Guedes stays, despite losing much of his power and prestige

As The Brazilian Report informed earlier today, rumors that Economy Minister Paulo Guedes would leave the Jair Bolsonaro government did not materialize. In a press conference held at the Economy Ministry building, President Bolsonaro said there is nothing out of the ordinary in meeting with his top finance official, reaffirming his trust in Paulo Guedes. 

“The economy is experiencing a V-shaped recovery, and the country ended 2020 with more people formally employed [than at the beginning of the year],” the president said — barely looking at Mr. Guedes, who stood beside him.

Messrs. Bolsonaro and Guedes said the government’s new aid program — which will be partially funded by extraordinary credit outside of constitutional spending limits — is about not abandoning vulnerable citizens. “Brazil will outperform predictions next year, but meanwhile the political class shake things up by asking for more for the poor,” Mr. Guedes said. 

“The mark of a good president is weighing [austerity and the commitment with future generations] and taking care of immediate needs,” he added. “There is a subtlety: there is no permanent source of revenue, as the income tax reform has stalled. And as the solution that is technically correct couldn’t work, we will have to spend a little more.”

The Economy minister blamed the Senate for not approving the income tax reform, which would free up more space in the budget for welfare spending.

Mr. Guedes attributed the recent market rout to poor communication from the administration, but also to a supposed lack of goodwill towards the government. According to Brazil’s top economic official, poking holes in the country’s main instrument to tame the public deficit does not disturb the country’s austerity trajectory.

Experts disagree. Luciano Sobral, chief economist at Neo Investimentos, wrote in his monthly column in The Brazilian Report: “With no clear idea of how much will be eventually spent in 2022 and beyond — nobody believes that whatever amount is granted ‘temporarily’ will be revoked under the next government — market analysts have a hard time agreeing on an expected debt-to-GDP path.”

At one point, Mr. Guedes acknowledged rumors surrounding his potential exit. “I know some in the [government’s] political wing tried to gather names to replace me. But I know the president didn’t ask for that because I trust him and I believe he trusts me, too.” Paulo Guedes stays, but he has never seemed so weak.

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