Bolsonaro Administration: First words, first acts

What can Brazil expect from the new Bolsonaro Administration when it comes to economic policy? Plenty. Perhaps the most telling indication came from the fact that the new Economy Minister, Paulo Guedes, spoke for 50 minutes after taking the oath of office while the President spent only ten. Not only that—Guedes didn’t dwell on generalities; he spelled out the government’s economic priorities. They are, in descending order of importance: pension reform, privatization, foreign trade liberalization, and tax simplification. Guedes, and aides, even offered details—the administration will send a pension proposal to Congress in February, incorporating some aspects of the reform proposed in 2016 by former President Michel Temer while adding others; trade liberalization will be gradual; privatization and concession auctions will be scheduled quickly; and tax simplification will be part of a new “national pact” designed to make government accounts sustainable. More details followed in the days after the inauguration. Guedes, for example, said the administration will pursue additional labor code liberalization designed, as he described it, “to bury the fascist-era labor laws still on the books.” In a reversal of campaign rhetoric, Mines and Energy Minister Bento Albuquerque said privatization of the Eletrobras utilities holding company is back on the table. Bolsonaro himself, in a statement, said the administration will speed up existing concession sales for railroads, airports and ports, with the first auctions scheduled for March. He estimated the likely take for government coffers at R$7 billion. Guedes, meanwhile, offered a hint of the administration’s political strategy, saying failure by Congress to adopt a meaningful pension reform would force the government to cut spending in vital areas such as health and education. Guedes also outlined some of the government’s tax reform plans, embracing the idea of eliminating whole classes of taxation, focusing on a single value-added tax and redistributing revenues to bolster state and municipal finances. The ultimate goal, he added, is to reduce Brazil’s tax burden from the current 32% of GDP to about 20%. The new administration’s first act, largely symbolic, was to scale back this year’s increase in the minimum monthly salary, choosing a 4.6% hike to R$998 rather than breaking the R$1,000 barrier as proposed by Temer in his tentative 2019 budget. In another symbolic action, the government fired 300 political appointees in the federal hierarchy as part of a plan to streamline government. Subsequent executive actions in January, ahead of the congressional session due to convene early next month, are likely to include measures reducing trade bureaucracy and business regulation. Bolsonaro summed up his administration’s main theme in brief remarks before Congress, saying: “We will replace the entanglements of ideology with respect for markets.”

Brazil-U.S. Business Council