Brazil: bankruptcy is the leadership and rationality of the president

In a country with budget constraint and budget deficit and public debt increasingly, all citizens can expect from their government is a set of responsible measures and highly calculated statements from their authorities to avoid investor and consumer panic. A behavior that has been repeated historically in all regions of the world in an equivalent situation. But in the Brazil led by the former army captain Jair Bolsonaro what is sane and rational is not valid for public accounts or for other serious challenges, such as the pandemic of Covid-19 and the Deforestation. “Brazil is in bankruptcy», The president surprised last Tuesday when he was questioned at the entrance of the Alvorada Palace by one of his followers on why his leadership did not adjust the minimum tax-free income. “I can not do anything”he added dramatically, and immediately blamed the press.

No, Brazil is not bankrupt. The bankruptcy of the country is on another level: the leadership of the national executive, which accumulates the worst adjectives known in good Portuguese. It is true that you can come to a bankruptcy situation in the future if there is no responsibility in the management public accounts. The country entered 2021 without the draft budget approved by Congress, which will vote it only after the new presidents of the two Chambers are known. But the year has started anyway no external public debt, with a high level of international reserves –US $ 356,000 million– and surplus of the external trade balance. However, the budgetary horizon is far from balanced. Only effective management, without magic and populist solutions, can prevent budget overruns from further damaging the real economy, the ability to attract investment and the lives of unemployed and vulnerable Brazilians.

It is clear that Bolsonaro could have done a lot in this area. On the contrary, he tied the hands of his Minister of the Economy, Paulo guedes, in all that was linked to much-needed reforms, such as the tax and the administrative, as well as its privatization program. Guedes has been trapped in the president’s political labyrinth and by the inevitable increase in public spending to deal with the pandemic. Above all, he focused on extinguishing the fires and lost himself in their structural challenges. He could have clashed openly with the president, but he submitted to the boss.

Brazil’s public debt has reached a 93.3% of GDP in 2020 and will soon reach 100%. Privatization can reduce this staggering level, but the president never had the liberal beliefs he propagated in his campaign rallies. Guedes set a primary deficit target for the federal government of R $ 247,000 million by 2021, approximately 45 billion dollars, but it is not clear how he will meet it without exceeding the Expenditure Limit Act, something that could lead the president to face a process of Accused like the one who retired from power Dilma Rousseff in 2016.

The super minister no longer sees any prospect of approval this year of the reform of the Brazilian fiscal madness, which thwarts the prospects for investment in the productive sectors, in particular the national industry. As an alternative, it relies on an administrative reform which will not affect the profits of current public officials – therefore, with a limited capacity to immediately reduce expenditure – and on an emergency reform which makes it possible not to respect the ceiling set by the law. Without this last approved measure, the government will only have 92,000 million R $, approximately 16 billion dollars, in non-compulsory expenses. All other resources will already be committed in areas from which it cannot escape, under penalty of violating the Constitution. But weakening this law will not be without consequences for investments.

This scenario can still get complicated. The first budget estimates from the Ministry of the Economy are not only outdated due to the increase in the minimum wage –solo R $ 55– and by the interest rate on federal bonds, which have an impact on social security charges and the costs of the public debt. Liberal Guedes verified the validity of emergency aid to millions of Brazilians $ 600 ($ 110)) between April and August and R $ 300 between September and December – was essential to prevent the decline in GDP in 2020 from being 4.5% And no 9.5%, as estimated in April, despite having contributed to the increase in the deficit and the public debt.

At first, unlike this aid, Bolsonaro later realized its positive impact on his popularity and is aware of the negative impact of his extinction in December not only on family consumption and on the pace of the day. economy. For a president who began his mandate in priority for his re-election at all costs in 2022, this point, much claimed for other reasons by the left, is as key as his explanation that he cannot do anything because of the hurry. More … than 200,000 dead Due to the pandemic he didn’t want to face and an uncertain vaccination plan, Bolsonaro knows that without a stronger performance in the economy next year, he won’t be luckier than his teacher. . Donald trump in the elections of United States.

The proposal of the economy to Congress for the creation of a new version of the Family bag, the program created by Lula da Silva to guarantee the income of the poorest and reduce labor costs for companies that employ workers earning up to a minimum wage. Regardless of the electoral nature of these initiatives, it is true that they will have an impact on the unemployment curve. -14.6% or 14.1 million people in the third quarter – and in the GDP growth outlook of a 3 in 2021, which is insufficient to compensate for the fall of a 4.5 last year, and 2.5% in 2022, as estimated by the World Bank in December.

On the presidential election of 2022, for which Bolsonaro predicts a “fraud” similar to the one he insists in the United States, there is no certainty. Then 21 months anything can happen, including the removal of a president clearly responsible for the death of the pandemic he still despises and his attempts to destabilize the country’s institutions.