ECONOMICS Bloomberg Businessweek March 1, 2021More Flavors of
State Aid
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FROM LEFT: EDU CHAVES/FOTOARENA/ZUMA PRESS; DAMIEN MEYER/REUTERS. DATA: BLOOMBERG CALCULATIONS ON EUROSTAT AND EUROPEAN CENTRAL BANK DATAEmmanuel Macron’s government is digging deep
into its policy toolbox to find ways to transition the
economy back to normality and fulfill the presi-
dent’s pledge to support businesses and workers,
“whatever the cost.”
A plan being prepared in Paris would deploy
state guarantees to back €20 billion ($24 billion)
of so-called participative loans. The instruments,THE BOTTOM LINE With his sights set on reelection, Brazilian
President Jair Bolsonaro is indulging his interventionist impulses.
His reformist economy minister may soon call it quits.last line of defense against Bolsonaro’s natural
inclination toward interventionist policies. The
stakes are rising as Brazil’s economic recovery sput-
ters and Bolsonaro increasingly focuses on the 2022
presidential race, which is beginning to look like an
uphill battle for him. A recent poll puts his approval
rating at below 33%, an 8-percentage-point drop
since the end of October. The expiration of an emer-
gency program of cash handouts for poor Brazilians
has been a factor in the president’s declining popu-
larity, along with a pronounced rise in the price of
rice and other staples of the Brazilian diet.
Guedes is “in a complicated spot,” says Sergio
Vale, chief economist with MB Associados, a con-
sulting firm in São Paulo. “With the president look-
ing at reelection, prices climbing as they are, and
his popularity this low, the economy minister ends
up being steamrolled.”
The Petrobras chief executive officer’s ouster
underscores Guedes’s waning influence as it echoes
a confrontation in 2019, when Bolsonaro suspended
a planned fuel price hike by the oil company. Guedes
stepped in then and persuaded Bolsonaro to stop
meddling. This time the minister remained silent as
the president unceremoniously dispatched Roberto
Castello Branco, even though Guedes had personally
recruited his fellow University of Chicago alumnus to
help him implement the pro-market economic poli-
cies for which the school is renowned.
The day after Castello Branco was removed,
Guedes canceled his participation in an online
event discussing Brazil’s bid to join the Organization
for Economic Cooperation and Development. His
office declined to comment for this story.
Investors once harbored hopes that Guedes
would be able to capitalize on his 2019 success
in overhauling Brazil’s social security system—a
feat that eluded at least four administrations—
to advance the rest of his reform agenda. But
Bolsonaro has since shot down several of his pro-
posals, including one to simplify the country’s
Byzantine tax system.
That Bolsonaro no longer shows any qualms
about undermining his economy minister leaves
former members of the economic team wondering
what is keeping him in office. “Guedes is resilient,
obstinate, and determined, but didn’t realize he’s
been defeated,” said Salim Mattar, whom Guedes
drafted to oversee the privatization program, in an
interview published in the newspaper O Estado de
S. Paulo. Mattar stepped down last year saying he
was frustrated by the lack of progress in sales of
state assets.
Guedes, who publicly threatened to quit in 2019
if his social security reform got watered down,doesn’t want to leave before building an economic
legacy he can be proud of, according to three offi-
cials close to him. Yet he’s started to signal that his
future in government hinges on the fate of an emer-
gency bill now before Congress.
The legislation would amend the constitution to
allow the administration to breach the cap on fed-
eral government spending for a second consecu-
tive year, paving the way for another round of cash
payments for poor Brazilians. In exchange, it estab-
lishes a new protocol for future emergency spend-
ing. But even if it gets approved, investors are losing
faith that Guedes can reinstate fiscal austerity in
Brazil this year, as he has pledged to do.
The outlook for other reforms Guedes has cham-
pioned has become more uncertain since Arthur
Lira was elected speaker of the lower house of
Congress, replacing Rodrigo Maia, who was instru-
mental in getting the social security reform passed.
Lira is more closely allied with Bolsonaro than his
predecessor was and has publicly pledged to sup-
port the president’s economic agenda. “Of course
the new house leadership is more tolerant of inter-
ventionism,” says Kim Kataguiri, a lawmaker from
Maia’s Democrats party. “Lira has been elected
on a public-spending platform, and, behind the
scenes, he is a fierce critic of economic liberalism.”
—Martha Beck, Samy Adghirni, and Simone Iglesias,
with Caroline Aragaki○ To help avert a wave of corporate defaults, France is resurrecting
a financial instrument introduced in 1978○ Guedes