Brazil’s new finance minister faces difficult economic challenges

Brazil’s newly appointed Finance Minister, Paulo Guedes, faces a daunting challenge: to bring Latin’s America’s biggest economy back to full health, following the worst recession in the country’s history.

Making matters more difficult, Guedes will have very limited time to implement urgent fiscal and structural reforms to avoid a new crisis.

For now, the country’s economy is evolving positively: GDP grew at an annualized rate of 1.4% in the third quarter if 2018, at the fastest pace in 18 months. Investment rose 1.6%, marking the first positive reading in four years. Although positive, it seems a fragile recovery as we look at the 13 million unemployed workers, a staggering fiscal deficit and a massive debt-to-GDP ratio.

Guedes, who will also be in charge of planning and development, has been dubbed by the Brazilian press a “super minister.” A former pupil of Milton Friedman at the University of Chicago, he argues for smaller government and privatization.

«As a ‘Chicago Boy,’ Guedes would like to privatize everything,» says Alfredo Saad-Filho, professor of political economy at SOAS University of London. «However, his ambitions have already fallen victim to the conflicts between the president and other players close to the administration, to the extent that Bolsonaro has already intervened repeatedly to contain Guedes.» It now appears that while utility companies Petrobras and Eletrobras will be privatized, lenders like Banco do Brasil and Caixa Economica Federal will remain state-owned, Saad-Filho notes.

Another challenge is restructuring the country’s pension system. «The sooner the better,» Guedes has stated to the press. The current structure—which disproportionately benefits public servants, who can retire in their mid-50s—costs 12% of GDP.

While Guedes economic views are fairly clear, it remains to be seen where Bolsonaro and a divided and unpredictable Congress land. As some observers have already pointed out, the country’s fate is in the hands of an economist who is getting his first taste of public service—and new lawmakers who don’t know much about the economy. «A very public conflict is mounting,» says Saad-Filho, «and it started when the administration was not even in power yet

Original story: Global Finance |  Luca Ventura 
Photo: Valter Campanato/Agência Brasil
Edition: Prime Yield