Has Economy Minister Paulo Guedes lost his mojo?

</p> <p>He was seen as the guarantee that a historically unadventurous Congress would promote genuine reforms to the federal administration. And Mr. Guedes&#8217; agenda was incredibly bold. Presented as Mr. Bolsonaro&#8217;s economic tsar, he talked about privatizing &#8220;every single state-owned company,&#8221; and even mentioned selling the presidential palace. Nothing was sacred, and he supported scrapping long-held labor rights in favor of a &#8220;more business-friendly&#8221; atmosphere in Brazil.</p> <p>All of this was music to the ears for markets, which promptly rallied behind Jair Bolsonaro&#8217;s presidential bid.</p> <p>But after 18 months in office, Paulo Guedes&#8217; aura appears to have faded. He has yet to carry out a single privatization project, and the most politically successful policy of this administration — the BRL 600 (USD 110) coronavirus emergency salary — is diametrically opposed to the liberal hands-off approach to the economy he has always preached.</p> <iframe src="https://open.spotify.com/embed-podcast/episode/7EfKNHDy1U5f46DI0Z1v8z" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe> <hr class="wp-block-separator"/> <h2>Promising too much, delivering too little</h2> <p>The Economy Minister has become known for his bold promises which are rarely met with results. Only this week was he able to submit a tax reform proposal to Congress — and still, it was <a href="https://brazilian.report/power/2020/07/22/brazil-promised-tax-reform-overhaul-more-tweak/">just a tweak in Brazil&#8217;s uber-complex tax structure rather than a proper overhaul</a>.</p> <p>As a matter of fact, Mr. Guedes&#8217; promises to present grand projects &#8220;next week&#8221; has become a running joke in Brasília, says journalist Thomas Traumann, who served as an aide to former President Dilma Rousseff and wrote a book about being Brazil&#8217;s finance minister, which he calls “The Worst Job in the World.”</p> <p>“His quotes about bringing ‘trillions of reais’ to Brazil with each new project — from concessions to real estate deals or savings on social security — have become folklore. But Economy Ministers cannot become folklore,” wrote Mr. Traumann.</p> <p>But nothing stops Mr. Guedes&#8217; bold predictions. In a recent interview with CNN Brasil, Mr. Guedes announced that four major privatizations would happen within three months — a considerable stretch after failing to approve a single one in 18 months. However, Mr. Traumann told <strong>The Brazilian Report</strong> that even failing to keep his promises, the Economy Minister still has the financial market’s trust.&nbsp;</p> <p>“Since the pandemic began, he has largely ignored the press. Brazil went into what looks like the worst crisis on record, and the minister has made no effort to talk to the population. But he has done dozens of live webcasts with banks. It is quite telling. When he has to explain something, he speaks to financial markets,” ponders Mr. Traumann, adding that this approach is a “mistake.”</p> <iframe src="https://open.spotify.com/embed-podcast/episode/7DCpGghOuPjJLZWmZPOgnj" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe> <hr class="wp-block-separator"/> <p>Mr. Guedes tells another side of the story to uphold his legacy in office. In the CNN Brasil interview, he complained about people who give credit to Congress for reforms, and not the government. He also claimed Brazil had been on track for 2.5 percent GDP growth in 2020 before the pandemic hit.</p> <p>Brazil, he says, is ready to “surprise the world.”</p> <p>Former Finance Minister Maílson da Nóbrega praises Mr. Guedes expertise but thinks he is making a mistake with his exaggerated pledges. “I think the minister excessively elevates his role as someone who needs to shape expectations, this idea that he needs to send wonderful signals, to animate the market. It tends to fall into disrepute if it doesn’t materialize.”</p> <p>Mr. Nóbrega also disagrees with the minister’s evaluation of the Brazilian economy’s status. “He keeps saying that Brazil is going to surprise the world, I don’t see any forecast supporting this. Or that Brazil was taking off before the crisis, it wasn&#8217;t. The data for January and February already showed a decline of activity.”</p> <h2>The answer to the pandemic</h2> <p>The pandemic has changed the minister’s message and, according to him, the route of the Brazilian economy. However, he took a while to publicly admit how dramatic the effects of the pandemic would be.</p> <p>When the first signs of Covid-19 in Brazil arrived, Mr. Guedes insisted that the best the government could do was <a href="https://agenciabrasil.ebc.com.br/economia/noticia/2020-03/guedes-diz-que-resposta-crise-sao-reformas">approve more liberal reforms</a>. A few days later, he said he could defeat the coronavirus’ effects on the economy with BRL 5 billion (USD 936 million).</p> <p>For comparison, the government&#8217;s coronavirus emergency salary program — that the Economy Ministry agreed to pay after pressure from the Congress and other sectors of Bolsonaro’s administration — <a href="https://www.correiobraziliense.com.br/app/noticia/economia/2020/07/01/internas_economia,868389/medida-provisoria-libera-mais-r-101-bilhoes-para-o-auxilio-emergencia.shtml">will cost BRL 252 billion</a> alone, 50 times the magic number Paulo Guedes suggested it would take to beat Covid-19.&nbsp;</p> <p>Now, however, the Economy Ministry has agreed to continue the emergency aid and uses the program as political propaganda. Mr. Traumann sees this change as “a matter of survival.”&nbsp;</p> <p>“It is a matter of adaptation. Few people were as keen to be a cabinet minister as Paulo Guedes; this differs from his predecessors. He looked for a candidate so he could become a minister.” Typically, this works in the opposite direction.