Quarrel over social welfare policies leaves Brazil’s market rattled

After publicly scolding Economy Minister Paulo Guedes earlier this week, President Jair Bolsonaro gave him until Friday to present a new version of ‘Renda Brasil’ — a federal cash-transfer program that would replace and expand the world-renowned Bolsa Família scheme. Mr. Guedes’ initial proposal — involving scrapping other social benefits in order to fund the new policy — was shot down by the president, who complained that he “wouldn’t take money from the poor to give it to the paupers.”

This provoked jitters in the market and Friday is set to be a rocky day for investors as the deadline approaches. Over the past 18 months, the Economy Minister has made a habit of missing due dates — but this time, analysts fear that the wedge between Messrs. Guedes and Bolsonaro might be growing, with the political and social need for increased public spending clashing with the government’s lack of funds.

As our August 25 Daily Briefing explained, the government’s military wing has pushed for a major plan to foster growth by way of infrastructure projects, job-creation programs, new housing policies, and beefed-up cash transfers to vulnerable populations. But the president and Mr. Guedes — a quintessential deficit hawk — were unable to agree on the specifics of the program. The Economy Minister has stressed the government’s need to respect the federal spending cap, which limits public expenditure increases only to meet inflation of the previous year. 

Even orthodox economists have said the cap did not factor in the possibility of a pandemic-related...