42 The Americas The Economist November 13th 2021
I
n september2019 Paulo Guedes, Bra
zil’s economy minister, told Congress
that it could “make history” by keeping
the budget under control, adding that
“the political class shouldn’t be chasing
ministers, begging for money.” Now Mr
Guedes is backing an underhand govern
ment attempt to bypass the constitution
al cap on public spending set in 2016,
which was a crucial step towards righting
the country’s finances. He and Jair Bolso
naro, the president, are presiding not
just over a return to fiscal incontinence
but also to other economic ills that have
dogged Brazil: rising inflation, high
interest rates and low growth. And the
budget shenanigans have in turn created
uncertainty about the future of the coun
try’s flagship social programme.
In the election in 2018 Mr Bolsonaro’s
alliance with Mr Guedes, a freemarket
economist, did much to persuade busi
ness people to vote for a former army
officer of the hard right who had never
before shown any interest in liberal
economics. Mr Guedes promised radical
reform of Brazil’s swollen and inefficient
state. But this pledge has resulted only in
some useful savings on pensions, legal
independence for the central bank and
minor regulatory simplifications. Now
the reform drive is over, replaced by Mr
Bolsonaro’s scramble for money to buy
political support and popularity.
To stave off impeachment over his
mismanagement of the pandemic and
his family’s misdeeds (which they deny),
Mr Bolsonaro allied with the centrão, a
big coalition of conservative porkbarrel
legislators. When covid19 struck the
government declared “a state of calami
ty”, allowing it to offer big temporary
handouts despite the spending cap.
Poverty fell in Brazil in 2020, bucking the
regional trend, and Mr Bolsonaro’s popularity rose. In March the government
won an emergency constitutional amend
ment, punching a hole in the spending
cap, to allow at least some payments to
continue. Now the president’s plunging
approval rating is reducing his chance of a
second term in next year’s election.
A new constitutional amendment
would punch two further holes. It would
allow the government to delay making
payments ordered by courts (such as
refunding excess taxes collected). And it
would exploit a recent leap in prices by
indexing the budget to December’s annual
inflation figure (likely to be over 10%)
rather than to June’s (8.4%). These chang
es would give the government an extra
100bn reais ($18.2bn) to play with next
year, reckons Marcos Mendes, a former
economic adviser to the Senate.
Some of this money would go to Auxí
lio Brasil, a revamped antipoverty pro
gramme. This will incorporate Bolsa Famí
lia, the successful antipoverty scheme
launched in 2003 by the president at the
time, Luiz Inácio Lula da Silva. But it will
add complexity and uncertainty to it,notes Marcelo Neri, a poverty specialist
at the Getulio Vargas Foundation, a
thinktank. The government has raised
the average permanent benefit by 18%, to
217 reais per month. However, Mr Neri
points out that inflation had eroded 32%
of its real value since 2014. Mr Bolsonaro
has also promised a temporary bonus, so
that all 17m families in the scheme will
get at least 400 reais a month, but only
until December 2022. Not coincidentally,
that is just after the election.
Another large chunk of the extra
money would go on less worthy causes,
including around 18bn reais to finance
opaque budget amendments that grant
overpriced publicprocurement con
tracts to individual legislators in return
for their support for Mr Bolsonaro. These
were an innovation devised by the cen-
trão. This week a majority of the Supreme
Court ruled these secret clauses illegal.
That did not stop the lower house of
Congress approving the constitutional
amendment on November 9th. Whether
it will get through the Senate is unclear.
Either way there will be costs. Defeat
would cast doubt on the financing of
Auxílio Brasil in the future. But victory
would be pyrrhic. Four of Mr Guedes’s
senior aides resigned last month because
they opposed the amendment (the offi
cial gloss was for “personal reasons”).
Concern about fiscal policy is the “main
fuel for inflation”, says Zeina Latif, an
economist in São Paulo. The purpose of
the spending cap was to halt the re
morseless rise in public spending to
satisfy insiders, which is neither re
distributive nor efficient in overcoming
the bottlenecks that hold back growth.
Its weakening shows that Mr Bolsonaro
is not just bad for the environment, for
human rights and for democracy, but
also for Brazil’s economy. Jair Bolsonaro is bad for Brazil’s economyBelloFollowing the money
subjected to constant bright lights.
Since the regime has shown its willing
ness to kill, most Nicaraguans are now too
scared to take to the streets to protest. But
it was an important sign that so many ab
stained from the vote, thinks Ms Delgado.
The ruling couple will shrug off criti
cism from abroad. The United States and
the European Union have already imposed
sanctions on the regime’s inner circle, in
cluding Ms Murillo and at least three of the
couple’s nine children, and may add more.
Mr Biden’s administration is considering
expelling Nicaragua from Central America’s freetrade agreement, but rather than
harm Mr Ortega, that would mostly affect
the lives of ordinary folk.
The Biden administration faces a quan
dary. It does not want to destabilise the
country and send more Nicaraguans flee
ing. Since 2018 at least 80,000 have re
quested asylum in Costa Rica, the nearest
place of refuge. Almost 50,000 were appre
hended at the United States border this
year, up from just over 2,000 in 2020.
Several leaders in Latin America have
refused to condemn Mr Ortega; some be
cause they like his methods. Nicolás Maduro, Venezuela’s despot, congratulated
Mr Ortega on his win. Mr Maduro’s regime
has provided cash to help the Ortegas con
solidate their control of the media. Cuba’s
communist regime, too, has sent words of
support. Cuban police have helped train
their Nicaraguan peers in “selfdefence”
and interrogation techniques. Farther
afield Sergey Lavrov, Russia’s foreign min
ister, harrumphed at Mr Biden’s criticism
of the election. (His country supplies 90%
of Nicaragua’s military imports.) With
friends like these, Mr Ortega andMsMuril
lo’s grip on power seems secure.n