Guedes to Use OECD to Persuade Bolsonaro of Liberal Economic Resumption Policy

RIO DE JANEIRO, BRAZIL – Economy Minister Paulo Guedes “boosted” an action plan designed last year as a formula for an accelerated economic rebound. In an attempt to win the dispute with the government’s military and political wings, the Minister will advocate that the country prioritize the OECD’s (Organization for Economic Cooperation and Development) guidelines, an organization well regarded by the Planalto Palace.

As Brazil’s accession to the so-called club of wealthy countries is coveted by President Jair Bolsonaro and other Ministers, Guedes wants to take advantage of the guidelines for fiscal adjustment and adherence to market economy practices developed by the bloc. The package’s main structure is similar to the plan drawn up by the portfolio last year, but now in a version that Guedes considers “boosted” because it contains broader measures, greater impact, and swifter implementation.

The main goal, according to the Minister’s associates, is to persuade the President to implement a liberal economic agenda that generates growth and employment through the private sector. This would set aside proposals focused on public investment and expanding the size of the state, advocated by Brazil’s military and congressional groups.

The package will be taken to debate within Pró-Brasil, an economic resumption program coordinated by the Chief of Staff of the Presidency, which has created a clash with the government for providing public investment among the foundations for the recovery of activity and employment. The action was designed as a means to show the portfolio’s openness to debate, curbing criticism from other wings of the government, while Guedes tries to shield the Ministry and its liberal agenda.

In recent months, he has sent signals about his conditions for remaining in government, mainly by criticizing initiatives that increase government spending, such as investments in public works and salary readjustments for civil servants. In building his narrative, Guedes wants the OECD’s recommendations to serve as an instrument of pressure for his agenda to be pushed forward.

Brazil’s candidacy for the OECD has been underway since ex-President Michel Temer’s administration and has become a priority of the current administration. According to the Chief of Staff of the Presidency, which centralizes the process of Brazil’s accession to the group, there is a ‘broad mobilization of the federal government in fulfilling this priority agenda’. The main OECD guidelines, according to the Chief of Staff’s own list, are in line with the agenda that Guedes intends to push with Bolsonaro.

Recommendations include tax reform, administrative simplification, economic freedom, greater budget and public spending efficiency, and greater integration into the world economy, with reduced obstacles to investment and trade barriers. The Ministry of Economy considers that members of the Planalto have not yet understood Guedes’ strategy of action. A presentation of the economic program was arranged for the start of this year, but the advent of the novel coronavirus pandemic has put everything on hold. Now, the plan will be reactivated.

The program’s main components, prepared by Guedes, are old acquaintances of the Minister’s team, with the advocacy of proposals such as tax reform, new legal frameworks to encourage private investment, and a new “federative pact” to reallocate resources among states.

The difference now would be the pace and intensity of actions. For the Minister, the most important point in the plan will be broad payroll relief. The employment program would need to be broader than the ‘Carteira Verde e Amarela’ (Green and Yellow Workers’ Record Book), which was implemented to reduce statutory benefits on young people hired for their first job. The plan was eventually repealed because it had not been endorsed by Congress.

Among the proposals under consideration is an emergency system for reducing payroll tax burdens in which the government temporarily bears the loss of revenue to ensure the survival of companies. Guedes has also researched a transaction tax to offset such losses. The portfolio wants to use the debate to expedite tax reform, conducting at least an initial round of negotiations that would include the simplification of taxes such as PIS/PASEP (social contributions financing unemployment insurance and other allowances) and COFINS (Contribution for Social Security Financing).

Conceived by the Minister since the government’s inception, the reform of social programs will be part of the plan as a measure to be adopted later this year. The argument is that this would be a way to promote a transition after the end of the three-month R$600 emergency aid program; an extension paying the same amount is opposed by the Ministry of Economy.

The portfolio insists on extending assistance for a maximum of two months, at a lower amount. Given the projection that the country will emerge from the pandemic in fiscal ruin and unable to increase spending, the order is to remodel or extinguish social programs considered ineffective. In exchange, the ‘Bolsa Família’ (Family Grant) would be extended, as it is considered by the Minister as a successful and efficient case of cash transfer to the most disadvantaged. The new program will be called ‘Renda Brasil’ (Brazil Income).

Among the portfolio’s targets are the ‘Farmácia Popular’ (Popular Pharmacy) program for low-prices on drugs, which benefits middle and upper classes, and the closed season subsidy paid to fishermen, considered a source of fraud. The Minister also wants a revision of the salary bonus, which was already the target of a restriction attempt by the government last year, but Congress overruled the Planalto Palace and kept the benefit unaltered.

In another measure, the tax exemptions for basic foodstuffs would be reassessed, given that there are items now on the list such as cheeses and choice cuts of meat. Altering these programs hinges on the approval by Congress, which has been reluctant to approve restrictions on already existing social initiatives.

Source: Folhapress