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Bolsonaro mistakes would mean a bleak 2021: Mac Margolis

(Bloomberg) – Until recently, Brazilian President Jair Bolsonaro was doing very well with the pandemic. The virus had devastated the country, but not its government. A generous emergency aid package rescued the ailing economy and boosted its approval ratings. In addition, when Bolsonaro contracted COVID-19 after months of ignoring health protocols, he quickly recovered, thus highlighting that the scourge that had made Brazil the second-deadliest country in the world could be overcome. Not even all the requests. impeachment lawsuits filed against him for his seemingly reckless handling of the pandemic, or deforestation in the Amazon and corrupt connections turned out to be a major concern, thanks to unethical lawmakers he had befriended in Congress. It is clear whether Bolsonaro will be able to continue with these irregularities, not to mention winning reelection in 2022. What is difficult to ignore are the symptoms that indicate that next year will be problematic, with a slow economy and probably more social sacrifice, with just a hint of reform Bolsonaro spent much of the year at war on many fronts: criticizing medical science, fighting with the media, and attacking communism, be it real or imaginary. What he didn’t do was lead, insofar as that means setting political priorities, detoxifying the national debate, and organizing legislative votes for the structural reforms that Brazil urgently needs, despite bullish talks about a fortune with the sale of government assets. None of the 46 state-owned companies to be auctioned has been privatized, although the Bolsonaro Administration created a new one last year and is considering another. A reform of the federal bureaucracy could generate crucial savings, but the administration took until September to send its modest administrative reform bill (which covers only new hires) to Congress, where it languishes. Stronger tax reform, which could simplify Brazil’s tax jungle, is on the wrong track, perhaps because it was conceived outside the presidential palace. The lagoon matters. Although Brazil’s markets are on the move again, none of the most devoted bolsonaristas are promoting a sustained recovery, much less a V-shaped rally (rather it would be a kind of square root, a V-shaped rally that transitions to a long plateau, as Mario Mesquita, chief economist at Banco Itaú, told Bloomberg News) Investor uncertainty has increased in tandem with new infections and hospitalizations. The country’s bad bet on a problematic vaccine, plus Bolsonaro’s attacks – apparently politically driven – on a promising Chinese injection, will delay widespread relief. Then there’s Brazil’s underlying condition. It turns out that the country’s impressive resilience during the pandemic is due to palliatives. As the state of national calamity expires on December 31, the generous emergency assistance and aid to distressed states and businesses, which account for 18% of gross domestic product, will also expire. As the primary fiscal deficit surpasses 12% of GDP and public debt reaches 95% of production, Brazil will no longer be able to pay the generous aid for those affected. The most afflicted households have come to depend on this geyser of cash and credit. Even a partial reduction in payment is leaving millions of beneficiaries destitute. The halving of covid coupons for homes in September caused 8.6 million people to return to poverty, according to a study by Daniel Duque of the Getulio Vargas Foundation. The number of Brazilians living in extreme poverty increased by more than 80% between August and September. Brazil’s glaring gap between the haves and the have-nots, which had receded with emergency aid, is also worsening, with the Gini coefficient increasing by almost 1% over the same period. One potentially upside is the change. fiscal in the chronically overextended state and municipal governments of Brazil. Thanks to emergency credits, aid and debt exemptions, subnational governments are full of cash, averaging 10% more net income this year than in 2019, according to a study by economist Marcos Mendes of the Sao Paulo Insper business school. After 57 consecutive months of fiscal crisis, the southern state of Rio Grande do Sul managed to pay its 340,000 public servants on time in November – the problem is that Brazil can no longer afford such federal generosity. Only if local managers use this unexpected flow as a cushion to restructure – by cutting overhead, cutting payroll, and tackling loss-making pension systems – can new money break old habits. In a land of public waste, it’s a dubious bet. Often times, tax deferral and exemptions amount to little more than a budget game in which politicians take the growing number of public sector promissory notes as a signal not to defend but to exceed the government spending limit, a firewall against wastefulness. “There is always some astute politician in Brasilia eager to lower the spending limit,” Adriana Dupita of Bloomberg Economics told me. Brazil could possibly avoid that trap if its legislators channel their closet reformism and reject a fiscal adventurer or a culture warrior. as its new head of parliamentary group in Congress in January. It is a more difficult decision after the Supreme Court blocked on December 6 the reelection of legislator Rodrigo Maia to that position. “The alternative is for Brazil to continue to cope,” Dupita said. “It’s an all too familiar mistake and could quickly lead to a total crisis.” The result could compromise next year’s budget, leaving the country with even less money to help Brazil’s newly poor population, not to mention stopping a second wave. of potentially deadly coronavirus and the economic devastation to follow, Brazil did the right thing by spending aggressively amid the pandemic. However, not having a transformational reform plan after money transfusions would amount to anesthesia but no surgery. It is not a formula for economic recovery but that of a populist seeking reelection.Original Note: Bolsonaro’s Missteps Set Brazil Up for Bleak 2021: Mac MargolisFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source. © 2020 Bloomberg LP

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