THE PRESIDENT from Brazil, Jair Bolsonaro, likes to call his Minister of Economy graduated from the University of Chicago, Paulo Guedes, his “Ipiranga gas station”, A network of full service gas stations. The nickname enchanted markets during the 2018 election campaign, but Guedes’s reform agenda lost ground to populist movements seeking re-election. When, on February 19, Bolsonaro fired Roberto Castello Branco, head of Petrobras, to appease truck drivers concerned about rising fuel prices, markets saw this as a sign of more intrusion to come. The share price of the state oil company fell 21%, eliminating R $ 100 billion (US $ 18 billion) from its market value. Brazil’s benchmark stock index fell 5% and the real lost 2.4% against the dollar(everyone has already recovered some of the losses).
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What is unusual is not that Bolsonaro intervened, but how he did it. With the price of oil rising, the real falling and the elections approaching in 2022, “no government has resisted the populist temptation”, says a former Petrobras executive, who had 16 bosses in 30 years. But Bolsonaro dismissed Castello Branco, a friend of Guedes, on Facebook, without consulting the Petrobras board. For fans gathered in front of the presidential palace, he sneered at Castello Branco for working from home during the pandemic and echoed a nationalist slogan: “Is the oil ours or does it belong to a small group of investors?”
Bolsonaro spoke out about the need for reforms to stabilize the public debt, which is close to 100% of the GDP, but the former army captain and bench congressman never fully embraced a liberal agenda. Tax and public sector reforms are stalled.Now, with inflation rising and the pandemic still hampering growth and employment, “the pendulum swung in a more interventionist direction,” says Mário Mesquita, from Itaú bank. The Army general chosen to command Petrobras may be left out of price controls, in part because of new rules that protect minority shareholders, introduced after a corruption scandal and excessive intervention under Dilma Rousseff, the former president. But the company’s plans to sell unprofitable assets will suffer from greater uncertainty.
The same will happen with the Brazilian economy as a whole. Markets are becoming less tolerant of Bolsonaro’s heavy hand, says Ana Carla Abrão of Oliver Wyman, a consultancy. On February 25, Congress will begin voting on a constitutional amendment that would allow both to circumvent a spending ceiling (in order to finance a new round of emergency payments for poor workers) and enact measures to stem spending growth (such as freezing). public sector wages). Both are necessary, but politicians can approve spending without savings, postponing reforms to an indescribable future date. This would increase the already high chances that the central bank will raise interest rates next month for the first time since 2015.
Guedes’s silence amid the turmoil suggests that he remains hopeful that Congress, which recently elected Bolsonaro’s allies as heads of both chambers, will approve fiscal measures and simplified versions of tax and public sector reforms. He can recognize that ambitious reforms may follow Bolsonaro’s reelection. This thought seems illusory. Still, says Chris Garman of the Eurasia Group, another consultancy, just as Bolsonaro underestimated the cost of firing Castello Branco, those who think Guedes will be the next underestimate the strength of their relationship. “Our Ipiranga gas station it is irreplaceable, ”said Bolsonaro in November. The problem is that the lights are off, the service has been suspended and Brazil’s economy is booming. ■
This article was published in the Finance and Economics section of the print edition entitled “Gasoline problems”