aimless economic policy

Image: Cyrus Saurius


The current scenario is not very different from what we saw in the Temer government

With the election of Arthur Lira and Rodrigo Pacheco to the presidency of the Chamber and Senate, President Jair M. Bolsonaro could begin to dictate the direction of the country's economic policy in the second half of his government. It is what one would expect from a government with a clear economic agenda. However, the centrão's victory seems to bring more questions than answers. In the field of fiscal policy, for example, the axis from now on will be maintaining the spending cap and approving the reforms proposed by the Ministry of Economy, or achieving greater popularity for the president through the significant expansion of transfer programs income?

The difficulty in answering this question stems from a contradiction present in the Bolsonarist project since 2018. Despite an erratic and physiological history in voting on economic measures, typical of the centrão that he now assumes as his own, Bolsonaro delegated to his “Posto Ipiranga” the speech in the economic area in the presidential elections and thus transformed his platform into a marriage of convenience between market fundamentalism and authoritarian conservatism in customs. The alliance made sense in that context. After all, the serious economic crisis of 2015-2016 was attributed in common sense to the corruption scandals that invaded the news. Bolsonaro managed to sell himself as the one who would not only rid the country of establishment political, but of the State itself, seen as intrinsically corrupt, through ultraliberal measures.

In the first two years of his government, the little that was approved of the reformist agenda (essentially the last version of the pension reform proposed by the Temer government) was due to the efforts of Rodrigo Maia. The measures announced by Paulo Guedes and his economic team do not even seem to have been designed to get off the ground. The opposition stance of the Presidency of the Chamber helped to maintain appearances of the fake marriage between Guedes and Bolsonaro. After all, in the make-believe game that helped to mobilize his most faithful base in the midst of successive frustrations in economic indicators, Bolsonaro could continue to pretend to support his Minister of Economy while Guedes could continue to attribute his difficulty in carrying out a parliamentary boycott an ambitious agenda of reforms and privatizations, and its failure to deliver an improvement in the economy even before the pandemic crisis.

In 2020, reality imposed itself and demanded the abrupt abandonment of Guedes' market fundamentalism and Rodrigo Maia's reformism. The decree of public calamity and the PEC (Proposed Amendment to the Constitution) of the war budget opened the doors for Brazil to become the 16th country among 176 analyzed in the Fiscal Monitor of the IMF (International Monetary Fund) to spend more in the confrontation to the pandemic, substantially mitigating the drop in GDP (Gross Domestic Product). The biggest of these stimuli, emergency aid, was able to create a somewhat paradoxical situation, in which indicators of poverty and inequality dropped significantly while we were experiencing one of the most serious crises in history.

Bolsonaro's rise in popularity among Brazilians at the bottom of the pyramid has exacerbated internal divisions in the project. Government wings were tempted to abandon Guedes' fiscalism and dissatisfy the market in favor of an agenda more focused on job and income generation. Getting rid of the pillar of market fundamentalism would, to some extent, bring the Bolsonarist project closer to other recent far-right experiences around the world, which combined authoritarianism with more anti-systemic discourses in the economy (such as Viktor Orbán in Hungary, for example) .

As we enter 2021 with Congress playing in our favor, the crossroads in the economic area becomes even clearer. On the one hand, the economic team no longer has excuses for not moving forward with its reform agenda. On the other hand, maintaining the center at the base of the government is expensive. The authorization of the TCU (Tribunal de Contas da União) to use the leftovers of the 2020 Budget (remainders to be paid from the extraordinary credits created) may not even be enough to meet the demands of the bloc's parliamentarians for a long time, which will say to expand transfers of income for the most vulnerable population.

It is likely that the government will not do either one or the other, that is, that we will be left with no direction in terms of economic policy until 2022. In this scenario, Bolsonaro would keep Paulo Guedes in his role of “cheerleader” of the market: he would continue to defend the spending ceiling, reforms and privatizations, but would only approve measures to make work precarious (some version of that green and yellow card), environmental destruction (regularization of public lands invaded by land grabbers in the Amazon, for example) and not very expressive cuts in mandatory expenses. Meanwhile, centrão parliamentarians would maneuver the spending ceiling to keep their bellies full.

If we look closely, this scenario is not very different from what we saw in the Temer government, which in the end only approved a labor reform and a spending ceiling that would only become restrictive for his successor. O "dream team” of the economic team was in charge of encouraging the market while the base in Congress charged dearly to avoid investigations into the president's corruption, which gained priority in relation to the approval of the pension reform. Unlike former President Dilma in 2015, who cut what she could of discretionary expenses during Joaquim Levy's management at the Treasury, Temer did not even make a fiscal adjustment. Nor did he choose to spend on items with high multiplier effects on income and employment, which would have contributed to a faster recovery of the Brazilian economy.

But Temer did not need popularity, as he would not run for re-election. It is possible that in Bolsonaro's case, the maneuvers aimed at making room in the Budget for the physiological fiscal expansionism typical of the centrão will end up finding a little place also for the extension of emergency aid or the expansion of the Bolsa Família program. Whatever the scenario, it is clear that we will once again miss what the Brazilian economy needs to return faster to the average income levels of 2014: an inclusive and sustainable recovery agenda.

*Laura Carvalho is a professor at the Faculty of Economics and Administration at the University of São Paulo (FEA-USP). Author, among other books, of Brazilian Waltz: From Boom to Economic Chaos (However).

Originally published on Nexus Newspaper.


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