T.He is the President Jar Bolsonaro of Brazil, his University of Chicago-educated economics minister, prefers to say to Paulo Gades,Posts Epiranga”, A chain of full-service petrol stations. Nicknamed charmed markets during the 2018 election campaign, but Mr. Gdes’ reform agenda has lost its popularity move aimed at winning re-election. When Mr Bolsonaro fired Petrobras boss Roberto Castello Branco on February 19 to appease truck drivers angry over rising fuel prices, markets saw it as a sign of further intervention. The share price of the government-run oil firm has fallen by 21% to Rs 100 billion (w 18bn) compared to its market value. Brazil’s benchmark stock index fell 5% and real 2.4% against the dollar.(Some of all subsequent losses have been repaired).
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It is not uncommon for Mr Bolsonaro to intervene, but how he did it. A former Petrobras executive says that with a 1b boss in price 0 years, the former Petrobras executive says that with the rise in oil prices, there was a real decline and elections were coming in 205. But Mr Bolsonaro fired Mr Goodes’ friend Mr Castello Branco on Facebook without consulting the Petrobras board. To fans gathered outside the presidential palace, he mocked Mr. Castello Branco for working from home during the epidemic and chanted nationalist slogans: “Is petroleum ours, or is it a small group of investors?”
Mr. Bolsonaro has paid lip service to the need for reform to stabilize public debt, which is close to 100%. GDP, But the former Army captain and back-bench Congressman never fully embraced the liberal agenda. Tax and public sector reforms have stalled.Now, inflation is rising and the epidemic is still developing growth and employment, “the pendulum is moving in a more intervening direction,” says Mario Mesquita, a banker at Itú. The army general, tasked with running Petrobras, could ease price controls because of new rules protecting minority shareholders introduced after a corruption scandal and excessive intervention, chaired by former President Dilma Rousseff. But the firm’s plans to sell profitable assets will face more uncertainty.
So will the entire Brazilian economy. Markets are becoming less tolerant of Balsonaro’s heavy handness, says Carla Abreo of consultancy Oliver Weimann. On February 25, Congress will begin voting on a constitutional amendment that would allow both to bypass the spending ceiling (to finance a new phase of emergency payments for poor workers) and implement measures to curb spending growth (such as fixed public sector salaries). Both are necessary, but politicians can allow spending without defense, delaying amendments to a future elusive date. That would increase the chances, already, that the central bank would raise interest rates next month for the first time since 2015.
Amid the upheaval, Mr Gades’ silence suggests he is sitting in the hope that Congress, which recently elected Mr Bolsonaro’s allies as head of its two chambers, will pass a fragile version of fiscal measures and tax and public sector reform. He believed the ambitious reform could lead to Mr Bolsonaro’s re-election. That thinking seems desirable. However, another adviser, Chris German of Eurasia Group, says Mr Bolsonaro has underestimated the cost of hiring Mr Castello Branco, who believes Mr Gades will underestimate the strength of their relationship. “Ours Posts Epiranga Mr Bolsonaro said in November. The problem is that the lights have gone out, service has been suspended and the Brazilian economy is expanding. ■
This article appeared in the Finance and Economics section of the print edition under the title “Petrol Problems”
