Guedes tells businessmen that the market should avoid a ‘child position’ on spending ceilings

Minister Paulo Guedes (Economy) said on Wednesday (24) he hopes that the market understands the government after the maneuver that circumvents the spending ceiling, instead of having a “childish position” on the matter.

He stated that the country will reach the election year with a deficit greater than this year, but considered the move completely understandable in light of the demands of the political class.

“Let’s go to the political dimension and concern for the social, [o movimento é] perfectly understandable. I hope the markets understand this rather than taking a slightly more childish position that ‘the symbol is the ceiling’, ‘the ceiling or death’, ‘I’m going to resign today because the political class has decided to pierce the ceiling'” , said Guedes.

The minister made the statements during a dinner at the headquarters of the CNI (National Confederation of Industry) promoted by the MBC (Movimento Brasil Competitivo). The spending ceiling is seen as an anchor for public accounts and government moves have generated reactions in interest, exchange and equity markets.

After pressure from the political class for more spending, the government decided to include a provision to circumvent the rule in the PEC (proposed amendment to the Constitution) of the Precatório.

The PEC changes the spending ceiling by changing its correction rule, in addition to limiting the payment of court orders (state debt recognized by the courts). Four members of his team resigned midway through the maneuver.

For Guedes, however, the fiscal deterioration with the proposal is limited. “Instead of 0.5%, the deficit will be 1% or 1.2% [no ano que vem]. I think Brazil is a little bigger than this political polarization, playing one piece of the government against the other,” he said.

Guedes said the Bolsonaro government would come out spending less than it came in, but that they “will not let” that happen — citing pressures for more spending but then saying the demands are understandable.

“We are the first government that starts spending less than when it arrived. Naturally, they will not let us do that. There is pressure on the other side saying ‘well, if you have already collected, get a lower score there in the fiscal'” , he said.

“[São] Naturally understandable political pressures to heal sequelae to mitigate the impacts of the pandemic,” he said. He cited as an example the Auxílio Brasil program and its value greater than that of its predecessor, Bolsa Família.

“Instead of ending the year with a deficit of practically zero, we are going to the elections with a deficit slightly above or equal to this year’s. [Em torno de] 1%. Sounds reasonable,” he said.

Guedes also said that the country has been stagnant for years, and that this is not the fault of the current government. “It is not the Bolsonaro government that is stagnating Brazil, Brazil has stagnated,” he stated.

The minister appealed to businessmen to support the reforms in Congress. He also said that there is a wing of the government opposed to their advance, as they believe they are electorally harming the president. It also signaled that this environment would have its own political interests by suggesting this.

“Within the government, there is also an environment that thinks the president wins if he doesn’t reform,” he said.

“I think it’s the opposite. Moving forward with the reforms is the sign of an administration that wants to move Brazil. But there are people, the guy wants to be elected… Well, never mind,” he added.

The minister did not mention names, but behind the scenes he is facing a battle with the political wing of the government, in particular with Onyx Lorenzoni (Trabalho e Previdência) — who should be a candidate for the government of Rio Grande do Sul in 2022.

This wing of the government advocates that Bolsonaro spend more on social programs in the last year of government and put the reforms aside. The president himself admitted the difficulty of approving them in the final stretch of his term.

The maneuver that altered the calculation of the spending ceiling and led to the stampede of Guedes’ team was the political wing’s most recent victory over Guedes.