Guedes and Maia Agree Truce, Will Both Push Reform Agenda and Social Program

RIO DE JANEIRO, BRAZIL – Brazil’s Economy Minister Paulo Guedes and the powerful Chamber of Deputies President Rodrigo Maia announced a truce after more than a month of bickering over reforms and how to tackle a widening fiscal deficit. Local markets rallied.

After having dinner in Brasilia on Monday evening together with a group of legislators, Maia apologized for disrespectful remarks he’d made about Guedes recently and said both must work to protect fiscal responsibility in Brazil.

“I was impolite and rude, I leave my apology here,” Maia said after the encounter. “I told Minister Guedes and those present at the dinner that, in the pandemic, we have to be united to protect the spending ceiling rule.”

Guedes, standing next to Maia, said the administration and Congress have already made progress working together, and that cooperation is needed going forward because Brazil has to push its reform agenda. The two agreed that the nation’s new social program, dubbed Citizen Income and designed to sustain aid to millions of Brazilians who lost their income during the pandemic, must comply with the spending cap rule, a key piece of legislation seen as a safeguard of fiscal discipline in a country with a history of overspending.

The Brazilian Real rallied on Tuesday to become the best performing emerging-market currency while swap rates fell even as traders remained anxious about how the government intends to pay for its social program.

“The truce between political players is definitely positive news,” said Mariana Guarino, portfolio manager at Truxt Investimentos. “However, reports about the funding for minimum income program still leave us close to where we were before.”

The peace pact between two of the most influential players in Brasilia comes as the administration of President Jair Bolsonaro pushes to ramp up social spending even as the country is set to finish 2020 with a record budget gap.

Bruno Dantas, a judge in Brazil’s Federal Audit Court (TCU), hosted the dinner at his house. Senate president Davi Alcolumbre, Communications Minister, Fabio Faria, and lawmakers were also invited.

“They don’t need to like each other, but they need to be able to put together a fiscally-responsible agenda with a solution that creates social benefits and allows congress to move forward with tax reform,” Dantas said in an interview.