Steve September 29, 2020

Brazil’s president hit back on Tuesday at accusations his government is using accounting gimmicks to fund a new minimum income programme for the poor without breaking its spending cap.

Jair Bolsonaro launched his charm offensive as Brazilian markets wobbled for a second day on fears the spending spree shows he is unwilling to rein in record deficits and debt.

Bolsonaro’s administration announced that paying for the “Renda Cidada” programme – which means Citizen Income in Portuguese – will involve an accounting manoeuvre that allows the government to tap into 55 billion reais ($9.7bn) in the budget earmarked for future court-ordered debt payments to businesses and individuals, and cash set aside for education.

Brazilian stocks and the currency fell, while interest rates futures rose as investors viewed it as an accounting gimmick not to break the spending ceiling fueled by populist, political motives. Markets failed to recover any ground on Tuesday.

Bolsonaro also pleaded with markets for constructive suggestions instead of criticism, pointing out that “everyone” – including financial markets – will suffer if the economic crisis worsens.

“If Brazil is bad, everyone is bad. Brazil is one. If it has problems, everyone suffers. Market people won’t have any income, either,” Bolsonaro said outside his official residence in Brasilia Tuesday.

“We obviously want to be on good terms with everyone. But I ask you, please help with suggestions, not criticism. When you do criticise someone, it should not be the president,” he said.

Earlier, Bolsonaro took to social media to counter criticism he is pushing the scheme with an eye on the 2022 presidential election while stressing fiscal discipline and the spending cap are the “rails of the economy”.

“My government seeks to anticipate the serious social problems that may arise in 2021 if nothing is done to meet the needs of all these people who have lost everything, or almost everything,” he wrote on his social media sites.

Alongside Economy Minister Paulo Guedes on Monday, Bolsonaro announced Renda Cidada would be an extension and expansion of the current welfare transfer programme for the poor known as Bolsa Familia, or Family Purse.

Emily Weis, emerging market strategist at State Street in Boston, noted the pandemic has exposed some of the administration’s “vulnerabilities”, particularly between the market-friendly Guedes and the more populist Bolsonaro.

“It’s a very fine line to walk – providing fiscal support where needed,” Weis said.

“But at some point, it comes to the next stage of the plan, and how do we pay for this? And what does it mean for debt sustainability?” Weis said. “That risk will extend into next year.”

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