RIO DE JANEIRO, BRAZIL – Among the 22 Ministers sworn in by Jair Bolsonaro in January 2019, only two have held the unofficial title of super-minister. One of them, Sérgio Moro, resigned from the Ministry of Justice suspecting that the fight against corruption, his main issue, was not among the government’s real priorities. The other is Paulo Guedes.
The Minister of Economy was entrusted with implementing the desired, necessary and essential liberal agenda pledged by President Bolsonaro during his campaign. The agenda included three major reforms – social security, tax and administrative – and privatization of most state-owned companies, a foundation that would sustain development, boost uninterrupted growth for at least a decade and generate millions of jobs. This was the commitment made to the electorate.
However, reality pointed in another direction. With the exception of the new retirement system for Brazilians, passed last year, none of the projects progressed. The pledged simplification of taxes did not come off paper, the reduction of the public machine is still a mirage and the loss-making companies controlled by the federal government continue to accumulate losses. All of this amid the horrific coronavirus pandemic.
As a result, GDP shrank, unemployment broke records, and the Minister’s superpowers were called into question, to the point where news of his potential removal from the government became recurrent. Just rumors? The Minister confesses that, at a certain point, he really thought of throwing in the towel and witnessing the “chaos” far from Brasília, such were the differences between himself and other government advisors.
On Wednesday, December 16th, Paulo Guedes received VEJA to take stock of the year and project the goals for 2021. It was a straightforward conversation and the Minister seemed more relaxed than usual, almost calm. “We had a terrible year, of course, but we made the right decisions that prevented Brazil from plunging into chaos”, he summarizes.
His tone of voice only changed when he was asked about criticism of him, particularly from ex-ministers of economy in other governments. “Those who speak ill can they tell me what they did when they were here? One of them, for instance, handed over the country with 5,000% inflation. That’s what’s ridiculous. They are false political narratives, denialist, anti-scientific, because science is based on empirical results,” he says. When repeating this last sentence, the Minister looked out of his office window, from where one can see the towers of Congress – the focus of many rumors and such false narratives.
“We are triggering a wave of investments. The great challenge in 2021 will be exactly that. Brazil will be the largest investment frontier in the world. Do you want to invest in oil? You will. Do you want to invest in natural gas? Yes, you can. Do you want to invest on railroads? Yes, you can”.
However, the optimistic tone is the Minister’s focus this year. According to him, 2021 will mark a great turning point in Brazilian economic history. If everything goes as planned, Brazil will register 4% growth per year and will become the biggest investment frontier in the world. “No one is offering as many alternatives in infrastructure, sanitation, mining and privatization as here,” he says.
Before that, he points out, the pandemic will need to end, which will hinge on the success of vaccination campaigns. At 71, Guedes was one of the few direct assistants to the President who has not contracted the coronavirus yet. It is true that he takes more care than most of his colleagues from the Esplanade (he is always wearing a mask and even moved with his family to Granja do Torto, in Brasília, to avoid crowds and plane trips), but he does not rule out the possibility that his resistance to the disease might be related to his blood type (O-).
Extremely intelligent and educational in his convictions, Guedes accepts that the political game, filled with comings and goings, is still a challenge for him. He says that, in full pandemic, he was surprised with an organized movement to remove President Bolsonaro from power – a kind of conspiracy in which legislators, governors and people linked to the highest courts of justice would be part of. The Minister says that the one who confided this to him for the first time was São Paulo Governor João Doria, who even tried to persuade him to leave the Ministry of Economy before this happened. After Moro’s departure, Guedes would have been chosen as the target of the group that longed for the end of the government. “I felt as if I were crossing a river, hopping from one alligator to the other and trying to dodge the rocks. And the guys trying to knock me down so the alligator could eat me.”
The following are the main parts of the interview.
Question: We have reached mid term of the Bolsonaro government. Has the liberal agenda pledged during the campaign been lost?
Answer: From the very beginning of the government we knew very clearly that we should break the explosive dynamic of public spending and attack three towers, which are the main expenses. The first and largest of all was the privilege of Social Welfare. In the first year we reformed Social Welfare, which had been stalled for several governments and which no one could manage to do. After we knocked down the first tower, we set off to attack the second one: debt interest expenses, which dropped. As a result, we will save R$400 billion. Finally, the third tower: public service. During the pandemic, we managed to freeze the salaries of the civil servants for three years, saving an additional R$300 billion. This is something Brazil had never experienced.
