Guedes ends management between goals achieved and frustrated plans that did not leave the drawing board

Four years after taking office under the promise of a liberal shock to the economy, Minister Paulo Guedes ends his term carrying with him a mix of achieved goals and frustrated plans that never got off the ground.

In his inaugural speech on January 2, 2019, he outlined, over the course of 45 minutes, an ambitious flight plan that promised privatizations, opening up the economy, cutting subsidies, decentralizing resources to states and municipalities and controlling spending. —starting with Social Security reform, the “number one priority” of the newly-initiated government.

Elevated to the post of superminister after the merger of five economic portfolios, Guedes even managed to cross off some items from his list, but most of them fell by the wayside. Proposals caught fire from inside the government, external criticism from economists and resistance in the National Congress.

The minister still had to give in on some points of his agenda to accommodate pressure from President Jair Bolsonaro himself (PL) and close allies to open public coffers and increase expenses, especially with the proximity of the elections. The economic team also had to deal with an unprecedented factor: a health crisis of global proportions.

At the end of the course, Guedes brings together critics who point to the constant changes in the spending ceiling to release more expenses and the frustrated expectations of reforms, but also supporters who prefer to highlight the improvement in indicators, such as GDP growth (Gross Domestic Product) and the primary surplus in 2022 —the first in nine years.

Sought after, the Ministry of Economy forwarded a balance sheet with data on what it considers the main legacies of the current management. The minister preferred not to grant an interview.

One of the data includes the forecast of a less indebted country at the end of the current administration, even with the increase in expenses. Gross debt should end the year at 73.7% of GDP, against 75.3% at the end of the Michel Temer (MDB) government.

Considered the biggest victory of the Bolsonaro government, obtained in 2019, without a consolidated parliamentary base in Congress, the approval of the pension reform is listed as one of Guedes’ frustrations.

Although the minister managed to get support in Congress to put forward a more powerful proposal, with forecasted savings of R$ 855 billion for the Union in a decade, the rejection of the capitalization system left a bitter aftertaste. It is as if, on a scale of 0 to 10, the reform had obtained a 6 in Guedes’ evaluation.

In capitalization, each worker saves in an individual account for their retirement, and the value of the benefit results from the amount accumulated over the years. What Brazil has today is the so-called pay-as-you-go regime, in which there is no reserve formation. Current contributors help support the benefits of those who are already retired.

The regime change was considered by Guedes one of the pillars of the pension reform and also the starting point for another of his plans: the launch of the Green and Yellow Card, an alternative for hiring workers with lower labor charges.

“The democratic government will innovate and abandon the fascist legislation of the Carta del Lavoro. We will free future generations by giving the option to young people who want the Green and Yellow Card”, said the minister at the inauguration.

The combination of proposals was seen by critics as an attempt to reduce workers’ rights. The main burden on salaries is the social security contribution, and without it professionals would accumulate few resources to retire in the future.

In Guedes’ view, the combination would be able to formalize almost 40 million workers who today work without a formal contract and, therefore, without social protection. The minister has always classified the charges as “weapons for the mass destruction of jobs” as they make the hiring of labor more expensive. He failed to garner support.

In the privatization agenda, the head of Economy experienced friendly fire from his own Esplanada colleagues in the first months of his administration.

Ministers from the political wing bombed Guedes’ plan to streamline the public machine and managed to block the sale of state companies, such as Correios, Banco do Brasil, among others. The privatization of Eletrobras took a long time to come out and was approved under criticism and after a series of concessions to the National Congress.

“It’s a goal, there has to be a goal, Salim [Mattar, secretário especial de Desestatização entre janeiro de 2019 e agosto de 2020] will come in and announce right away: ‘I’m going to close the bullet train, I’m going to sell so many’. Everyone has a goal, everyone will chase it”, said Guedes at the inauguration.

At the end of the four years, the Economy Minister’s team managed to sell around BRL 305 billion between state companies, subsidiaries and other assets of the Union. The amount is significant, but well below the R$ 1 trillion indicated by Guedes in his first statements.

Guedes also came up against the powerful lobby of companies, associations and parliamentarians aligned with these sectors against the revision of subsidies and exemptions.

