Eyeing re-election, Bolsonaro writes checks his budget can’t cash

With flatlining approval ratings, President Jair Bolsonaro wants to pander to low-income voters in order to boost his re-election chances — which according to polls seem rather slim. A series of proposals to beef up social programs and aid initiatives are on the government’s agenda — worrying investors that an administration that promised to be radically pro-market might be on the cusp of exceeding Brazil’s budget controls.

The president has hemorrhaged political support in 2021, following the expiration of the coronavirus emergency salary scheme — which was the biggest handout program ever implemented in the country. It reduced extreme poverty levels to record lows, but its termination saw rates immediately go back up again. 

Coupled with rampant inflation and a generational job crisis, deteriorating economic conditions are taking a toll on the president’s standing.

This week, Mr. Bolsonaro presented Congress with a provisional decree increasing Bolsa Família cash transfers by at least 50 percent — and widening its reach from 14.6 to 16 million families. The president’s congressional allies, who have an eye on their own re-election in 2022, want an even steeper rise, doubling the amount handed out to beneficiaries.

Following the announcement of the new program, the Brazilian Real crashed to BRL 5.30 : 1 against the U.S. Dollar, with devaluation only slowing after Citizenship Minister João Roma, who oversees social programs, restated the government’s commitment to the federal spending cap. 

“Mandatory expenses already eat up most of the budget — and the administration simply has no money to bankroll this program,” says Alex Agostini, head economist at Austin Rating. “Markets...