Q: But you have been criticized by renowned economists and ex-ministers of Economy for delivering little compared to what was promised…
A: This criticism is ridiculous. If I reform Social Welfare and they say I don’t deliver, what am I going to say about who came before me? If I make agreements with MERCOSUR and they say I don’t deliver, what am I going to say about who came before me? If I make agreements with the European Union, the Kandir Law, the independent Central Bank, the transfer of rights, the sanitation framework… What will I say about my predecessors? To answer your question, these criticisms are political narratives, they are denialist, they are anti-scientific, because science is based on empirical results. Building the roof of a house is easy, but building the walls to hold it is harder. And that’s what we did.
Q: But what about privatizations and the other major reforms that remained on paper?
A: There were, in fact, two failures: privatizations and the tax reform. Coincidentally, I no longer have in my team either of the two Secretaries who handled these projects from the outset. That speaks for itself, don’t you think? They were being sabotaged and left the government, or they left because it was not working out.
Q: Which of the two assumptions is true?
A: I can only say that their departure was not a coincidence.
Q: In the case of privatizations, does President Bolsonaro’s lack of commitment stand in the way?
A: It’s clear that there is a problem within the government in this respect. Each Minister has his own state-owned company. We are persuading one by one. At the start of the government, several Ministers thought it was only natural to keep their state-owned companies. The military, for instance, are in favor of state-owned companies. They built many of them. When Salim (Mattar, ex-secretary of privatizations) left, he said that each Minister thinks that the state-owned company is his and sits on top of it. Of course, there was a problem with us, too. We took too long to figure out what was happening. But the President’s support will be decisive. I want to announce four privatizations, endorsed by the President, as soon as possible.
The administrative reform, which lacks the President’s affection, has not progressed as expected either… I submitted the administrative reform at the end of November last year, and the President’s circle blocked it. I did my part. I submitted the proposal to the President of the Republic (who sent it to Congress in September this year). But the delay of the administrative reform was more than offset by the freezing of public servants’ salaries. That’s why the Minister smiles when they say he is lost. I never lost my focus.
Q: Who would this “president’s circle” be?
A: I’d rather just mention the circle. There are many people around him.
Q: Have you ever considered leaving the government?
A: There was a time when it almost happened. But it wasn’t because of the President. It was when the Chamber, the Senate, the government leadership and everyone left room for the possibility of allocating the money to fight Covid-19 to raise salaries all around. At that time, I asked the President for a veto. Had he not vetoed it, I wouldn’t have anything else to do in the government. But it was never put like that: “Either you do it or I’m leaving”. Never. The President trusts me and I trust the President. I knew he would veto it and he knew that if I asked him to do it, it was because it was important.
Q: And when will the economic team’s tax reform get off the drawing board?
A: Our tax reform will come in stages. I’ve been saying this since the campaign. We want a drastic simplification of taxes and we would like to also have labor relief. It’s no use making a deal with the left-wing and calling for a tax reform that raises taxes. We are liberals. We will not raise taxes. If everything goes well, Brazil can grow 4% in 2021 and for ten consecutive years. If the structural reforms are not passed, we will have low growth, high inflation and an uncontrolled dollar. We could take the path of Argentina.
Q: Where does this belief that 2021 is the economy year come from?
A: This return of V-shaped growth is evidence that Brazil was taking off when the pandemic came. Brazil will be the world’s largest investment frontier in 2021. No one is offering as many investment alternatives as we are. The Ministry of Regional Development will have R$600 billion in investments over the next ten years. The Ministry of Infrastructure will have another R$550 billion over the next decade, with concessions for airports, highways and railroads. In the mining area, with the regulatory framework, we will move tens of billions of reais per year. Now we have the new coastal shipping (cabotage) law, which is in Congress to be passed. We will have the privatization of Eletrobras. The new natural gas framework has already been passed in the Senate and is back in the Chamber. We are triggering a wave of investment. The big challenge in 2021 will be precisely this. Brazil will be the world’s largest investment frontier. Do you want to invest in oil? You will. Do you want to invest in natural gas? Yes, you can. Do you want to invest on railroads? Yes, you can. Do you want to invest on the electric power sector? You will. Do you want to invest in cabotage? You can. It will be a very extensive menu.
Q: Is the discussion about the spending cap settled?
A: The president made a decision. Rather than pierce the cap and destabilize Brazil, he said: “I’m not a populist. I understand that the emergency aid was a response to the pandemic. So, if the pandemic is gone, the emergency aid is over. That’s that.” No one talks about it anymore. You have to maintain the spending cap in order to keep the interest rate low, the exchange rate also favorable. In other words, if you go on spending, the interest rate goes up and the exchange rate sinks again. If you keep the cap, interest drops, helping all these investments that I mentioned. In parallel, the high exchange rate also encourages exports, agribusiness, and protects Brazilian industry. Next year we will sell Caixa Seguridade and Banco Digital da Caixa. This, together with regulatory frameworks, the private sector will broaden its investment horizons. I hope that we have found the political axis, which will be crucial to progress in the reforms.
