This week, we talk about how the once pro-Bolsonaro market investors now frown upon the government. And the privatization of a key energy distributor.
Government sparks trust crisis among investors
The Bolsonaro administration rattled investors last week after it was suggested that a new welfare program would be paid for with money from a fund to finance basic education and by postponing the payment of precatórios, a sort of government IOU bond. The stock market crashed, as did the Brazilian currency — already the worst-performing in the world — as the government flirts with the idea of essentially breaching its own federal spending cap, by creating exceptions for welfare programs.
Why it matters. In 2016, a constitutional amendment prevented the government from raising spending unless it is matched by an increase in revenue. If that is not the case, the budget will only rise in accordance with the previous year’s inflation — and increasing spending in one area must come at the cost of reshuffling public funds from another field.
How do precatórios work? These bonds are issued after the government loses legal battles. As opposed to paying these debts promptly during the corresponding tax years, the Brazilian government often issues IOUs....