November 29, 2021

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Brazil: Bolzano abandons financial austerity and loses four positions in economy ministry | Economy

The Brazilian financial market collapsed after this Friday Minister of Economy, Paulo Quitz, Announced on Thursday the decision to set aside a plan to control financial spending, a sacred study for investors. Sao Paulo Stock Exchange ends 2.94% down – worst performance in 11 months Four secretaries of the Ministry of Economy, including Bruno Fanzal, who is in charge of the special portfolio of the Treasury and the Budget, resigned this Friday, a day after Quitus’ announcement.

The social spending ceiling is the consensus that has guided the country over the past five years. The minister’s announcement had a negative impact on the country’s key economic indicators. P3, also known as the Sao Paulo Stock Exchange, reopened below on Friday. For its part, the dollar reached $ 5.70 on Friday because the Polsonoro government did not follow the purchased commitment not to touch the ceiling spent within its jurisdiction. During this time that limit was created Government of Michael Demer (2016-2018), as a financial drug for regulating the accounts of Brazil.

The minister’s idea is to exceed that limit to pay off debts, including the known ones Precaution To be paid for by court ruling – a new community plan that targets families in vulnerable situations that expire next year. The matter has been under discussion for several days in Brazil, with speculation about the launch of the project this week. Investor fears were confirmed on Wednesday and led to a return to markets. The last Focus on the newsletter, Combining the weekly forecasts of more than 100 financial institutions in Brazil, raised the inflation forecast for 2021 for the 25th week in a row, which is now projected at 8.45%.

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On Wednesday, Quitz noted the possibility of spending more than 30,000 million trains (approximately $ 5.3 billion) on the spending ceiling to support families affected by rising food prices. The Minister also raised the possibility of advancing the revision of the spending ceiling planned for 2026. For economist Jono Leeley, this would set a dangerous precedent, which would worsen the already mild situation. “If it increases the ceiling by 30,000 million riy, there will be space and pressure to increase it,” he warns.

Former President Lula da Silva has expressed interest in changing the rules, with delegates already having their objectives in next year’s elections, where Bolzano will seek a new post. On Thursday night, a housing committee approved a plan to increase the accounting gap, which would allow the government to repay its debts ( Precaution), With a further 40,000 million setbacks outside the spending ceiling.

Leal believes the change in the spending ceiling could be an incentive for state governments to do the same, which lowers the threshold for future governments. “It increases uncertainty in the face of inflation and a very strong contraction of the economy,” he adds.

Fear of the inflation cycle

There are also fears that Brazil will enter a vicious circle in which money paid into the economy will increase demand for consumer goods and consequently increase inflation. Through the Axilio Brazil program, the government wants to pay 400 rais (about $ 70) per family more than the current Bolsa Familia social assistance program, and the business sector is not prepared to meet this demand growth.

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Payments will be made from November to millions of families facing economic hardship that will accumulate double digits in 12 months due to epidemics and inflation. “The Bolsa Familia received an average of 192 rais and many 40, 60, 80 rais per month. We agreed that the new BF [ como se denomina al programa Auxilio Brasil] At an event in northeastern Brazil on Thursday, President Jair Bolsanaro said that without exception, it would be 400 rais for all.

This cash injection is most welcome to Brazilians who are starving in the midst of crisis and to the economy in general. But, without a long-term plan, and a shortage of many items – due to problems in the logistics chains due to the epidemic – prices may still rise. Everyone wants there to be social benefits. The problem is how it is planned without responsibility, ”says Leal. According to the economist, the uncertainties created by the government’s economic policy depend on the decisions of companies when making new hires or investments ahead of the election year. “Right now, companies are not making decisions, they are waiting to see the next government’s guidelines.”

To change the ceiling, it is necessary to work on a proposal to reform the Constitution (PEC), which will pass through the House and Senate. The motion must be voted on by two more rounds of House Blenary before moving to the Senate. Senate President Rodrigo Pacheco said this Thursday that the move, if approved, would be evaluated by senators as a “huge rush” but stressed the importance of transforming society, rather than taking a stand on the alternative. Plan for cost ceiling.

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This is not an alternative considered by the government’s economic committee. Quetz proposed to authorize Axilio Brazil an extraordinary 30,000 million loan, which would avoid an even bigger hole in the ceiling. However, the minister acknowledged that the decision was politically motivated. And the instability caused by the news sets the tone for official difficulties.

In practice, the minister contradicts the speech he had defended from the beginning of the government, with which he gained the unfettered support of the market. Exhausted by rising inflation and reluctance to pay court orders, the minister is now expanding his list of moves that will be criticized by investors who doubt he can put the country on a sustainable recovery path. The minister is already in the spotlight as he keeps his money abroad. As the press inquiry Pandora Documents, Published by this newspaper, at the same time Brazilians are suffering from economic instability. Shortages of raw materials have pushed up the prices of many commodities in the manufacturing and service sectors. The results of these policies will be measured in the 2022 presidential election.

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