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Brazil stocks hit record as Bolsonaro takes charge
SAO PAULO, Jan 3, 2019 (BSS/AFP) – Brazil’s stock market closed at a
record high on Wednesday, one day after new President Jair Bolsonaro took
office and in anticipation of economic reforms his government is expected to
implement.
The Ibovespa index in Sao Paulo’s stock market finished 3.56 percent up at
91,012 points. Markets were closed on Tuesday for the January 1 holiday.
Hopes of a turnaround for Latin America’s biggest economy, which has been
limping ever since exiting its worst-ever recession two years ago, were
spurred by promises that Bolsonaro’s team will cut spending and debt.
New Economy Minister Paulo Guedes said Wednesday that reforming the
country’s unsustainable pension system was the government’s “biggest
challenge” as it made good on those pledges.
Guedes said Brazil had to be re-made after suffering years of expanding
public spending and statist decision-making.
Brazil “was corrupted by excessive spending and stopped growing because of
excessive spending,” he said.
“Reforming pensions is the key to correcting this problem.”
In Brazil, workers can often take retirement in their mid-50s, earlier
than in comparable countries, and with pensions that are often around 70
percent of their final salaries.
Maintaining that system consumes around a third of government spending —
a proportion that will only go up as Brazil ages — and increases its debt.
Analysts say that without reform, the system will push the country to
insolvency.
– No ‘superministry’ –
Even though his ministry is taking on added responsibilities for industry,
trade, labor and planning, Guedes rejected the notion that he was heading up
a “superministry.”
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“No one can resolve all of Brazil’s problems alone. We need all three
(government) powers to be involved,” he said.
He listed his priorities as “opening the economy, simplifying taxes,
privatizing, decentralizing resources, and focusing as well on social
issues.”
Investors are anticipating a substantial privatization program. Shares in
state power firm Eletrobras jumped 20.7 percent on expectations some of its
assets would be sold off.
Guedes, 69, is a magnet for investor optimism in Bolsonaro’s cabinet. The
US-trained economist is a strong advocate of free-market values, which stands
in contrast with Brazil’s history of protectionism.
Speaking as he took up his functions, Guedes hailed the decision by the
outgoing center-right government to freeze public spending for 20 years. But
he said more reforms were needed “to create a virtuous circle.”
Observers were uncertain just how far Bolsonaro will let Guedes go in
privatizing state companies.
While the new president agrees in principle to liberalizing the economy,
he has voiced wariness about selling off core assets of Eletrobras or state
oil company Petrobras.
Also, seven of the government’s 22 ministries are now held by ex-military
officers who may be opposed to a sale of Brazilian national assets — and for
any cuts to pensions that former military personnel do well from.
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