Brazil managed to reduce poverty levels with emergency aid during the Covid-19 pandemic, but if government income assistance efforts do not continue, 15 million Brazilians will be thrown back to this condition in January, warned Marcelo Neri, director at FGV Social and founder of Centro de Políticas Sociais, FGV’s Center for Social Policies.
The subsidies extension is paralyzed in Congress and faces some opposition within the government, whose economic team is concerned with an uncontrolled budget deficit.
“We are between a rock and a hard place,” Neri told Reuters.
A study by FGV published on Thursday shows that the number of poor Brazilians – those earning less than half the minimum wage, or BRL 515 per month – fell 23.7%, reaching a new historical low of 50 million people, thanks to monthly aid, which started at BRL 600, but now decreased to BRL 300 per month until December.
President Jair Bolsonaro, whose popularity has grown thanks to cash transfers, is trying to find a way to maintain payments, but there is no way to finance them without breaking the spending ceiling and worsening an already high budget deficit.
Brazil was more generous to its poor population during the pandemic than other Latin American nations, despite its worse fiscal situation and attempts by Economy Minister Paulo Guedes to maintain fiscal austerity efforts, said Neri.
“Guedes turned out to be a surprisingly generous Keynesian policymaker. Now, we are in a situation where you need to be a bit Keynesian, but we don’t have the resources,” he said.
Keynesianism, or Keynesian Economics, is a political-economic theory that defends the State as an active agent against economic crises and high unemployment.
Brazil, which suffered a strong outflow of funds from equity and fixed income markets in the first half, risks generating even more noise among investors if it increases spending in 2021, warned Neri, PhD in Economics from Princeton University, USA .
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Emergency aid was the government’s most important initiative in the crisis. Worth BRL 600 from April to August and BRL 300 for the rest of the year, it will have a total cost of BRL 321.8 billion in 2020, benefiting more than 60 million people per month.
Senator Ney Suassuna (PRB-PB), a member of the Comissão Mista de Orçamento (Joint Budget Committee), told Reuters there was no consensus on how to finance cash transfers next year, despite expectations that the pandemic crisis will continue amid a fragile improvement in the labor market.
As in most of Latin America, the pandemic has reduced the size of the traditional middle class, with 4.8 million Brazilians leaving this group due to lost income, said Neri.
Millions of people in the Latin American middle class are being dragged back into poverty by Covid-19, which has hit the region’s labor market more strongly than anywhere else in the world. Poverty is expected to return to 2005 levels in Latin America.
Translated by LABS