</p> <p>The positive impact of the emergency salary on <a href="https://brazilian.report/power/2020/07/05/bolsonaro-wants-to-win-over-brazil-northeast-region/">Jair Bolsonaro’s popularity</a> encourages further steps. For the post-pandemic scenario, the government plans to increase cash transfer programs.&nbsp;</p> <p>Maílson da Nóbrega sees Paulo Guedes&#8217; acquiescence to this plan as a sign that the Economy Minister supports Mr. Bolsonaro&#8217;s reelection plan.</p> <figure class="wp-block-image size-large"><img src="https://brazilian.report/wp-content/uploads/2020/07/vac_economia_140120117a76145564.jpg" alt="Presidente Jair Bolsonaro (left) and Economy Minister Paulo Guedes talk to reporters in Brasília. Photo: Valter Campanato/ABr" class="wp-image-45054" srcset="https://brazilian.report/wp-content/uploads/2020/07/vac_economia_140120117a76145564.jpg 1024w, https://brazilian.report/wp-content/uploads/2020/07/vac_economia_140120117a76145564-300x225.jpg 300w, https://brazilian.report/wp-content/uploads/2020/07/vac_economia_140120117a76145564-768x576.jpg 768w, https://brazilian.report/wp-content/uploads/2020/07/vac_economia_140120117a76145564-610x458.jpg 610w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Presidente Jair Bolsonaro (left) and Economy Minister Paulo Guedes talk to reporters in Brasília. Photo: Valter Campanato/ABr</figcaption></figure> <h2>How Guedes fits in Bolsonaro’s government</h2> <p>At the time of the election, Paulo Guedes was a pillar of the Bolsonaro administration, being dubbed a “<a href="https://brazilian.report/newsletters/brazil-weekly/2019/07/06/super-ministers-moro-guedes/">super minister</a>,” alongside Justice Minister Sergio Moro. But one and a half years later, the man to whom Mr. Bolsonaro promised to hand over the reins of the economy appears to have lost influence.&nbsp;</p> <p>The main sign of this shift in prominence within the government was the announcement of the “<a href="https://brazilian.report/newsletters/brazil-daily/2020/04/30/brazil-bolsonaro-economic-team-falls-out-over-infrastructure-plan/">Pro-Brazil Plan</a>,” a project to recover the post-pandemic economy by spending billions on infrastructure investments, hardly in line with Mr. Guedes&#8217; economic credo. Headed by Brazil&#8217;s Chief of Staff — and not the Economy Ministry — Mr. Guedes likened the plan to &#8220;pickpocketing the government.&#8221; Around the same time, the resignation of Sergio Moro showed no-one is untouchable in the Jair Bolsonaro administration.</p> <p>“I don&#8217;t think there ever was a super-minister. Mr. Guedes continues to be important to the market because he still has the ear of the president. There are not many who have this. He has a special relationship that Sergio Moro never had,” appraises Mr. Traumann.&nbsp;</p> <p>Mr. Nobrega, who was Finance Minister in the late 1980s, thinks Mr. Guedes made a mistake by concentrating power and creating excessive expectations about his own performance. The former minister feels Mr. Guedes has good ideas, despite his old-fashioned concept of the role of the minimal state, but says he is failing in his execution.</p> <p>“He deluded himself that, coming to the government, with the president’s support, he was going to save Brazil. He ended up developing a perception that the past was all wrong, not quite. The minister is just one gear in the machine,” said Mr. Nóbrega.</p> <p>And both Mr. Traumann and Mr. Nobrega wonder about Jair Bolsonaro&#8217;s commitment to an ultra-liberal economic agenda. Mr. Nóbrega points out that the president has, in his whole career, positions which are entirely opposed to Paulo Guedes’ ideas. Mr. Traumann emphasizes that Mr. Guedes&#8217;s room to enforce his ideas is limited.</p> <p>“Having the president’s attention does not mean he won&#8217;t interfere. Take the administrative reform, which will change the rights of government officials. Has he not sent it to Congress yet because the bill is not ready? Is it because his team is lazy? No. He hasn’t sent it because the president didn’t agree with it.”</p> <h2>Still the guarantor?</h2> <p>The crisis is going to be a tragedy for the Brazilian economy, hindering a route to recovery that was already difficult. This December, the <a href="https://brazilian.report/newsletters/brazil-daily/2020/05/14/high-debt-levels-prevent-v-shaped-recovery-for-brazil/">debt-to-GDP ratio is set to reach close to 100 percent</a>. The country will suffer mass unemployment, and the most optimistic economic forecasts project GDP plummeting around 6 percent.</p> <p>Though he depends on the president’s goodwill to propose reforms, Mr. Guedes is still adamant Brazil is ready for lift-off. And many believe him, especially in the financial market. Compared to his predecessors, Mr. Traumann thinks Paulo Guedes has a particular profile that engages financial markets.</p> <p>“They believe in him because he is from the market, he is one of them. Paulo Guedes did not come from academia or politics, he <em>is</em> the market. He was a trader, he founded a bank, dabbled in currency exchanges, and played on the stock market,” analyses Mr. Traumann.</p> <p>How long this trust is going to last is uncertain, but the post-pandemic policies and Jair Bolsonaro’s approach to the 2022 election will probably play a fundamental role.</p> <p>“Guedes has become more and more Bolsonaro because his job depends on it. And there is a challenge because Brazil will emerge [from the pandemic] more impoverished, more unequal, with <a href="https://brazilian.report/newsletters/brazil-daily/2020/05/14/high-debt-levels-prevent-v-shaped-recovery-for-brazil/">lower growth potential and higher debt</a>. Paulo Guedes continues to be resistant to public spending, correctly so. But in the end, the president’s personal political project may speak louder,” says Maílson da Nóbrega.