Salvador Even fans of Jair Bolsonaro are likely to be surprised by the number and extent of the scandals that the Brazilian president has caused during his tenure so far. All those who thought it wouldn’t get that bad always referred to Paulo Guedes.
For the Brazilian economy, for example, the super minister for economics and finance was a guarantee that the government would embark on a sensible and liberal reform course. The President himself always referred to the Chicago economists on all economic issues.
But the picture has changed. Guedes is increasingly becoming a burden for Bolsonaro. The former investment banker is now so weakened that Bolsonaro is now even holding press conferences with him to strengthen him. “There will be no adventures in the economy,” Bolsonaro assured most recently with a view to the financial markets. The Brazilian stock index had lost ten percent in the past week, and the real plunged five percent against the dollar.
The reason for the panic reactions of financial investors is actually the personality of Guede himself. The former guarantor of stability suddenly opens the state money locks. The legally permitted spending limit no longer applies. “Better to do a little better socially than to get an A in budget discipline,” said Guedes last week.
Top jobs of the day
Find the best jobs now and
be notified by email.
Four state secretaries surprisingly resigned from their offices in protest, and 16 high-ranking employees have left Guedes’ team since the beginning of 2019. It is an open secret that economists are now leaving the government in order not to be held responsible for disregarded budget rules in the future.
For Bolsonaro, the latest developments are threatening – because his chances of a second term in the elections in a year’s time are dwindling. His approval rating is currently 25 percent, and the trend is downward.
Bolsonaro is losing support in the economy
Ian Bremmer, head of the political consultancy Eurasia Group, now sees no “second round” for Bolsonaro. Above all, his support in the economy is falling. “Many investors and companies who supported him will no longer do that.”
Because Bolsonaro and Guedes are destroying the last foundations that still support Brazil’s economy. The spending brake was only introduced in 2017 and gave Brazil the lowest interest rates in its economic history.
That is over now. Investment banks such as UBS anticipate that the Brazilian central bank will have to raise the key interest rate to over ten percent in January in order to contain inflation.
General inflation in Brazil has already risen to over ten percent, the prices of an average grocery basket have risen by as much as 16 percent in the past twelve months. The devaluation of the real also increases inflationary pressure.
Because the central bank has to keep interest rates high for longer, investment banks are downgrading their growth forecasts for the next year. Credit Suisse, for example, is still anticipating a meager increase of 0.6 percent in 2022. Economic output is currently still 3.2 percentage points below the level of 2014, the last year of growth.
The reason Bolsonaro and Guedes disregard the spending rules is the president’s declining popularity. In the final report of a committee of inquiry in the Senate, he was accused of having committed nine crimes in the course of the pandemic – including crimes against humanity and charlatanry, because to this day he recommends ineffective drugs against corona instead of vaccinations.
It is true that the charges will have no criminal consequences for him because the attorney general has so far rejected every charge. But the fact that a total of 70 people from Bolsonaro’s environment – ministers, ex-ministers, high-ranking military officials, companies and his sons – are also accused in the report is already seriously disrupting government operations and providing the opposition with ammunition for the election campaign.
In order to divert attention from this misery and to support his popularity with the poor, Bolsonaro now wants to increase social assistance a year before the elections. He succeeded in doing this once last year – but since the poor are now suffering from inflation, it is unclear whether his strategy will work this time.
Ex-President Lula da Silva leads in polls
Rumors are already circulating in Brasília that in the event of an election defeat, the president will want to become a member of parliament or a senator in order to protect himself from trials through immunity. In polls, Luiz Inácio Lula da Silva, who was president of the country until 2011, clearly leads.
Many entrepreneurs are not very enthusiastic about the former trade unionist and labor leader, whose government was involved in the biggest corruption scandal in the history of Brazil. However, political expert Bremmer does not expect a massive outflow of capital if Lula wins the elections. “I even expect the economy to be more stable,” says Bremmer. He expects Lula to lead a social democratic government that is committed to workers and employment – but not radically nationalized or expropriated.
It is still unclear whether the Brazilians will only have the choice between Bolsonaro and Lula. Former President of the Congress Rodrigo Maia says: “Bolsonaro’s falling popularity makes room for a new middle candidate.” The favorites for a candidacy are João Doria (66), governor of São Paulo, and Eduardo Leite (36), his direct competitor in the right-wing liberal PSDB party and governor of Rio Grand do Sul.
More: Comment: Europe threatens to lose touch with South America