RIO DE JANEIRO, BRAZIL – Brazil managed to alleviate poverty with emergency payments during the COVID-19 pandemic, but if government income support efforts are not continued 15 million Brazilians will be thrown back into dire poverty come January, an economist warned on Thursday.
Extension of the generous subsidies is stalled in Congress and faces some opposition from within the government, whose economic policy team worries about an uncontrolled budget deficit.
“We’re between a rock and a hard place,” economist Marcelo Neri, head of social policies at the FGV higher education think tank in Rio de Janeiro, told Reuters.
An FGV study published on Thursday said the number of poor Brazilians, those that earn less than half a minimum salary, or R$515 (US$92) per month, fell 23.7 percent to a new low of 50 million people, thanks to the monthly payments that started at R$600, but have now been cut to R$300 and expire on December 31st.
President Jair Bolsonaro, whose popularity has risen thanks to the hand-outs, is scrambling to find a way to maintain payments, but there is no way to fund them without breaking a constitutional spending cap and worsening a runaway budget deficit.
Brazil was more generous than other Latin American nations with its poor during the pandemic even though its fiscal situation was worse; Economy Minister Paulo Guedes was trying to keep his fiscal austerity drive on track, Neri said.
“Guedes turned out to be a surprisingly generous manager of Keynesian policies. Now, we have to continue being half Keynesian, but we don’t have the money,” Neri said.
Brazil, which had seen large-scale capital flight from the Sao Paulo stock market earlier this year, risks rattling investors further if it boosts spending too much in 2021, the Princeton University-trained economist warned.
The COVID-19 payments will have cost the Treasury R$321.8 billion (US$57.6 billion) by year’s end.
A member of the congressional joint budget committee, Senator Ney Suassuna, told Reuters there was no consensus on how to pay for income support next year even as the pandemic crisis is expected to continue with scant improvement of the labor market.
As in most of Latin America, the pandemic has reduced the size of the traditional middle class, with 4.8 million Brazilians slipping down due to lost income, Neri said.
Millions of middle class Latin Americans are being dragged into poverty by the COVID-19 outbreak, which has hit the region’s labor market harder than elsewhere in the world. Poverty is set to surge back to 2005 levels in Latin America.
Source: Reuters