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September 18, 2020

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BRAZIL: Outsourcing of cash transfer program to Congress should work

BY Mario Marconini

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( 3 mins)

A new and improved cash transfer program continues to be a top priority of the Jair Bolsonaro administration despite bouts of stridency by the president when facing difficulties to find ways to pay for it. Reacting to an economy ministry special secretary who on 15 September proposed freezing pension benefits for two years despite provision in the Constitution for adjustments based on the annual inflation rate, the president forbade any reference to the term “Renda Brasil” – the name of the program that was until then intended to succeed Covid-19-related emergency assistance and the existing Bolsa Familia program. The future program is now nameless but the intention to devise and secure funding for it was confirmed by the president the following day when he authorized its inclusion in the 2021 budget proposal currently under discussion in Congress.

It is no secret that the president is concerned with the effect on his popularity of the reduction in the emergency assistance to half the original amount (from BRL 600 to BRL 300) for the remaining four months of the year. The original assistance cost more than BRL 50bn (USD 9.5bn) per month. If the new program stays at BRL 300 per person per month, its cost for 2021 will amount to BRL 300bn, which corresponds to the total amount remaining after settling retirement, pensions and public servant salaries (BRL 1.2tn of a total of BRL 1.5tn). This is why something has to give, whether by means of an administrative reform, a federative pact, a new triggering mechanism for times of overspending, or any other cost-cutting or earmark-reducing solutions.

In a way, the president has passed the buck to Congress to devise a way out of the quagmire he got himself into by attempting to uphold fiscal rules and macroeconomic discipline while aiming to spend beyond the country’s means. Effectively, he outsourced his own government’s main flagship social program to Congress, knowing that Congress is in favor of a new and improved program. In the initial skirmishes over the emergency assistance in March, it was Congress that counter-proposed BRL 500 when the government insisted on only BRL 200. Bolsonaro is confident that legislators will not fumble the ball on this. His reaction against one of economy minister Paulo Guedes’ deputies shows he may not be as confident in his own economic team – which does not augur well for the minister himself.

Guedes pretended as if the president’s reprimand of those who proposed “to take away from the poor to give to the poorest” was not for him but the incident serves once again to show the blunt conflict of convictions between him and the president on economic policy. Guedes certainly knew that the proposal to freeze pensions was in the basket of alternatives being considered – but possibly was unaware of the clumsy interview. Now, he claims to have left the political arena altogether, leaving the job to the new and apt government leader in the House Ricardo Barros. He still needs to work on controlling his ministry’s communication, however, without which clashes with the presidency may intensify.

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