“Don’t we have subsidies? Didn’t we give R$ 300 billion in tax exemptions, tax expenses? Don’t we have exemptions? Cut somewhere and give the resources to health and education”, he said at his inauguration four years ago.

The setting in the Constitution of a plan for the gradual reduction of these benefits, however, failed: after creative interpretations of the device, what reached Congress was a proposal to cut just R$ 22.4 billion from the more than R$ 300 billion earmarked for to that end. For 2023, the account exceeds R$ 450 billion.

Another agenda that partially advanced was the so-called federative pact, an umbrella that encompassed the three Ds of Guedes: deindexation (flexibility of mandatory readjustments), untying (removal of revenue and expenditure stamps) and release.

“If the proposed reforms don’t work, you have to launch a PEC [proposta de emenda à Constituição] saying the following: unbind, release, de-index all Union expenses”, said the minister at the inauguration.

“We are going to sell assets, slow down the debt, maybe we will nominally control these expenses. If we manage two, three, four years accelerating privatizations, stop these rising expenses, because the economy rises 3%, 3.5%, the pie grows .”

The PEC of the Federative Pact was sent in November 2019, following the Social Security reform. It provided for mechanisms to freeze expenses in crisis situations, the possibility of making the working hours and salaries of public servants more flexible, ending the mandatory annual review of civil servants’ salaries and unifying minimum spending on health and education.

Controversial, the PEC ended up being set aside after the outbreak of the Covid-19 crisis in 2020. A summarized version was approved in March 2021 to extend the emergency aid paid to vulnerable workers during the health crisis. The text also included the triggers for expanding and containing expenses in fiscal emergency situations, both for the Union and for states and municipalities.

During the Covid-19 crisis, the government needed to turn the key and open the coffers to fund social benefits for vulnerable workers, workers at risk of being fired, and transfer resources to states and municipalities to compensate for the sharp drop in economic activity. There were almost BRL 125 billion in transfers to governors and mayors and debt suspension —which ended up partially implementing its plan to decentralize resources.

From then on, the major reforms ended up being frozen, and the minister began to act as described by outsiders as more defensive, in an attempt to contain the spending impetus of ministers and the head of the Executive himself.

Another item listed by Guedes in his inauguration speech was the need to simplify and reduce taxes. Although the tax reform proposals presented during the government were not approved in both Houses, the assessment around Guedes is that he managed to carry out a kind of “invisible tax reform”, with a cut in rates on industrialized products and inputs such as diesel. .

Political analyst Bruno Carazza, a professor at Fundação Dom Cabral, assesses that the excess of promises ended up harming the external assessment of Guedes’ management. The minister used to defend the banner of “big bold targets”, that is, ambitious goals to achieve a positive result, even if intermediate. But this ended up generating expectations that were not met.

“Perhaps it was the main mistake in strategy, disregarding the political nature of his management”, he says. “He paid the price for a very high expectation that he himself created. He promised a lot, as if it were easy, as if it depended on his own political will, belittling the political difficulties that his predecessors had.”

Carazza acknowledges that the pandemic hampered the government’s negotiations on measures, but points out that, in his assessment, one of the main obstacles was Bolsonaro himself. “Many times he was an internal opponent of Guedes’ policies. And the fact that he was a minister of a president who was so unwilling to engage in political dialogue jeopardized Guedes’ delivery in this administration”, he says.

In conversations over the last year, the minister even acknowledged to interlocutors that the lack of political articulation within the Executive had forced him to seek a bridge with members of the Legislative and Judiciary to act on economic issues, especially during the Covid-19 crisis. 19.

Despite the frustrations, Carazza lists other agendas that were not in Guedes’ initial flight plan, but which ended up taking root. One of them was the approval of the autonomy of the Central Bank, which, among other things, ensured fixed mandates for the BC board —reducing uncertainties in times of transition like the current one.

Another agenda is the growth of concessions. The Economy calculates that the 180 auctions held will provide up to R$ 941 billion in new investments in the coming years.

“There really was a very considerable volume of railroads, highways, airports, ports, and this formed a relevant portfolio that has already stimulated investments”, evaluates the political analyst.