BRASILIA - Brazilian President Jair Bolsonaro pledged swift and sweeping measures to fix the economy and ward off what he said was a risk that Latin America’s largest nation turns into a Venezuela-style regime.
Plans to sell a large number of state-owned companies are nearly ready, and a proposal to be sent to Congress will bring “substantial” cuts to pension outlays and establish a minimum retirement age, Bolsonaro said on Wednesday in Davos, Switzerland, in an interview with Bloomberg News Editor-in-Chief John Micklethwait. He said the approval of the pension reform investors are eagerly awaiting is practically certain as Brazil’s financial situation gives it little choice.
The government expects to raise $20 billion from privatizations this year, Economy Minister Paulo Guedes said in a separate interview with Bloomberg TV in Davos. In addition, reform of the pension system would help slash the budget deficit from around 7 percent of GDP to zero this year.
“There’s an awareness in Brazil that the reforms are vital for the federal entities to continue operating,” Bolsonaro said. “Brazil has to work out. If not, the Left will return and we won’t know Brazil’s destiny, maybe it’ll become more like the regime that we have in Venezuela.”
The Caribbean nation has contracted for five straight years, annual inflation exceeds 200,000 percent and wide-spread hunger has fueled a mass exodus. A new round of protests against the administration of Nicolas Maduro started Wednesday morning.
With global investors excited by the prospect of a market-friendly Brazil, the new president addressed a packed conference hall on Tuesday, promising to cut taxes and slash red tape in a brief speech. While Brazil’s potential raised interest in the sale of state assets and the possibility of greater trade remains intense, investors are starting to demand more specifics from the new administration. Following a 20 percent rally since Bolsonaro’s first round victory, Sao Paulo stock market gains have taken a pause.
Some of the privatization plans have begun to emerge in recent days but a pension reform proposal will only be presented to Congress in mid-February, and it may take many more months to pass. Markets are eying the pension reform closely because of its potential to help narrow a gaping budget deficit.
In what sounded like a departure from previous intentions, Bolsonaro said in the interview that the military pension system would only be altered in a ‘second part of the reform’. The president is a former Army captain and at least half a dozen cabinet members are former military officers.
Bolsonaro said efforts were underway to modernize the South American trade block Mercosur and allow Brazil to seek separate trade deals. ‘A country the size of Brazil can’t be held back by Mercosur to do trade with the rest of the world,’ said Bolsonaro, a 63 year-old former paratrooper.
An impasse on trade talks with the European Union was due to France’s resistance to Brazilian demands on farm goods, he said.
In the wake of the worst recession on record and years of corruption scandals, Bolsonaro’s tough campaign talk on law and order as well as his promise of a clean government had resonated with a population deeply disillusioned with traditional parties.
However, his first trip overseas as president has been overshadowed somewhat by Brazilian media reports on allegations of financial irregularities involving his oldest son. The inquiry into Flavio Bolsonaro, a senator-elect, risks undermining the president’s anti-corruption agenda and alienating his support base.
“If by chance he erred and it were proven, I regret it as a father, but he’ll have to pay the price for those actions we can’t accept,” Bolsonaro said.