Treasury Secretary Mansueto Almeida
Treasury Secretary Mansueto Almeida. Photo: Marcelo Camargo/Agencia Brasil

Why the exit of Brazil's Treasury Secretary is so important

Treasury Secretary Mansueto Almeida announced he will leave the government next month. With one of the biggest proponents of fiscal austerity departing, how will this affect Brazil's economic program?

Jair Bolsonaro’s economic team was one of the main arguments for business elites to support the former army captain in the 2018 election, despite the lead candidate’s extremism and anti-libertarian past. But next month, the group once dubbed the “dream team” will lose one of its brightest stars, Treasury Secretary Mansueto Almeida — who announced his departure from the government on Sunday. In a crucial moment for the economy, the secretary said he is sure his pro-austerity platform will be carried on by his successor.

Initially named to head the Treasury Department by former President Michel Temer back in 2016, Almeida was the leading voice behind the move to adjust Brazil‘s public accounts. Since 2014, the government has been piling primary deficits and increasing its public debt, a situation that Almeida believed had gotten out of control.

However, the coronavirus pandemic has crushed the economic team’s push for austerity. There is no room for bean-counting when tens of thousands of citizens are dying and several economic sectors require emergency assistance. This scenario has led Almeida to hand in his resignation.

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“There is a positive facet to changing the Treasury Secretary. People will notice that nothing is going to change,” said Almeida, in an interview with finance website Brazil Journal on Sunday. “This is important from an institutional point of view because an institution’s work cannot depend on who the placeholder is.”

His replacement is likely to be the economist Bruno Funchal, who has a similar view on austerity, but not the same clout. While the outgoing secretary has tried to downplay his role in the government’s fiscal commitments, outside observers have reacted to the news with concern.

Ricardo Ribeiro, a political analyst at consulting firm MCM, does not remember another example of a change in Treasury Secretary that has received so much attention. “The market fears that [Almeida’s] departure may signal a change in fiscal or economic policy. It is a negative sign when the plan seems to depend on the Treasury Secretary.”

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Without Almeida, public accounts specialists who talked to The Brazilian Report off the record see Economy Minister Paulo Guedes becoming even more isolated within the government — squeezed between a military wing that defends more state intervention in the economy and a president planning to use pork-barrelling tools to contain the political crisis in Congress.

According to Ribeiro, the Treasury Secretary is not that important for the continuation of Guedes’ agenda. However, he stresses that the environment is quite challenging.

With or without him, things will get complicated. In the post-pandemic scenario, the economic and social situation might require an increased dosage of public spending. Especially as the government gains popularity points thanks to cash transfer programs

Ricardo Ribeiro, political analyst at consulting firm MCM.

Technocrats in an ideological government

Despite his past as a pro-state congressman, Jair Bolsonaro won the 2018 election as the preferred candidate for financial markets. His then-economic advisor, Paulo Guedes, performed the role of guarantor to Bolsonaro’s austerity commitments.

And despite playing a supporting role, the presence of Mansueto Almeida was also crucial. He became well known in Brazil as a critical voice of government overspending during the years of center-left former President Dilma Rousseff, before being named as Treasury Secretary in 2016. His decision to stay on in the Jair Bolsonaro administration increased expectations around what was perceived as being a highly-qualified economic team.

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Now, the country is on the edge of its most significant deficit in at least 30 years, while it staggers its way through the coronavirus crisis. 

On the political level, in an attempt to avoid impeachment, the government is getting into bed with the so-called “Big Center,” a promiscuous group of center-right and right-wing parties ready to hand over their congressional support for the right price — that is, control over government areas with large budgets and electoral potential.

“The survival of the Bolsonaro administration is sustained by the Big Center, which is a pro-spending alliance. They do not want to blow up public spending, but they are not pro-austerity,” says Ribeiro.

José Marcio Camargo, the chief economist of the consulting firm Genial Investimentos and Professor at the Pontifical Catholic University of Rio de Janeiro, analyses Bolsonaro’s alliance with the Big Center and believes in a reformist agenda after the pandemic.

“The agreement between President Bolsonaro and the Big Center facilitates the approval of reforms. Those congressmen are largely conservatives. They helped Michel Temer in past reforms, and it was a very austere government from a fiscal point of view. In other words, the Big Center does not stop fiscal austerity.”

Despite the contradiction, Bolsonaro often repeats that financial czar Paulo Guedes holds the keys to economic policy. However, it is uncertain how long the president’s liberal attitude will last, especially after the resignation of one of his other powerful cabinet ministers, Sergio Moro

Trained at the University of Chicago, Paulo Guedes joined forces with Bolsonaro one year before the election and brought with him his economic liberal ideas, promises of privatizations, deregulation, open economy, and strong fiscal responsibility. 

One and a half years after taking office, the COVID-19 pandemic has interrupted a process that was working, albeit at a snail’s pace. With no important privatizations to speak of, Guedes’ main achievement was the approval of the Pension and Social Security reform in 2019, the merit for which many attribute to Congress and House Speaker Rodrigo Maia

An austere government was promised, with pension reforms and a series of others to make the market work better and, if possible, to reduce public spending and the tax burden. So he performed what he promised, yes. He may not have done everything he promised, but he worked toward these promises

José Marcio Camargo, chief economist at Genial Investimentos and Professor at Pontifical Catholic University of rio.

Asked about how much trust investors place in this current economic team, even under a controversial government, Ribeiro believes Paulo Guedes is still seen as the man to lead liberal and fiscal reforms. The concerns of investors regard the rest of the government.

“The Bolsonaro government does not provide tranquility. President Bolsonaro, those around him, and the importance of the military all cause uncertainty and concern. The worries regarding the economic team are part of a larger context of concern about the government. Bolsonaro has never seemed sure about a liberal agenda. He was always a corporatist and took this liberal view before the election, but occasionally he falters.”

This article was originally published on The Brazilian Report, a website that explains Brazilian politics and economics to foreign audiences.