Brazil is running out of time for economic reforms

A MEME THAT circulated recently on Twitter in Brazil depicted the economy minister, Paulo Guedes, as a footballer facing a wide-open goal. He shoots. The ball soars over the crossbar. The meme refers to a proposed tax reform that Mr Guedes has been trying to get through Congress but it also reflects growing pessimism about the government’s entire economic agenda. After a pensions revamp in 2019, the year Brazil’s populist president, Jair Bolsonaro, took office, most reforms stalled amid political turmoil and covid-19. Latin America’s biggest economy is weakening, squeezing the government’s budget. Markets are getting queasy. With next year’s presidential elections drawing near, time for reforms is running out.

Brazilian investors were remarkably forgiving in 2020, when the government threw money at the pandemic, says Arthur Carvalho of Truxt Investimentos, a hedge fund in Rio de Janeiro. In order to pass health-and-stimulus spending worth 8% of GDP, Congress suspended a constitutionally mandated “fiscal ceiling”, which limits annual spending growth to the rate of inflation. The real fell by nearly a quarter early in the pandemic but then stabilised. Public debt grew to 89% of GDP in 2020 but, thanks to the stimulus, the economy shrank by only 4.1%, less than in most emerging markets.