February, 2020 – Brazil – Rossetti Advogados

As representative of the Brazilian government in The World Economic Forum, which gathers leaders, heads of State and businessmen in Davos, Switzerland, the minister of Economy, Paulo Guedes, presented the measures Brazil has adopted to resume economic growth and the reform plans currently under analysis in the Brazilian congress.

In 2019, in the same event, President Jair Bolsonaro stated his government’s wish to work for macroeconomic stability, respect to the agreements, reduction of the Government presence with a broad privatization program and the balance of public accounts.

This time, in a panel named “Latin America’s economic prospects”, Minister Paulo Guedes compared Brazil to a whale that has been harpooned for years, and said that the current government’s mission is to remove these harpoons and prevent the whale from dying. These emergency actions are based on three main pillars, according to the minister.

The first of them was the Social Security reform, which was approved last year. Guedes mentioned the fight against a “factory of privileges” granted to public servers and, although unfortunately some privileges ended up being maintained due to corporativism, the new rules are much more equalitarian than the previous ones when it comes to compare public serves to private workers.

The second pillar is the reduction of indebtedness by means of the control of public expenditure in general, and not only with the Social Security. This control is being gradually implemented, starting from the spending cap approved in 2016, in addition to the concessions and privatizations; in addition, the low interest rate has also collaborated to prevent an explosion of the public indebtedness as a proportion of the GDP, which continues causing concern – the Government Gross Debt reached 80% in the second half of last year, a 30% increase in six years and a dangerous level for a country with Brazil’s current profile. However, the great efforts to contain public expenditure are yet to come, and they depend on approval of the administrative reform and of the Proposed Amendment to the Constitution relating to the Mais Brasil Program.

The last pillar is one of the provisions of the Mais Brasil Program: the “state of tax emergency”, which the minister has called “Brazilian-style shutdown”. The reference remembers the situation occurred when the U.S. Congress has failed to reach a consensus on the financing of the government, and the government was prevented from spending, to the point of keeping public servers at home, without receiving their salary, and of suspending the operation of several institutions. The Brazilian version is way softer – with respect to public servers, for example, it contemplates a reduction of at most 25% in the hours of work and salary –, but still, it is an important mechanism to adjust income and expenses, correcting a legal system created based on the belief in the spontaneous and unlimited generation of public funds.”

In short, a new country was presented to the investors. A country with fiscal responsibility and willing to open its economy to the investment world.

Click the Youtube link below to watch Minister Paulo Guedes’ participation in English: https://www.youtube.com/watch?v=XUu0KzVlGhk.

For more information on the above or in other matters, please contact Maristela Abla Rossetti (mar@rraa.com.br) or Gilberto Rossetti (gmr@rraa.com.br).
This article is based on publicly available information and given for informational purposes only. It is not intended as legal advice or as a comprehensive analysis of the matters referred to herein.
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