TPresident From Brazil, Jair Bolsonaro, likes to call the Minister of Economics, a graduate of the University of Chicago, Paulo Guedes,Ipiranga Gas Station“, A chain of full-service gas stations. That title charmed the markets during the 2018 election campaign, but Mr Guedes’s reform agenda was set back by the populist movement to re-run the elections. When Bolsonaro sacked Roberto Castillo Branco on February 19, Petrobras president, to appease truck drivers upset by rising fuel prices, markets saw this as a sign of further intervention in the future.The share price of the state-run oil company fell 21 percent, wiping 100 billion riyals ($ 18 billion) The Brazilian stock index fell by 5% and the riyal lost 2.4% against the dollar(They have all since recovered some losses.)
The unusual thing isn’t that Bolsonaro stepped in, but how he did it. With oil prices soaring, real decline, and elections approaching in 2022, “no government can resist the populist temptation,” says a former Petrobras executive, who has had 16 presidents in 30 years. But Mr Bolsonaro fired Castillo Branco, a friend of Mr Guedes, on Facebook, without consulting Petrobras’ board. To fans gathered outside the presidential palace, he mocked Mr. Castillo Branco for having worked from home during the pandemic and chanted a national slogan: “Is oil ours, or does it belong to a small group of investors?”
Bolsonaro hailed the need for reforms to stabilize public debt, which is close to 100% gross domestic productBut the former Army captain and Congressman on the bench have not embraced an entirely liberal agenda. Tax reforms and the public sector have faltered.Now, with rising inflation and the pandemic still hampering growth and employment, “the pendulum has swung in a more intrusive direction,” says Mario Mesquita of Itau Bank. The army general appointed to run Petrobras without restrictions may hinge on pricing, in part because of the new rules protecting minority shareholders, introduced after a corruption and excessive interference scandal under Dilma Rousseff, the former president. But the company’s plans to sell unprofitable assets will suffer from greater uncertainty.
So is the Brazilian economy as a whole. Anna Carla Abrau of Oliver Wyman, a consultancy, says markets are becoming less tolerant of Bolsonaro’s rudeness. On February 25, Congress will begin to vote on a constitutional amendment that would allow it to exceed the spending ceiling (to finance a new round of emergency payments for poor workers) and enact measures to curb spending growth (such as freezing public sector salaries). Both are necessary, but politicians may agree to spending without savings, delaying reforms to a distant future date. This will increase the chances, already high, for the central bank to raise interest rates next month for the first time since 2015.
Mr Guedes’s silence amid the turmoil indicates that he is clinging to the hope that Congress, which recently elected Bolsonaro allies as its two chambers, will pass fiscal measures, tax reliefs and public sector reforms. He might think that ambitious reforms could follow Bolsonaro’s reelection. This thinking appears security. However, Chris Jarman of the Eurasia Group, another consulting firm, says while Bolsonaro has downplayed the cost of firing Castillo Branco, those who think Mr. Geddes will be next underestimates the strength of their relationship. “our Ipiranga Gas Station “It is indispensable,” Bolsonaro said last November. The problem is the lights are off, the service is off, and the Brazilian economy is faltering. ■
This article appeared in the finance and economics section of the printed version titled “Oil Problems”