Brazil back on the dancefloor

Top policymakers have vowed to mend and open up the economy of the Latin American giant. GlobalMarkets speaks to economy minister Paulo Guedes and central bank governor Robert Campos Neto

  • By Thierry Ogier
  • 15 Oct 2019
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Mending the Brazilian economy following the destabilising corruption scandal at Petrobras and years of recession followed by anaemic growth is a tall order.

Trying to create a new momentum in the midst of a global slowdown looks even more challenging.

But Paulo Guedes, the financial investor whom president Jair Bolsonaro picked to be his economy minister, is confident that his mix of structural reforms and liberal policies will put the economy back on track.

“Brazil is getting out of rehab while the world is getting in it. We are going to recover our own internal dynamics,” Guedes pledges in an exclusive interview to GlobalMarkets.

“It is a shame we have to operate against a background of global slowdown, but we will keep on seeking higher grounds of global trade,” he adds. Brazil, which has a very closed economy, is now determined to open up — and this is a positive message to the world, in spite of the rising tide of protectionism and de-globalisation, he reckons. “Globalisation used to be a win-win combination. Now due to a synchronised economic slowdown, there is no win-win anymore and trade wars have come to the surface,” says Guedes. “The US and China were like Siamese twins, they used to dance cheek to cheek for years, but they have started to fall out with each other. However, we in Brazil want to dance with both of them. We will actually dance with all of them: the Americans, the Chinese, the Europeans, the Argentines... before we have not been dancing at all in the past 20 years while everybody was dancing.”

Guedes has vowed to globalise Brazil’s economy and integrate it in global value chains. “We have done more in eight months than previous governments have done in decades,” he says, in a reference to the free trade deal between Mercosur and the European Union. The approval of the pension reform, the cornerstone of his strategy to curb the fiscal deficit, is expected to be completed in the senate this month. “We approved a reform which paves the way to twice as much savings as what the previous government had planned,” he says. The pension overhaul is expected to lead to a cut of some $220bn in public expenditures over 10 years. This, in turn, will help rein in the budget deficit.

Guedes’ agenda

Guedes, a staunch critic of “social democrats” who have raised taxes and increased public spending over the past 20 years, now says: “I’d rather do the right thing!”  And he is adamant that policies are already moving in the right direction. Tax reform, which will simplify a nightmarish and costly system for companies, is next. Other measures to boost “economic freedom”, according to the government, have been voted in (including measures to open businesses and cut red tape). Guedes has also vowed to implement a “fast track” privatisation of state-owned companies, including sanitation companies and the electricity holding company Eletrobras. He is also a staunch defender of the privatisation of the oil giant Petrobras, in spite of President Bolsonaro’s reluctance. Meanwhile, Guedes is also preparing to grant the central bank its formal independence (it currently has an autonomous status). 

So far, though, Brazil’s growth performance has been disappointing. GDP, which expanded by a mere 1% in 2017 and 2018 following two years of a deep recession, may only grow 0.8% this year, according to official forecasts. “In addition to the challenging international environment, Brazil cannot count on any fiscal stimulus,” notes José Carlos Faria, head of Latin America economic research at BNP Paribas in São Paulo, which has forecast an even poorer performance for the Brazilian economy, expecting economic growth at just 0.5% in 2019.


The return to sustainable economic growth, warns Guedes, may take several years due to the damage that has been inflicted on the economy. He argues that momentum has been lost after decades of state intervention and uncontrolled public expenditure. “This is what excess of public spending does. The lack of control of public spending has corrupted the Brazilian democracy and has led to stagnation. Growth has been destroyed along several decades,” adds Guedes, who often says that Brazil had its “glasnost” when the country returned to democracy in the 1980s, but it has yet to achieve its “perestroïka”.

“We succeeded in transforming a politically closed regime in a politically open regime. But we failed to transform a state controlled economy into a market-driven economy. This was our failure,” he says.

The 70-year-old minister is ready to rise to the challenge.

Structural Issues

But why is economic growth structurally low? “Brazil is like a harpooned whale,” he says. “Now, you have to remove the harpoons. Take one out (the whale will move a little bit), take two out… This is what we are doing: open the economy, simplify tax, control public expenditures instead of blowing the budget. Growth will come!” he insists.

There have already been some encouraging signs from the financial markets. “We have the lowest inflation rate and the lowest interest rates in the past 30 years,” he says. “We have been tapping the debt markets with long term maturities. The Brazil risk is now back at the level it used to be when Brazil was investment grade. We have issued 10 year sovereign bonds. The corporate credit market has also issued long term loans, which did not use to happen anymore.”

Public debt servicing costs have been falling since the beginning of the year. And they are likely to fall further if Guedes manages to push his reform agenda forward. Investors may indeed need a bit more patience to see Guedes’ policy pay off.

  • By Thierry Ogier
  • 15 Oct 2019

All International Bonds

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
  • Today
1 JPMorgan 177.52 586 9.79%
2 BofA Securities 149.68 500 8.26%
3 Citi 138.28 475 7.63%
4 Goldman Sachs 106.91 307 5.90%
5 Barclays 97.79 362 5.39%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
  • Today
1 Deutsche Bank 9.11 38 6.28%
2 BNP Paribas 8.34 44 5.75%
3 UniCredit 8.26 40 5.69%
4 BofA Securities 7.46 30 5.15%
5 Santander 6.32 31 4.36%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
  • Today
1 JPMorgan 3.39 25 9.57%
2 Morgan Stanley 3.22 16 9.08%
3 Credit Suisse 3.10 7 8.75%
4 Citi 2.87 19 8.11%
5 Goldman Sachs 2.43 15 6.85%