Shaken by Team Exodus, Brazil Economy Chief Will Stay in Job

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Paulo Guedes

Photographer: Andre Borges/Bloomberg

Photographer: Andre Borges/Bloomberg

A series of high-profile resignations from Brazils economic team have left Economy Minister Paulo Guedes shaken but committed to keep pushing for reforms in the government, according to two people close to him.

The losses are also the most visible sign yet that his ambitious economic agenda is suffering a downgrade in size and scope, although his austerity plans continue to receive the public support of President Jair Bolsonaro. Later on Wednesday, the president intends to make a statement to the press, accompanied by Guedes, the heads of both houses of Congress and other political leaders.

The latest defections Tuesday night included the secretary responsible for Guedes‘ privatization plans and another in charge of overhauling Brazil’s costly public sector. Both quit saying they were unhappy with the pace of reforms, some of which have ground to a halt after the pandemic forced the government to shift resources to protect vulnerable workers and companies. Their departure comes after three other losses suffered by the economic team over the past three months.

Guedes, a University of Chicago-trained economist who became a market darling by promising to restore discipline to Brazils public finances, has no intention of leaving his job, according to the people close to him.

Instead, the minister will remain focused on the most urgent task at hand -- an overhaul of Brazil‘s tax system he deems essential to boost the post-pandemic economic recovery, said the people, who requested anonymity because they’re not allowed to discuss the topic in public.

Read More: Brazils Economic Team in Disarray After Two High Profile Losses

The resignations of Mattar and Paulo Uebel, the special secretary of de-bureaucratization, could even make privatizations and a reform of the public sector more realistic and easy to move forward, although not as bold as Guedes had envisaged them, the people added. Both men made their careers in private companies and struggled to understand the political timing and the bureaucracy inherent in the public administration.

“The government had an agenda and chose the people to implement it,” said Rafael Cortez, a political scientist with Tendencias consultancy. “The change of key names represents a break of expectations about the agenda, as well as the timing of its implementation.”

Shaken, Steadfast

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Guedes‘ dampened mood was visible late on Tuesday when he announced the departure of his team mates -- including his close friend Salim Mattar, then privatizations secretary. The minister said the successive resignations felt like a “stampede” and added that he understood Mattar’s discomfort in the government.

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Salim Mattar

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Photographer: Andre Coelho/Bloomberg

Yet he promised to fight back by pushing forward his reform agenda and made a strong defense of his plan to reimpose financial austerity to government finances in 2021, following a year of record budget deficits needed to fight the coronavirus crisis.

Read More: The Worlds Most Reluctant Keynesian Spends Big in Brazil

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Bolsonaro has been suffering strong pressure from lawmakers and even some cabinet members who want him to boost public investment in detriment of a law that freezes government expenditures for two decades.

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Guedes‘ priority, according to the two people close to him, is to defend such law, known as the spending cap, which is considered by investors as the country’s last line of defense against runaway budget deficits.

Early on Wednesday, Bolsonaro put another show of support for his embattled minister, saying his government remains committed to fiscal responsibility and the spending cap, even at a moment when a tighter budget leads ministers to seek more funds for their projects.

— With assistance by Murilo Fagundes

(Adds detail about Bolsonaros statement in second paragraph; future of privatizations and reform of the public sector in sixth paragraph.)