Q: What will be the greatest challenge for the economy in 2021?
A: The major challenge now will be to convert the cyclical rebound based on consumption into a resumption of investment-based growth. Because in order for it to be true growth, it must be through investments, expansion of productive capacity. We need to do a complete transition from a planned economy to a market economy. We have to complete the economic opening. That is why we are pushing for the regulatory frameworks.
Q: With the defeat of Donald Trump in the elections, is Brazil in danger of being isolated in foreign policy?
A: The point is that the bet was made on Trump. The bet was: President Bolsonaro sticks to Trump and we take over the BRICs bank, which is where China is, and the New Development Bank (NDB). We made a deal with the Americans. The American was elected president of the NDB, and with that, we would gain NDB Invest. It went wrong. In parallel, there is this narrative war against Brazil in the Amazon rainforest. We are rebuilding our influence out there. I am sure that we are doing the right thing.
Q: What is your assessment of the fight against the pandemic?
A: I think we are winning. The economy and health have always worked together. The President himself said: “There are two waves, not only one.” So, what is happening now? The vaccine is coming, and the economy is rebounding. We are almost winning, but we haven’t won yet. If the vaccine doesn’t come, if mass vaccination doesn’t happen, in a little while there may be a return of social distancing, and then the economy will sink again. We really need to finish the job. And to finish the job is to accomplish mass vaccination to prevent the second wave.
Q: Are you in favor of compulsory vaccination against Covid-19?
A: No. People must have the right to choose. They can either chose the vaccine from laboratory A or B, or none at all. Now, if they don’t chose any, they can’t go to the cinema either, because they would place others at risk. So, a sort of immunity passport is required.
Q: Have you grown used to the environment of Brasília?
A: I feel like I’m crossing a river on the back of a bunch of alligators. I’m hopping from one alligator to the other all the time. Then, suddenly, I see the critics hurling rocks. I hop from one alligator to the other, and the guys are trying to knock me down so that the alligator will eat me. The whole thing is beyond comprehension. One day, for instance, João Doria calls me and says, “Paulo, for God’s sake, get out of there. Save your biography. The President will fall. Two more months, he’ll be on the floor. The Supreme Court will do it…”. Then I said, “João, are you crazy? Go govern São Paulo, boy. Stop being crazy”.
Q: Was there a real attempt to destabilize the government?
A: Yes, there was indeed an attempt to destabilize the government. There was a schedule. In sixty days they would impeach. There were people from the courts, there was Rodrigo Maia, there were governors involved. Doria called me and said: “Paulo, this is the chance to save your biography. This government won’t last more than sixty days. Do me a favor? Save yourself”.
Q: And what did you do afterwards?
A: I called each one of the Supreme Court justices to try to understand what was happening. We managed to dismantle the conflict by listening to each one of them. justice Gilmar Mendes, for instance, suggested that the government should give a sign, if it were really interested in pacifying relations. Weintraub’s dismissal was a sign. I also called Justice Barroso and Justice Fux.
Q: Was democracy at risk at any time?
A: No, never. But there was a time of great tension when the Supreme Court signaled that it could seize the President’s phones. I remember he had a cabinet meeting and Weintraub was stirring things up. The President got there huffing: “Talk to me, Abraham, talk to me, Abraham”. Then Abraham said, “I want to know who is with me. I’m going to jump on the Supreme, and the Supreme will want to arrest me. Before it arrests me, I’m going to march on the Supreme and I want to know which Minister is with me and who is with the traitors.” I interfered at the time. I said that we were falling into a trap, that the script was already set up, that it was inappropriate. The generals present supported me. I suggested to the President to send Weintraub to the World Bank in June. From then on, things calmed down between the government and the Federal Supreme Court.
Q: Recently, Supreme Court Justice Edson Fachin suspended the tax exemption for the import of weapons.
A: I lowered the weapons tax. Since the President took office, he’s been asking for this. Then comes a Supreme Court justice who says he can’t. It’s absurd. We control the taxes. The Brazilian people voted to have guns. Then a Supreme Court judge comes and says I can’t lower the tax on the import of weapons. This is an absurd case of interference. This is wrong. I’m the one who decides on the import tax. I don’t even need Congress to set the tax.
Q: Why does that happen?
A: In the past, democracy was whatever the left-wing wanted to do. Suddenly, a man comes along and says, “God above all. I am against abortion…”. He’s entitled to his opinion. Whoever wins an election tries to pass his agenda. Whoever lost is a candidate in 2022 and changes the agenda in the next election. I take that as normal. But some people see it as a war. And this war must end.
Source and Interview: Veja