The Economy Minister shows his hand

Jair Bolsonaro (L) and Economy Minister Paulo Guedes Jair Bolsonaro (L) and Economy Minister Paulo Guedes

It has been a recurring theme in the Brazilian political news cycle: Congress and the government are staging a tug of war, and President Jair Bolsonaro has done little to calm the nerves. This week, the lower house even began deliberating on a tax reform bill without consulting the Economy Ministry. The proposal will be dead on arrival unless the government backs it up—but the move was an effective display of strength from the Legislative branch. Today, Economy Minister Paulo Guedes is apparently trying a similar display of his own.

A risky bet, one might add.

</span></p> <p><span style="font-weight: 400;">The minister gave an </span><a href=";utm_campaign=news_veja_noticiasdamanha&amp;utm_medium=email"><span style="font-weight: 400;">interview</span></a><span style="font-weight: 400;"> to Brazil&#8217;s leading weekly publication </span><i><span style="font-weight: 400;">Veja</span></i><span style="font-weight: 400;">, in which he essentially threatens to resign should Congress water down his pension reform bill. Mr. Guedes also painted a dreadful picture of Brazil&#8217;s future should the House fail to approve the reform before its mid-year recess—going as far as comparing Brazil to Argentina (a country which has recorded a 55-percent </span><a href=""><span style="font-weight: 400;">inflation</span></a><span style="font-weight: 400;"> rate over the past 12 months) and Venezuela (which has experienced a full-scale collapse rarely seen in South America).</span></p> <p><span style="font-weight: 400;">While Mr. Guedes </span><i><span style="font-weight: 400;">does</span></i><span style="font-weight: 400;"> have a point in several of his arguments, one should question the timing of this interview. Though he has shown a lack of political savvy in the past, it doesn&#8217;t take an expert to realize that this might not the moment to go &#8220;all-in&#8221; and try cornering a rebellious Congress. </span></p> <p><span style="font-weight: 400;">An all-or-nothing move only works for powerful ministers. And, as we explained in our March 9 </span><b>Weekly Report</b><span style="font-weight: 400;"> (for Gold and Platinum subscribers), Mr. Guedes cannot even be considered the most powerful member of the cabinet. Despite being called by a &#8220;super minister&#8221; by President Bolsonaro after the </span><a href=""><span style="font-weight: 400;">2018 election</span></a><span style="font-weight: 400;">, reality after the inauguration has been quite different. On several occasions, Mr. Guedes has lost internal battles—namely concerning his efforts to lift protectionist tariffs and make the Brazilian market more open to the world.</span></p> <p><span style="font-weight: 400;">And that&#8217;s not to mention the demonstrations scheduled for Sunday—which should take tensions between the Executive and Legislative branches of government to a new high, regardless of the event&#8217;s outcome. </span></p> <p><span style="font-weight: 400;">A recent survey from investment bank XP has shown that the population is increasingly blaming the Jair Bolsonaro government for Brazil&#8217;s economic woes. In the space of two weeks, the percentage of Brazilians who believe the country&#8217;s fiscal problems are down to the sitting administration has doubled, going from 5 to 10 percent.</span></p> <p><span style="font-weight: 400;">The same poll shows that 36 percent classify the Bolsonaro government as &#8220;bad or terrible,&#8221; outweighing his approval ratings, which sit at 34 percent. It is developments such as these which will increase Congress&#8217; leverage in this tug-of-war, making Mr. Guedes&#8217; power play all the more dangerous.</span></p> <p><span style="font-weight: 400;">For the past six months, Paulo Guedes has lived in a hotel in Brasília—a way of showing his detachment from the city and from his position. His interview could mean he&#8217;s ready for early checkout.</span></p> <h2>The main takes of the Paulo Guedes interview</h2> <ul> <li style="font-weight: 400;"><span style="font-weight: 400;">The pension reform, says the minister, does not only aim at giving balance to public finances. It also seeks to correct distortions that allow public servants to retire before turning 65—with a salary up to 20 times higher than the average salary for regular Brazilian workers.</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">He believes that, should the lower house pass the reform before leaving on holiday, it could kickstart a virtuous cycle that could take Brazil to a new social and economical stage. Otherwise, it will be the beginning of a collapse that will take the country into a state of convulsion. &#8220;If we don&#8217;t approve the reform soon enough, the country will burn to the ground. We won&#8217;t even have the money for current salaries. And the markets won&#8217;t wait for long—they&#8217;ll soon bail on Brazil. The U.S. Dollar will spike, the stock market will take a nosedive, and politicians could start working towards an impeachment. In the short term, we could become an Argentina, with 30-40-percent inflation. In the medium-term, that is, before [Mr. Bolsonaro&#8217;s] term is over, a Venezuela, with supply issues, sky-high inflation, zero investment, high unemployment, delayed salaries &#8230;&#8221;</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">But Mr. Guedes won&#8217;t be here to witness that scenario, if it comes to that. &#8220;I&#8217;ll hop on a plane and go live abroad,&#8221; he told </span><i><span style="font-weight: 400;">Veja</span></i><span style="font-weight: 400;">. &#8220;I&#8217;m already old enough to retire.&#8221;</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">Once called the &#8220;economic tsar&#8221; of the government, Mr. Guedes said he mulled over not even taking office in January. That&#8217;s because President Bolsonaro refused to lobby in favor of the pension reform last year, as president-elect. In Mr. Guedes&#8217; mind, trying to get the bill voted on during the previous administration would allow the current government to collect the political benefits of it—as it would have been the broker of the reform—while preserving itself from the popularity hit that overhauling the social security system always brings.</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">Despite all the political convulsion in only five months into his term, though, the Economy Minister gives the president a grade of 7.5 out of 10. </span></li> </ul> <p><span style="font-weight: 400;">

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Gustavo Ribeiro

An award-winning journalist, Gustavo has extensive experience covering Brazilian politics and international affairs. He has been featured across Brazilian and French media outlets and founded The Brazilian Report in 2017. He holds a master’s degree in Political Science and Latin American studies from Panthéon-Sorbonne University in Paris.