Paulo Guedes is losing the battle for Brazilian public spending

On August 10, The Brazilian Report’s José Roberto Castro explained the internal struggles within the Jair Bolsonaro administration over control of the federal budget. The tug of war opposed the Friedmanites in the Economy Ministry — in favor of a hands-off approach to the economy — and the government’s military wing, which supports massive spending on infrastructure to generate wealth and development. Just one day later, it seems clear that the latter is winning the war.

Privatizations Secretary Salim Mattar and Debureaucratization Secretary Paulo Uebel resigned on Tuesday evening, citing frustration with the lack of progress in the ultra-liberal agenda the government has proposed for the Brazilian economy. In 2018, Economy Minister Paulo Guedes promised a wave of privatizations to shrink the “mammoth-sized Brazilian state.” Even sacred cows such as oil company Petrobras would be handed over to private control. But so far, the administration has not managed to privatize one single company, aside from a few subsidiaries.

And the state continues to be just as enormous as it was when Mr. Bolsonaro took office in January 2019.

Many of the libertarian economists in the government say — sometimes openly — that the president is caving to calls for enhanced public spending amid the pandemic, a vision diametrically opposed to what Mr. Guedes believes in. It is worth remembering that the Economy Minister argued in favor of an even smaller presence of the state in the economy, as the coronavirus started to ravage companies.

But the promise of a huge infrastructure program to boost Mr. Bolsonaro’s chances of reelection is now growing more popular within the administration, making the Friedmanites increasingly disgruntled.

Since the start of Mr. Bolsonaro’s term, eight top members of the government’s economic team have resigned — many out of frustration by the futility of their efforts, as was the case of former Banco...