After Jair Bolsonaro took office in 2019, most reforms stalled amid political turmoil and covid-19. Now, with elections looming, time is running out
A MEME THAT circulated recently on Twitter in Brazil depicted the economy minister, Paulo Guedes, as a footballer facing a wide-open goal. He shoots. The ball soars over the crossbar. The meme refers to a proposed tax reform that Mr Guedes has been trying to get through Congress but it also reflects growing pessimism about the government’s entire economic agenda.
External factors also helped. Rising prices for commodities such as iron ore and soyabeans, among Brazil’s leading exports, boosted growth and tax revenues. Low interest rates in rich countries like the United States drove investors to emerging markets like Brazil. But as Congress heads into budget talks, Mr Guedes is struggling to figure out how to dole out more cash without busting through the reimposed spending cap. At first he wagered that inflation would slow in the second half of the year. This would provide a fiscal boost, since the spending cap rises in line with the inflation rate in the middle of the year, whereas increases in some salaries and benefits paid by the government depend on the inflation rate at the end of the year.
For the past three weeks, the central bank’s poll of economists has trimmed their prediction for growth in 2021, to 5.2%. The markets have gone into reverse. Share prices have fallen by 11% since June and the real has depreciated by 6%. The sell-off followed a dip in commodity prices and fears that the Federal Reserve would soon raise interest rates, again sucking money out of Brazil and other emerging markets.
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