Brazil’s new economy minister forms dream team to boost growth

Brazil’s new Economy Minister Paulo Guedes worked in Chile 40 years ago after earning his doctorate at the University of Chicago, giving him a front-row seat to dictator Augusto Pinochet’s economic shock treatment.Even as Pinochet’s authoritarian regime left a brutal human rights legacy — responsible for the execution of more than 3,000 leftist opponents and torture of over 40,000 more — it drew praise from some at home and abroad for handing carte blanche to a team of economists trained by Nobel prize-winning economist Milton Friedman.By pursuing free market solutions, such as privatising state companies and pulling down trade barriers, the “Chicago Boys” — as they were known — laid the basis for turning a poor country into Latin America’s most successful economy by most indicators.Now Guedes and a team of orthodox economists he has dubbed the “Chicago Oldies” hope to emulate the Chilean economic experience on a far larger scale in the world’s eighth-largest economy.Brazil’s new right-wing President Jair Bolsonaro, who was sworn in recently, has given Guedes free rein to apply market-oriented policies to restore growth and confidence in an economy stifled by taxes, bureaucracy and corruption.Guedes plans to cut taxes, slash red tape, open markets and reduce the size of government by selling state companies to lower public debt.Brazil’s gross public debt stands at 77% of gross domestic product (GDP), staggeringly high for a developing economy.Bolsonaro’s policies are music to the ears of the business community after years of leftist governments that, while lifting 30mn Brazilians from poverty, led to unsustainable deficits and deepened Brazil’s worst recession on record, from which it is still recovering.Guedes, a former investment banker with no political experience, lacks experience dealing with Brazil’s fragmented Congress and will face strong popular resistance to overhauling a bloated pension system, which allows many Brazilians to retire in their 50s.Bolsonaro has yet to build a majority in Congress to back his legislative agenda and by eschewing the traditional horse-trading of Brazilian politics he could run up against opposition on nationally sensitive issues such as pensions and privatisation.Yet Brazil’s real currency has climbed in recent weeks as many investors see the ideologically coherent team assembled by Guedes — dubbed the “dream team” by some market observers — tackling the persistently high cost of doing business in Brazil, which has deterred foreign investment.The appointments include old hands in dealing with Congress to make up for Guedes’ lack of political exposure and career civil servants who know how the machinery of government works.“It is a real good mix of people who share his view of things, including economists who have the same very liberal world view of the University of Chicago and old friends he trusts,” said UBS economist Tony Volpon.Bolsonaro has adopted much of the Guedes agenda because he understands how urgently the economy requires reform, Volpon said.Brazil’s annual public sector deficit is running at a unsustainable 7% of gross domestic product (GDP).“Investors have given Brazil a lot of time to put its house in order. With an elected government and a new economy minister who is committed to pension reform, there are no more excuses. They need to deliver,” he said.