything? I’d tell the president: Would you mind if I help them?”

Read More: The World’s Most Reluctant Keynesian Spends Big in Brazil

Stronger Real

Guedes, 71, estimated that the real is bound to strengthen as privatizations, investment and structural reforms turn Brazil’s cyclical rebound into a sustained recovery. While a bill allowing the sale of power utility Eletrobras should pass through congress next week, Lower House Speaker Arthur Lira said he will soon detail a work plan for the approval of the tax overhaul.

“As reforms make progress, everybody will see that the currency is mispriced, that it will strengthen,” he said. “The currency had an overshooting and is now finding its equilibrium -- if it’s going to be 5 per dollar, 4.8 per dollar or 3 per dollar... I have my hunch, but I won’t say.”

Read More: Brazil Rushes to Approve Tax Reform Before Presidential Election

The Brazilian currency lost nearly a quarter of its value in 2020 amid investor concerns about excessive public spending during the pandemic. A recent surge in commodity prices, coupled with aggressive interest rate hikes by the central bank and an improved fiscal outlook have helped to shore up the real in the past few weeks. It is now up more than 7% since the end of March, with gains of 0.8% on Friday.

Guedes forecast that Brazil, after suffering a less painful recession than its neighbors last year, will surprise again in 2021 with the creation of 1 million jobs during the first four months of the year.

“Many countries are still on the floor, but Brazil is standing and has started to walk fast,” he said.

The better-than-expected performance should be partly credited to government programs to assist the poor and to protect jobs during the pandemic, according to Guedes. Together, those programs made a hole in Brazil’s budget but what matters is that the administration has managed to keep recurring expenses in check, he said.

Read More: Brazil Economy Outperforms Expectations During Second Covid Wave

See below for other key comments by the minister.

Tax Reform

Bolsonaro and the heads of both houses of congress have agreed to split up into several chapters a proposal to overhaul the tax system in order to speed its progressChanges to income and consumer taxes will be first submitted to the lower houseA proposal to renegotiate tax debts will be first submitted to the senate

Eletrobras Privatization

Bill allowing the privatization of power utility Eletrobras is likely to be approved next week, according to GuedesDiscussion was delayed because lawmakers tried to make unwelcome, last-minute changes to the text

(Updates ninth paragraph with real’s gains on Friday.)

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