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Six months on, Brazil economy guru Guedes' halo is slipping

Economy Jul 03, 2019 01:41PM ET
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By Jamie McGeever

BRASILIA (Reuters) - When Paulo Roberto Nuno Guedes became Brazilian Economy Minister on January 1, his star could not have been shining brighter.

A market-savvy veteran banker and Chicago-trained economist, Guedes had the clout to spearhead President Jair Bolsonaro's radical reform agenda to resuscitate Brazil's economy and prevent public finances from blowing up.

That was the broad consensus across the business community at home and abroad, which stood squarely behind his four-point agenda of slashing the size of the state, taxes and regulation, while ramping up privatization.

Six months on, however, his star has faded. As the most articulate, committed and forceful advocate of the government's reform agenda, difficulties for Guedes could dim investors' view of Brazil.

"He seems intent on snatching defeat from the jaws of victory," said Thomas Traumann, a consultant and author of a book on 14 previous Brazilian finance ministers called "The Worst Job In The World".

"His main failure has been to fail to recognize victory when he had it."

Traumann said the government's pension reform bill winding its way through Congress now probably will generate savings of around 700-800 billion reais (around $200 billion) over the next decade once concessions are granted.

While that would be below the government's goal of 1.237 trillion reais, it would be well above former President Michel Temer's bill that was on course to generate around 400-500 billion reais of savings.

But Guedes has publicly said even 850 billion reais would be virtually worthless, an "aborted" reform.

Guedes' aggressive and bullish manner have landed him in several public confrontations with lawmakers, most notably in March, when he insulted Workers Party representative Zeca Dirceu's mother and grandmother during a combative commission hearing on pension reform.

"Almost all of his agenda depends on the support of Congress, but they want the submission of parliament," Traumann said. "The Bolsonaro government's position is one of permanent conflict. This doesn't work with Congress: it never has done."


Guedes' defenders said the criticism is unfair. An economy ministry spokesperson pointed to a number of achievements in his first six months, including: progress on pension reform; the creation of 326,000 new jobs; a deal to allow development of deep water offshore fields; and steps to generate billions of reais of revenue for the government to fix the public finances.

However, a recent survey by investment firm XP Investimentos showed that Guedes' approval ratings have slid, a situation not unique to him among senior government officials and lawmakers.

But apart from Justice Minister Sergio Moro, who is embroiled in a messaging leaks scandal, Guedes' slide has been as steady and notable as any of his peers', draining him of political capital to steer through reforms.

(Graphic: Paulo Guedes - approval ratings -

Part of the problem is that Latin America's largest economy is underperforming, maybe even shrinking, due to a wide variety of factors, many of them impossible to have predicted.

High unemployment, slowing global growth, a lasting spillover from a deep 2015-16 recession, a truckers' strike last year and a mining disaster in 2019 that hit production at iron ore giant Vale (SA:VALE3) have all taken their toll.

Yet Guedes has done little to bolster his own position.

He has made clear his dissatisfaction with lawmakers and the political system he blames for snarling up the government's prized pension reform's progress. This has led to some high-profile bust ups with lawmakers broadcast live on national television.

But these are the very people Guedes needs to convince if his plans to redraw Brazil's pension system, save the public purse around 1 trillion reais over the next decade, and revive the economy are to succeed.

"Sometimes, Guedes thinks he is bigger than Brazil, but he isn't," federal deputy Marcelo Ramos, chair of the congressional special committee on pension reform, told Reuters in a recent interview.

"Brazil doesn't work for him: he works for Brazil. Things will get done with him, or someone else," said Ramos, a member of the center-right Liberal Party.

Critics say Guedes' obsessive focus on pension reform is backfiring amid a lack of clarity about what should be done in the short term to turn the economy around and reduce the ranks of the 13 million unemployed Brazilians.

In part, Guedes appears to regard the pension reform as an economic panacea. In mid-April, he said economic growth could accelerate to a 3.5% annual rate in the second half of this year if the reform was approved.

Even then, few believed that. Now, with the economy possibly in recession and set to grow by less than 1.0% this year, no-one does.

"If the super minister says 'pension reform or death' and he cannot give a sign on how far he can go with it, people are allowed to be worried, not to invest and not to consume," said a chief economist in Sao Paulo, who asked not to be identified.

"As we go toward the end of the year, recession is the obvious outcome."

Markets have recovered since troughing in late March, especially the real - which had slumped below 4.00 per dollar - a move that has coincided with Guedes drawing in his horns slightly, according to observers.

Guedes, who turns 70 in August, has dropped clear hints he will quit if Bolsonaro feels his input is not required or if pension reform is watered down too much.

"I'll get on a plane and I'll live abroad. I'm old enough to retire," Guedes told magazine Veja last month.

The prospect of Guedes resigning in a fit of pique six months ago would have sent shockwaves through Brazilian markets. Few would want to put that to the test, but his departure may not be the nightmare scenario for investors it once was.

($1 = 3.85 reais)

Six months on, Brazil economy guru Guedes' halo is slipping

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