Paulo Guedes (*), Minister of Economy, has always been considered an irreplaceable element of the Bolsonaro government and his economic “guru”.

Since the beginning of the election campaign, Bolsonaro – who proclaims himself ignorant in economics – has delegated to Paulo Guedes the positioning on programmatic issues that involve the economy.

But the position of Guedes, considered immovable until a few months ago (like Sergio Moro, on the other hand) is increasingly in danger and the issue that is causing him to waver is more political than economic. Even though Bolsonaro was elected without having presented a real economic program, Guedes’s presence as “super minister of the economy” was aimed at presenting himself with a “liberal agenda”. Economic operators, entrepreneurship and finance, gave a vote of confidence on these bases, betting on Guedes’s political ability to implement the reforms necessary for the modernization of Brazil.

After a year and a half, it is possible to state without denial that the government did not have the technical capacity to prepare reforms to the height and not even the political strength to have the few requests presented by parliament approved.

But it is not just a question of Bolsonaro’s political weakness, linked to the lack of a majority in parliament. Over the months, the so-called “military wing” has consolidated in the government, with the presence of numerous former generals in key administration posts (including those not related to the defense sector). One of the first signs of interference in the economic area was the presentation, in April, of the “Pro-Brasil” plan, a sort of Marshall plan to stimulate economic recovery, prepared by the “military wing” of the government, without the minister of the economy, Paulo Guedes, had not even been consulted.

Regardless of the content of the plan (a measly 7-page powerpoint, including the cover), the message for Guedes had been loud and clear: he was no longer the exclusive and omnipotent head of government policy in the economic area. From that moment on, Guedes’ “frying” process began, which reached a new peak last week, when two important secretaries of the government’s economic area resigned: Salim Mattar (privatizations) and Paulo Uebel ( de-bureaucratization). Paulo Guedes himself spoke of “debandada” (run away), as if to warn Bolsonaro about his possible exit from the government.

Salim Mattar resigned because he was dissatisfied with the pace of privatization and because he understood that there is strong resistance within the government itself; Uebel left for disagreeing with the government’s strategy, which he accuses of having shelved administrative reform in order not to face the reaction of the influential category of public servants.

It is now clear that for Bolsonaro the “liberal agenda” is a fruit of the past. With the elections of October 2022 approaching and with the increasingly strong influence of the military, the tendency to increase public spending and strengthen the presence of the state in the economy will be increasingly evident. The coronavirus emergency itself is favoring this direction, given that the sacrosanct emergency aid to the poorest strata of the population is strengthening Bolsonaro’s popularity in this social segment. For a populist president this is an opportunity to strengthen himself, even if the effects on public debt and consequently on the economy could prove disastrous for the country.

To conclude this brief analysis, here is a summary of the partial results of the “liberal agenda” built by Guedes. His programmatic flagships were, at the time of the elections at the end of 2018, these 6:

Elimination of the fiscal deficit by the end of 2019, through an aggressive privatization plan, pension reform and an administrative reform to “streamline” the State.

Decentralization, through a tax reform that privileges states and municipalities, with higher revenues (to the detriment of the federative union) and therefore also with greater management responsibilities. Reduction of Ministries, which will have more a coordinating role than an operational one.

A massive privatization program, with revenues of around 800 billion reais, more than enough to guarantee the elimination of the public deficit.

Pension reform

Increase in employment, through a sharp reduction in interest rates – encouraging the growth of productive investments and therefore employment – and a regulatory flexibility of relations between companies and workers.

Greater international openness of the Brazilian economy, through the reduction of import customs tariffs, the revision of non-tariff barriers (related to health, technical, regulatory, etc. requirements) and, in parallel, the creation of international bilateral agreements.

More than a year and a half since the start of the Bolsonaro / Guedes management has now passed and the results are not exactly what they expected, to put it mildly.

Public debt reached, at the end of the first half of 2020, the record percentage of 85.5% of national GDP. The forecast is that 98% of GDP will be reached by the end of 2020; in 2018, it was 78%. The crisis caused by the coronavirus pandemic contributed significantly to this result, but at the end of 2019 the result was still in line with that of 2018.

Decentralization has practically remained at stake. The tax reform is beginning to take its first steps and not exactly in the direction hoped for by Paulo Guedes and his team.

No privatization has yet been carried out. Indeed, a new state-owned company was created, NAV – Brasil Serviços de Navegação Aérea born in September 2019 from the spin-off of part of Infraero.

The pension reform has instead gone through, but much of the credit goes to the previous Temer government, which handed it over to Bolsonaro on a silver platter.

The unemployment rate is at 13.1% and in the first half of 2020 alone 1.2 million formal jobs were lost. Even before the coronavirus crisis, unemployment was still slightly below 2018 levels.

The process of greater openness of the economy at the international level has not even begun. On the contrary, due to the disastrous policy in the environmental area, it has also put the agropecuary sector in difficulty, the spearhead of Brazilian exports.

If we add the record devaluation of the real, which during the Bolsonaro presidency lost 42% of its value against the dollar and the low GDP growth in 2019 (1%), the balance sheet of the Guedes management is so far very modest.

(*) Paulo 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 the Plano Real.