Analysis: Brazil Economy Minister Guedes May Leave Government – Does It Matter?

RIO DE JANEIRO, BRAZIL – The departure of Special Secretaries Salim Mattar and Paulo Uebel ten days ago has intensified an old debate within the government and in public opinion: Would the Minister of Economy, Paulo Guedes, be leaving too?

Guedes himself has been showing his dissatisfaction with people close to President Jair Bolsonaro who have been openly advocating for the government to exceed the spending ceiling not only during the coronavirus pandemic, but also in 2021. The logic is to launch a large infrastructure package and still maintain something of the R$600 emergency aid released during the pandemic.

Guedes is openly against the measures, and has strong allies in this debate, such as Chamber President Rodrigo Maia. The Minister even said that if Bolsonaro were to press for more spending, he would run the risk of impeachment, as did ex-president Dilma Rousseff. But during a live stream on Thursday, Bolsonaro conceded that there is a debate over exceeding the ceiling in the government, and said he sees no problem in that.

On Sunday, UOL columnist Josias de Souza said that the relationship between Guedes and Bolsonaro is “cracked”. “The President does not forgive the head of the Economy portfolio for having made public the internal debate on public spending,” said the columnist. Bolsonaro was annoyed by the use of the term “impeachment” and “no longer excludes the possibility of replacing Guedes.”

Bolsonaro’s growing popularity is driving a potential change. According to the DataFolha survey released on Friday, 37 percent of Brazilians consider the President’s performance to be “great or good,” compared to 32 percent in June. On Saturday, another survey showed that 47 percent of Brazilians believe the President is not to blame for the over 100,000 coronavirus deaths in the country.

The greatest increase in popularity comes from the North and Northeast, the regions receiving the most emergency aid from the government. Bolsonaro is expected to step up his travel schedule to these regions, according to Josias de Souza. He is expected to travel to Rio Grande do Norte this week along with Rogério Marinho, Minister of Regional Development, a prospective candidate for state governor and one of the leaders of those in favor of exceeding the spending ceiling.

The government’s record popularity, even after departures from the economic team and Sérgio Moro’s resignation from Justice, according to analysts, encourages Bolsonaro to pursue his potential dismissal of Guedes. According to a political analyst heard by Exame, Guedes is out of the picture. “They’re just looking for an honorable dismissal. If there is one,” he said.

Still according to Josias de Souza, the name of the Central Bank’s president, Roberto Campos Neto, is one of the most widely accepted to replace Guedes.

“Guedes’ departure is no longer taboo in the government because he has seen how he can achieve popularity without the Minister of Economy,” says Arthur Mota, an economist with Exame Research. “I still don’t think the market would react well to his departure. In terms of signals, it’s terrible because his speech (albeit with little practical effectiveness in 18 months) is very much in line with what we expect.”

According to Mota, there is some doubt as to whether Guedes’ replacement would be more successful in presenting and passing reforms. Campos Neto, or anyone else who would accept the position, would signal the government’s growing alignment with the Centrão and a more permissive policy towards increased spending.

“Guedes symbolizes fiscal austerity. But he is a difficult man. In a normal situation, removing him in favor of Campos Neto would be positive. The trouble is, we know that Bolsonaro is enjoying spending money. In this respect, the replacement could make waves,” says Celso Toledo, an economist at LCA Consulting.

Sergio Vale, chief economist of MB Associates, states that the trend seems to indeed be the Minister of Economy’s departure. “Campos may be able to be more constructive with Congress. But the pressure will remain on whoever comes next: how to accommodate the desires of the military, the Centrão and Bolsonaro himself, who is only thinking about reelection.”

For investors, the prospect of a change in the Ministry of Economy should be one of this week’s topics. Henrique Bredda, manager of Alaska and one of the most influential managers on social media, wrote on Twitter that “when Guedes leaves, the odds are that the stock market will drop sharply, the dollar will skyrocket and a there’ll be a lot of fuss.” “But then they will find out that Magalu is still selling and Rumo is shipping soy.”

The sense that Brazil will go on with the same problems and the same opportunities, with or without the powerful Minister of Economy, has never been stronger. While Bolsonaro’s popularity is growing, the IBOVESPA share index has been moving sideways for the past 30 days: on Friday it closed at 101,353 points.

Source: Exame