Jair Bolsonaro had some good news for young Brazilian families before Christmas. Through social networks, the president of Brazil announced a month ago that tariffs on imported toys were going to be reduced from 35% to 20%.
The measure was part of the extensive Your administration’s plans to revitalize the economy through an ambitious trade liberalization program, cuts to bureaucracy and structural reforms. It seemed like a victory for the right-wing leader, who came to power in 2018, and for Paulo Guedes, your free market Minister of Economy.
But just days after the decision, which had been made after a year of meetings with local manufacturers, the Ministry of Economy faced a wave of lobbying from the industry and quickly backed down. The decrease in tariffs did not start in December as planned and, according to the ministry, will be implemented gradually during this year.
It is a very complicated process that got caught in the middle of vested interests. Guedes faces many challenges as he tries to open one of the most protectionist economies in the world. Brazil ranks on the same level as much poorer African nations in terms of protectionism, according to the International Trade Freedom Index by the Heritage Foundation, a US think-tank.
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“The ministry received blows from one side and the other. In the end, everyone was dissatisfied, “said an official from the Ministry of Economy.
When he took over the portfolio in early 2019, Guedes was hailed as the star who would restore Brazil’s economic prosperity.
The former fund manager achieved remarkable initial success, passing a landmark reform of Brazil’s generous pension system, which is expected to save the government nearly $ 200 billion over the next ten years.
But two years after taking office, that star fades as the planned structural reforms stall in Congress.s, including a simplification of the tax system and administrative reform of the State.
Successes in privatizing and cutting bureaucracy have also been limited. In August, the two officials responsible for both projects resigned, citing deep conflicts with leaders with personal interests and a lack of political will.
The pandemic it also interrupted the goals of Guedes. Fiscal discipline was the basis of its plans, but since April the government transferred billions of dollars to the poorest, which created a hole in the country’s public finances and now dominates the economic agenda.
“The Paulo Guedes that existed two years ago is now facing reality. Reforms in Brazil are a slow process, graduall, ”said a lobbyist in Brasilia close to the decision on toys. “The reforms are like heaven. Everybody wants to go, but not now. “
Some foreign companies have begun to express their frustration at the slow pace of change. “The sudden and unjustified change of position contradicts the announced economic policy, which represents behavior that violates good faith,” said the US manufacturer Hasbro after the suspension of the lowering of tariffs on toys.
Critics of inaction point to Guedes, who is increasingly seen as an obstacle to progress rather than an engine of change.
Known for a bellicose style, he has a complicated relationship with Congress, which must vote on almost all the government’s reform proposals. He exchanges frequent darts with the spokesman of the legislative power and polemicizes with the deputies about his plans.
“The next two years will be tense given the government’s difficult relations with Congress,” said Sergio Vale, an analyst at MB Associates.
“The ministry (of Economy) is out of focus, not as organized as it used to be and playing more of a supporting role. The minister made promises for two years, but he has nothing to show for it ”.
But Adolfo Sachsida, the ministry’s secretary for Political Economy, described the past year as a “great success.”
“In the midst of a pandemic, we passed legislation for private investment in sanitation and improved the law for (investment in the market) gas. We also have an upcoming vote on central bank autonomy, ”he said.
Defending the slow progress of tax reform, he said that it is a “very difficult agenda” that Brazil has been grappling with for decades. “You have great challenges: you have to have the support of local and state governments, the industrial sector and the financial sector and citizens. There are a lot of people at the same table, ”said Sachsida.
On trade tariffs and privatizations there was a chorus of voices that “represent legitimate interests and have the right to do so.”
“People will not agree with the speed of the tariff reduction or with the number of privatizations, but everyone agrees that we have to open up our economy,” he added.
Opponents of the reform have different agendas but have converged “around the fear of change,” said the Brasilia lobbyist. “Our tax system had for so long advantages for certain groups that now they don’t want to change. In commerce it is the same: so many sectors have been protected for so long that now they depend on it ”.
“Brazil is a corporatist and clientelist country,” said Lucas de Aragão, partner at the Arko Advice consultancy. “The government has identified battles that are simply not worth fighting.”
Translation: Mariana Oriolo
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