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 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 privatisations 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 liberalising agenda and now he’s been supporting 65% of it,” Guedes said during an 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, 71, estimated that the real is bound to strengthen as privatisations, 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.”
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%.
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.