Brazilian markets have been worried about government spending

São Paulo — Brazil’s stock market has moved by President Jail Bolsonaro to fund new distributions to the poor by changing the constitutional spending cap, which is the cornerstone of the country’s fiscal policy. Later this week, it lost about $ 70 billion in value.

Brazil’s real currency fell to a seven-month low on Friday, trading at $ 5.7, but this week’s stock market fell about 10% to its lowest level in almost a year.

The market downturn reflects growing anxiety about populist leaders’ economic policies. Former Army Captain when Bolsonaro took office in 2019 Promised an avalanche of free market policyPaulo Guedes, an investment banker trained at the University of Chicago, has been appointed Minister of Finance.

But Covid-19 overturned those plans. Instead, Brazil embarked on one of the most generous welfare programs in developing countries during a pandemic, paying $ 10 billion a month in emergencies.

Now, Bolsonaro says how political scientists are also trying to increase his declining approval rate ahead of next year’s presidential election, how to fund a new $ 70 per month permanent benefit for the poor. I’m looking for.

Mr Geddes said Wednesday that he is seeking an exemption from Brazil’s constitutional spending cap to fund payments. Four senior Brazilian Treasury officials reportedly resigned on Thursday.

Brazil passed a constitutional amendment in 2016. This effectively frozen federal funding for the next 20 years in line with inflation. This is a repeated financial and economic explosion as politicians get out of the political crisis.

“We are definitely in a very dangerous situation,” said Pedro Paulo Silveira, economist and director of São Paulo-based Nova Futura asset management company, saying that next year’s elections will further increase volatility and more investors. He added that it could scare him.

He said it was a great disappointment after the free market promises that the Bolsonaro administration offered at the beginning of its mission, including a series of privatizations and reforms. “”[Mr. Guedes] As a great liberal reformist, he planned to leave his mark on Brazilian history, but he did not control it. “

Mr Geddes canceled his appearance at an event in São Paulo on Friday after the Brazilian GloboNews website reported that the president’s allies had already begun to ring their names for possible replacements. Bolsonaro vowed to stand by Geddes.

Brazil’s total debt was about 83% of GDP as of August. Economists predict that levels will rise as the country faces a possible stagflation scenario. This will boost near-zero growth and high inflation next year, interest rates and the cost of debt repayment.

Bolsonaro criticized the market on Thursday for being “awkward.” “If you explode Brazil’s economy, you’ll be hurt too,” he said during a Facebook broadcast. He also promised $ 70 a month in financial assistance to 750,000 truck drivers to make up for the rise in fuel prices.

The Bolsonaro administration was funding changes in Brazil’s tax law, including a dividend tax proposal, to fund a new welfare program. However, Congress’s terrible investigation into Mr. Bolsonaro’s response to the pandemic, which ended this week, Raised opposition to the president in the Senate, Stall the bill.

With no other option, the government launched a new constitutional amendment this week to free more than $ 15 billion. An amendment approved by the Parliamentary Commission late Thursday will change the way spending caps are fixed to inflation and allow the government to defer payment of some of its judicial bonds. It must be approved by the wider House of Representatives, which is still governed by presidential supporters.

According to economists, these tactics mean that the government does not technically break spending caps, but these efforts cast doubt on the market about the government’s commitment to improving the country’s fiscal health. ..

Alexandre Schwartzman, a Brazilian economist and former director of the Central Bank, said:

Brazilian struggle

More WSJ coverage on the challenges facing Brazil, selected by the editors

Write in Samantha Pearson And Luciana Magalhaes

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Brazilian markets have been worried about government spending

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