These are not good times in Brazil. The death toll from coronavirus in Latin America’s largest economy has surpassed that of China, with more than 100,000 cases. A political crisis rages on following a judicial investigation into President Jair Bolsonaro. The liberal economic agenda of Paulo Guedes, finance minister, has been derailed by emergency measures amid rumours he will leave the administration.
The Brazilian currency last week hit a new low. But none of this seemed to bother Luciano Hang, owner of department store chain Havan and one of the far-right president’s favoured cohort of business supporters.
“There is a sensation of confidence and optimism,” he said after a meeting with the president, wearing a green suit and golden tie and shoes — the colours of Brazil’s flag.
But many of Mr Hang’s peers disagree. “People are starting to say this is not what we have hoped for,” said a senior official at a leading business lobby group.
The business community is increasingly anxious that the economic and political outlook under Brazil’s mercurial president is dramatically worsening. A key business confidence index by FGV IBRE fell in April to the lowest level on record, reflecting the prospect of a second recession in less than five years, stemming from the Covid-19 pandemic.
“As long as there is this combination of extremely low activity level and high uncertainty about the future, unfortunately, business confidence will remain very low,” said Aloisio Campelo Junior of FGV IBRE, whose industrial confidence index also dropped to its worst recorded level.
It is a radical change from only months ago. Then, Mr Guedes, the University of Chicago-educated economy minister, was on track to revamp Brazil’s economy by rooting out vested interests, liberalising markets and ushering in a more open style of capitalism through reforms. But the abrupt resignation of star justice minister Sérgio Moro last month has fuelled fears that Mr Guedes — one of the few remaining technocratic moderates in the Bolsonaro administration — could be next. His departure would kill off hopes for post-pandemic reforms.
“What Guedes preached was music to our ears. If he leaves, it would be a total disaster,” said a senior banker from São Paulo’s Avenida Faria Lima, known as Brazil’s Wall Street, where until only recently the optimism was palpable following the passage of key reforms at the end of last year.
The president tried to reassure investors last week that “the man who decides the economy in Brazil is called Paulo Guedes”. The economy minister then reiterated the importance “of structural reforms” to emerge from the current crisis. Local business people remain unconvinced, though. “How can we know this is sustainable? There is a high level of irresponsibility as Bolsonaro is very impulsive,” said the banker.
When questioned after the death toll showed Brazil had more coronavirus deaths than China, Mr Bolsonaro replied: “So what?” The president has clashed with members of his cabinet, senior lawmakers, top judges and the bulk of governors who defend social isolation measures to fight the outbreak. On Sunday he drew crowds of supporters in Brasília against many of those measures.
For Alessandra Ribeiro, director of macroeconomics at consultancy Tendencias, “uncertainty is the main problem, the risk is the government is going to start using fiscal policy to fuel growth”. The administration is releasing a monthly cash transfer of R$600 (US$110) to low-income citizens during the economic hardship that, some fear, Mr Bolsonaro may be tempted to leave in place to sustain his popularity.
“The moment Guedes realises that his fiscal responsibility agenda went to waste because Bolsonaro turned to a populist economic agenda, that is when he will throw in the towel,” said a top Brazilian banker.
Paulo Skaf, head of Fiesp, the powerful industry lobby group in São Paulo, told the Financial Times “Paulo Guedes is not leaving”, stressing that “the reforms at this point gave way to emergency actions”.
A financier close to the Bolsonaro family said “the drop in fiscal conservatism is not based on Guedes being out of favour but based on the realities of Covid”.
For the financier, if Mr Guedes were to leave, “he is not the only Chicago boy in town”, pointing at Roberto Castello Branco, head of state-run oil company Petrobras, and Rubem de Freitas Novaes, president of state-owned bank Banco do Brasil.
Henrique Constantino, co-founder of Gol, the Brazilian airline, agrees “it is important to have a person there with the same orientation” as the current minister.
But Mr Bolsonaro’s tendency to pick fights — he has already got rid of the Chicago-educated Joaquim Levy from the presidency of development bank BNDES — concerns some.
Business leaders said they recently had to lobby the government to prevent the departure of the pragmatic agriculture minister, Tereza Cristina da Costa, when she came under fire from hardline Bolsonaro supporters for fostering business with China, Brazil’s main trading partner.
“Bolsonaro has been screwing up with a certain frequency,” said a Brazilian infrastructure investor. “There is a pandemic everywhere in the world, but here you have a pandemic coupled with a political crisis. It is a tremendous problem.”