Covid-19 crisis chips away at Paulo Guedes’ image

. Mar 14, 2020
paulo guedes covid 19 Economy Minister Paulo Guedes. Photo: Washington Costa/ME

With his name dragged through the muck on social media as the Brazilian Real reaches new lows on a daily basis amid Covid-19-related panic, Brazil’s economic tsar Paulo Guedes seems a shadow of the man who, less than six months ago, celebrated the approval of a comprehensive pension reform the likes of which none of his predecessors had managed to do. So, what happened?

Paulo Guedes’ astral hell began before the novel coronavirus had even reached Brazil. A mix of weak economic perspectives, miscommunication, political jostling, and a lack of support from President Jair Bolsonaro himself have taken a major toll on the Economy Minister’s political capital. Now, however, what was once restricted to the corridors of Brasilia has now reached the wider population. 


to Rafael Cortez, a political analyst at consultancy Tendências, Mr. Guedes over-politicized 2019 and misjudged the support in Brasilia for his reformist economic agenda. “This reached a new level after his remarks about civil servants [who he referred to as &#8216;parasites&#8217;] and <a href="">using domestic workers</a> as an example to talk about foreign exchange rates. This increases a process of wear that, at first, was limited to the political elite,” he tells <strong>The Brazilian Report</strong>.   </p> <p>It is undeniable that Paulo Guedes remains one of the most important names in Brasília and it is unlikely that he will be replaced, or even quit, amid a public health crisis, says Mr. Cortez. But the analyst warns that the pressure on the economic tsar is set to build even further over the year.&nbsp;</p> <p>Felipe Berenguer, a political analyst at Levante Investimentos, believes that the pressure caused by the devaluation of the Real is exaggerated, as it involves global factors that are not under his control, and probably won’t hurt Mr. Guedes’ political status. He does suggest, however, that the cabinet minister would be best served by keeping his mouth shut once in a while. &#8220;Like when he said that the forex rate would only reach BRL 5 to the dollar &#8216;if he did something wrong.&#8217; I think that he ends up paying for that,” says Mr. Berenguer.</p> <div id="buzzsprout-player-2981242"></div> <script src=";player=small" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <h2>Political battles</h2> <p>As President Jair Bolsonaro picks frequent fights with Congress, Paulo Guedes&#8217; economic agenda becomes more and more dependant on a good relationship between the minister and House Speaker Rodrigo Maia. But, as Brazil struggles to deal with the impacts of the Covid-19 pandemic, the cracks in this alliance are beginning to show.&nbsp;</p> <p>Mr. Maia publicly called out the minister in an <a href="">interview with newspaper <em>Folha de S.Paulo</em></a>, by criticizing the government’s answer to the crisis—saying the Economy Ministry&#8217;s plan was &#8220;almost nothing&#8221;—and Mr. Guedes&#8217; personal way of pushing the responsibility to lawmakers by using an emergency meeting about Covid-19 to ask for them to approve reforms.&nbsp;&nbsp;</p> <p>“I can’t believe that a 70-year-old man, with his experience, had sent [the economic plan] with this intention. The crisis is so big we cannot think that the Economy Minister of one of the largest economies in the world might have thought in such a mediocre way,” said Mr. Maia, adding that, in lawmakers’ opinion, Mr. Guedes has not proposed anything substantial to address the pandemic’s impacts on the economy.&nbsp;&nbsp;</p> <p>Mr. Guedes answered by redirecting BRL 5 billion to the Health Ministry, with the possibility of doubling the amount, in an effort to beef up the efforts to fight off the novel coronavirus. On Friday, a further 20 measures were announced, with the Economy Ministry backing away from its much-criticized stance that structural reforms were the only antidote to the crisis.</p> <p>Mr. Guedes announced tax exemptions for the import of hospital equipment, injections of credit on behalf of public banks, and left the door open to possible measures related to the Guarantee Fund for Length of Service, a pecuniary fund offered to all workers.</p> <p>While it is hard to measure Mr. Guedes’ autonomy in this case—considering the health crisis was downplayed even by President Bolsonaro—the governments’ answer took too long, according to Mr. Berenguer. Moreover, adds Mr. Cortez, it is unlikely it will have any impact on improving the minister’s popularity, “only limiting the damage.”</p> <h2>Silver lining </h2> <p>There’s a reason why Paulo Guedes is insisting on pushing forward his reformist agenda. GDP growth estimates are being reduced by the day: while the government still officially expects 2.1 percent growth this year, the private sector has been projecting GDP to rise somewhere around the 1 percent level. In an interview with <a href=""><em>Veja</em> magazine</a>, the minister admitted that without reforms, this year it will be “even harder to grow by 1 percent.” </p> <p>As we reported on <a href="">March 12</a>, slow growth perspectives are making Brazilian stocks less attractive to foreign investors, thus reflecting in the local market—a longtime stronghold of Mr. Guedes. </p> <p>Both analysts agree that investors’ worries are tied more to growth estimates and the ability to deliver the promised reforms than to the figure of Paulo Guedes himself. They agree, though, that delivering expected growth is crucial, whether to strenghten his position even more or to avoid a replacement—an unlikely scenario that could stir as much trouble as the current economic conundrum. 

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Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Before joining The Brazilian Report, she worked as an editor for Trading News, the information division from the TradersClub investor community.

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