One of the hallmarks of the president of Brazil, Jair Bolsonaro, is that he speaks clearly, without the typical euphemisms of politicians. Seven words were enough for him this Tuesday to describe the economic situation: “Brazil is bankrupt, I can’t do anything,” he roared before his followers. The largest Latin American economy is suffering from a deep fiscal crisis, intensified by the large aid that the Government injected into the pockets of the poorest third of the citizenry and into companies as soon as the coronavirus crisis began. Bolsonaro and his Cabinet open 2021 with a huge hole in the public accounts that minimizes their room for maneuver.
The ultra-liberal Minister of Economy, Paulo Guedes, has pointed out that the problem lies in the public sector. The public debt closed 2020 with a record figure, around 100% of GDP, according to the International Monetary Fund. That is, much more than any of its Latin American neighbors (except Argentina) and in line with the US or some European countries. The Brazilian State had come from accumulating debt. It was around 90% last year. The sudden arrival of the coronavirus dynamited the timid recovery and all expectations. The deficit has shot up to 11.7% of GDP, also a record.
Within the Government there are discrepancies on the strategy to face the devilish situation with inflation on the rise and the real collapsed against the dollar. Minister Guedes wants to resume the economic reform agenda while the military is committed to prioritizing the expansion of spending to reactivate the economy that, after the spectacular boom in raw materials, went through a recession and remained limping until the onslaught of the pandemic.
The new year has brought the end of the state of national calamity in Brazil, with the consequent reinstatement of the spending ceiling, along with cuts. Emergency aid for those who lost their informal jobs due to the pandemic (600 reais a month, $ 110 at first, then half) ended.
While the richest Brazilians enjoy summer vacations, 48 million poor people received in December the last pay that has allowed their families to survive these months thanks to one of the most generous programs in the world against the effects of the pandemic. More than 77,000 million euros has cost the public coffers. The end of the subsidy coincides with an increase in deaths from coronavirus, and restrictions, with which the situation has explosive power.
Bolsonaro made those statements – exaggerated according to economics specialists – just on the day of his return to work after 17 days without an official agenda and a vacation on the coast, with a beach dip and a denial joke included. The president once again blamed the press for “enhancing the (impact of the) virus.” Given the impact of his words, this Wednesday he said that Brazil “is doing great” in addition to summoning his cabinet to talk about numbers. On Tuesday they addressed the vaccination, but they still do not set a date.
The coronavirus hit on the Brazilian economy has been less than in neighboring countries thanks to the rain of public reals. The World Bank has estimated this Tuesday that in 2021 the economy will grow 3%, but unemployment is increasing rapidly (14%) and inflation closed the year with 4.2%. Upon returning to office, Bolsonaro attributed the high unemployment figures (for Brazil’s levels) to the fact that “a considerable part (of the population) is not prepared to do almost anything.”
The chaotic management of the pandemic is an obstacle. The authorities trust that the vaccine will arrive in January but certainties, none. So the prospects are bad. “I am very concerned about the behavior of the Government, which is not knowing how to plan vaccination. This year, the vaccine is the main instrument to generate employment and make the economy grow ”, said the public finance specialist Guilherme Tinoco a few days ago. leaf.
The government has not yet managed to approve a budget for this year. But like the previous one, almost all public money is already committed: it will go to pay the pensions and salaries of civil servants. “The cut in discretionary spending to meet the spending ceiling will have to be such that there will only be two options: breaking the ceiling or the risk of shutdown (suspension of services) ”, according to Felipe Salto, from the Independent Fiscal Institute, reports Heloísa Mendonça.
Retirements are a huge, practically unsustainable burden that should be alleviated thanks to a reform approved last year, the great political goal of Bolsonaro’s first year. Among other measures to cut some of the privileges of the most favored, it introduced a minimum retirement age.
The pension reform was part of an ambitious economic liberalization package that, with the epidemic, became secondary. It included privatizations, but after half of Bolsonaro’s term, not a single public company has been sold. The priority of the Government, which won the elections with the promise of thinning the State, went on to inject public money to mitigate the economic collapse.
Tax and administration reforms
Congress slowly processes fiscal and administration reforms, but expectations have cooled. They would carry political cost and Bolsonaro already has his sights set on re-election. The prosecutor intends to simplify the current baroque system that includes six consumption taxes. It is the country in the world where a company needs to spend the most time paying taxes: 1,500 hours a year, according to the OECD. That’s 62 full days. Triple the club average.
Guedes’ economic team insists that structural reforms and privatizations are crucial to raising more. That would alleviate the multiple needs, the immediate ones of the health crisis and the chronic ones of poverty. Paradoxically, the emergency aid against the coronavirus has reduced extreme poverty and poverty to a minimum, but it will be an ephemeral effect because now that the aid has ended, the rebound is going to be extremely painful for millions of poor people. It is enough to go outside to see how families asking for money to eat have proliferated in recent weeks.
Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.