Paulo Guedes is the economic “guru” of Jair Bolsonaro, who will almost certainly be elected president of Brazil on October, 28.

Since the beginning of the election campaign, Bolsonaro – who is self-proclaiming ignorant when the issue is economics – has delegated to Paulo Guedes the positioning on the programmatic issues that involve the economy.

But who is Paulo Guedes and, above all, what to expect from him in terms of economic policy?

Guedes, born in 1949, is a PhD in economics, a title won at the University of Chicago (known for defending ultraliberal positions) and has taught at some of the most important Brazilian universities. He was one of the founders of Banco Pactual, has directed several investment funds and companies and is currently a member of the Millennium Institute, together with Gustavo Franco, one of the creators of Plano Real.

Bolsonaro and Guedes have not formalized a real government program, but according to statements and interviews released in recent months it is possible to hypothesize what the key points could be.


  1. Deficits and public accounts

Guedes has promised to cancel the fiscal deficit (it will reach 160/180 billion reais in 2018) within a year. How? Through an aggressive privatization plan, pension reform and administrative reform to “streamline” the state.

Regarding the maintenance of the “spending ceiling” (established by the Constitution), which prevents the overruns of public spending, his position is not clear: given that about 93% of public spending is allocated to compulsory expenditure (salaries, pensions etc.), Guedes tasked the responsibility to the political class, responsible for the approval of the reforms and to cut costs even in key areas such as education and health.


  1. Decentralization

According to Guedes, tax reform will have to give priority to States and Municipalities, with greater revenues (to the detriment of the federative Union) and therefore also with greater managerial responsibilities. The central government will have to reduce the Ministries, which will have more of a coordinating role than an operational one.

Resources intended primarily for safety, education and health will need to be managed in a more local way, depending on the specific needs of each community.


  1. Privatization

For Guedes, all state-controlled companies should be privatized or extinct. It is estimated that an aggressive plan of privatization could bring about 800 billion reais to the coffers of the State, more than enough to guarantee the elimination of the public deficit and to reduce the cost of debt that today is around 70% of GDP.

Even the same Petrobras, still the pride of the state subsidiaries despite the systematic looting by the PT, should be entirely privatized.

Bolsonaro, until yesterday defender of a growth of the weight of the state in the economy, however, does not agree and defends the maintenance of the control of “strategic” companies, in particular linked to the energy sector (such as Eletrobras).


  1. Pension reform

It is a crucial point for the balance of public accounts, which the Temer government has not had the strength to solve, and it will be one of the first test benchs of the new government.

Guedes defends the introduction of a new contributory system, which applies to those accessing the labor market (a sort of private pension fund), and the modification of the current system, which necessarily requires retirement age, cutting “gold pensions” and – at the same time – a lower burden on businesses.

It will be interesting to measure the capacity of Bolsonaro’s political articulation on such a sensitive issue that affects the direct interests of millions of people.


  1. Increase in jobs

According to Guedes, through the elimination of the deficit a strong reduction in interest rates (even today among the highest in the world) will be possible, encouraging the growth of productive investments and employment.

To reduce the cost of labor and incentivize the bargaining of new workers by companies, workers will be given the opportunity to choose between the current regime (which strictly regulates the relationship with employers) and the negotiation of the individual contract directly with the company.


  1. International trade

Guedes defends a greater international openness of the Brazilian economy, today one of the most closed. Therefore, it provides for the reduction of import tariffs, the revision of non-tariff barriers (linked to health, technical, regulatory, etc.) and, in parallel, the creation of international bilateral agreements.

This intervention, if placed in practice, could have a profound impact on the importing companies, with a huge potential expansion of its markets.


To conclude …

As reported at the beginning of the post, the economic program of Bolsonaro is still, intentionally, nebulous. Given that his electoral strength is not based on the proposal for a consistent government program but on anti-corruption and anti-PT sentiments, Bolsonaro cunningly does not want to wear out prematurely by making public proposals on the crucial issues of the economy.

Those who elect him will discover over time the positive and negative consequences of their vote, in economic terms. The well-founded suspicion that there is still a lot of improvisation, even if the economic team seems high level, is certainly a disturbing element, but we must resign ourselves and cross our fingers ....