Brazil Doubles Down on Reform

By Mary Anastasia O’Grady

Under the strain of covid-19, the Brazilian economy is expected to contract by 5% this year. But the outlook isn’t all grim for the world’s ninth-largest economy. Last week a political crisis swirling around President Jair Bolsonaro prompted him to reaffirm his commitment to free-market-minded Economy Minister Paulo Guedes.

Mr. Guedes is the architect of a revolutionary plan to end the decadeslong subsidization of the well-connected in Brasília, paid for by the forgotten man. Progress has been slow since Mr. Bolsonaro took office in January 2019 and now the virus has thrown the reformers a curveball. But the president’s fresh endorsement of Mr. Guedes signals an understanding that his government is built on the popular demand for faster growth and better living standards.

The wild card is whether the government can build a coalition in the National Congress willing to cooperate. That’s a thorny challenge in Brazil’s notoriously fragmented legislature. The socially conservative Mr. Bolsonaro is a former military officer who served 28 years in Congress. As a legislator, he was never prominent in shaping policy. Now swaying the coequal lawmaking body is vital to his efforts to move Brazil ahead.

Mr. Bolsonaro has been full of surprises for left-wing critics. During his presidential campaign in 2018, they labeled him a right-wing extremist and predicted that he would try to impose a military dictatorship. Yet while plenty of leaders around the region are using police-state tactics in national lockdowns to stop the spread of the coronavirus, Mr. Bolsonaro is taking a federalist approach by putting the states in charge.

In a delicious irony lost on the socialists, the same crowd that predicted a Bolsonaro dictatorship is now howling about his refusal to use force against the population during the pandemic. Mr. Bolsonaro invited mockery by pooh-poohing the seriousness of the illness. But a policy that localizes public-health decisions is hardly unreasonable while debate rages over whether virus suppression is a sustainable strategy. Arguably the costs of lockdowns in many places outweigh the benefits.

Mr. Bolsonaro’s uneven communication skills make him an easy target. Last week he expressed sorrow about the loss of life from Covid-19. But he also quipped about how there’s not much he can do about the rising death toll. “So what?” was the sound bite that dominated press reports.

In a move unrelated to the virus, Mr. Bolsonaro invited further trouble last month by firing Mauricio Valeixo, chief of the federal police. The president has the authority to make that decision. But it was a politically foolish thing to do without the backing of then-Justice Minister Sergio Moro and while the president’s three sons are linked to various investigations for corruption.

No charges have been filed against any of the sons. But Mr. Bolsonaro’s public and private communications, which have been leaked, indicate that the president felt that the federal police were increasingly politicized.

The firing provoked the resignation of Mr. Moro, who has a reputation to protect. He was the judge who allowed the federal police to proceed with an investigation of former President Luiz Inácio Lula da Silva that ended with his conviction on corruption charges.

The Moro decision shook the government, and rumors spread that Mr. Guedes would be next. Feeding those hunches was the announcement earlier that same week from the president’s chief of staff that a new national development plan dubbed Pro-Brasil was in the works.

Pro-Brasil was short on detail but it smacked of the same corporatism that has left Brazil a lumbering, underdeveloped mess. It also ran contrary to many of Mr. Guedes’s ideas.

Under Mr. Guedes’s guidance, Brasilia’s response to the coronavirus has been largely limited to ensuring the availability of credit for firms and income for the unemployed. There is fiscal backing for hospitals, and the central bank has acted as a lender of last resort. But the minister remains adamant that the crisis shouldn’t become an excuse to revert to bad habits. Brazil needs private capital that won’t come if the government doubles down on clientelism, even if politicians like to call it “investment.”

The Pro-Brasil announcement suggested that establishment special interests-in Congress, in the bureaucracy and among the business elite-had overthrown the reformers. But after Mr. Moro resigned, Mr. Bolsonaro, perceiving the public’s mood, announced last Monday that “the man who decides about the economy is just one: Guedes.”

The Supreme Court overstepped its bounds last week when it blocked Mr. Bolsonaro’s choice for a new police chief, and it is cause for concern. But Brazil’s other institutions have held up through all this, as evidenced by the congressional investigation now under way of Mr. Valeixo’s termination. That’s a major victory at a time when Covid-19 has put the rule of law everywhere, including in the U.S., under severe stress.