Brazil’s Free-Market Agenda Is in Doubt as President Looks to Reelection

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SÃO PAULO—Brazilian Economy Minister

Paulo Guedes,

who only two years ago promised to lead a free-market revolution in Latin America’s biggest country, has increasingly found himself relegated to damage control as President

Jair Bolsonaro

deepens the state’s role in the economy.

Mr. Guedes’s mission of lowering public debt and building investor confidence in Brazil took a hit after the country’s right-wing leader on Friday nominated a new chief of state oil company

Petróleo Brasileiro

S.A, or Petrobras, spurring investor flight this week from the country’s equities and currency.

With his focus on reelection next year, Mr. Bolsonaro, a former army captain who has publicly said he knew nothing about economics, nominated a fellow military man to the company’s helm after the current chief executive refused to lower fuel prices.

Petrobras said Tuesday it would schedule a meeting to assess the president’s nomination of a new CEO.

“It’s now clear that the president himself does not have a commitment to a liberal economic agenda as people once thought, even though his finance minister does,” said Bernard Appy, a former economic secretary at the ministry.

A Petrobras refinery in Rio de Janeiro; the company said it would meet to assess President Jair Bolsonaro’s nomination of a new CEO.


Andre Coelho/Bloomberg News

Mr. Guedes, a 71-year-old investment banker who only entered politics in 2019 when Mr. Bolsonaro took office, has remained silent ever since the president on Friday night nominated Gen.

Joaquim Silva e Luna

as CEO of Petrobras. Mr. Bolsonaro and Mr. Guedes declined requests on Wednesday for comment.

A person close to the minister said the University of Chicago-trained economist has no intention of abandoning Mr. Bolsonaro.

The minister knows his exit would only spook investors further, and he still believes he will have a chance to carry out a series of reforms to improve Brazil’s business environment, such as simplifying the country’s Byzantine tax system and introducing new rules to curb government spending, said the person familiar with the minister’s thinking.

“Of course he was not happy with what happened [at Petrobras],” the person said, adding that the minister felt less responsible for the oil producer than other areas of the economy because it falls under the purview of the mines and energy ministry.

Brazil’s Minister of Mines and Energy,

Bento Albuquerque,

an admiral in the Navy, said in an interview that the government was only seeking greater stability in fuel prices, denying that the administration would intervene or force Petrobras to pay for subsidies.

“It’s the president’s prerogative as controlling shareholder to appoint whomever he wants,” he said, adding that the administration was studying ways to avoid sharp swings in fuel prices, including creating a fund that could be announced within two months.

In an interview with The Wall Street Journal in October, Mr. Guedes explained how he had long planned to get into politics, his hopes high for what he could achieve.

Co-founder of what became Latin America’s largest investment bank, BTG Pactual, Mr. Guedes said he had been inspired by the likes of

Ronald Reagan


Margaret Thatcher

to reduce the size of Brazil’s bloated government.

“We will unleash market forces,” Mr. Guedes said, defending the president.

“Bolsonaro really wants to change the country,” he said. He explained that he saw the Bolsonaro administration as an alliance of economic liberals and conservatives and the country’s best bet to break with the ways of two free-spending, leftist presidents that had preceded Mr. Bolsonaro.

The support of Mr. Guedes during Mr. Bolsonaro’s election campaign was crucial to gaining the votes of centrists and business leaders, sealing the conservative’s victory.

But others see Mr. Guedes’s promises as naively unrealistic, symptomatic of the mentality of a business leader who had never had to work with politicians before.

“He created the expectation of a liberal revolution that he never had the means to carry out,” Luiz Carlos Mendonça de Barros, former head of Brazil’s state bank BNDES, told the Folha de S.Paulo newspaper. “We looked on and laughed, anyone who has experienced the limits of politics knows what I mean.”

Mr. Bolsonaro’s administration got off to a good start in the eyes of investors. In his first year in office, the country passed a long-awaited overhaul to shrink Brazil’s generous pension system, estimated to save public accounts about $200 billion over a decade.

The president filled his administration with market-friendly figures, appointing another Chicago alumnus,

Roberto Castello Branco,

as chief executive of Petrobras. Meanwhile, Mr. Guedes set his sights on the privatization of hundreds of state-owned companies, from banks and power companies to the country’s postal service.

Progress was slow. Then the pandemic hit.

Covid-19 has ravaged Brazil, killing a quarter of a million people, and sparked widespread criticism of Mr. Bolsonaro’s handling of the crisis. Faced with growing demands from political opponents for his impeachment, the firebrand leader reverted to populist moves to please his political base—a strategy that analysts say marked his almost three decades as congressman.

If successful, Mr. Bolsonaro will ensure his short-term political survival and boost his chances of reelection in next year’s presidential elections, political scientists said.

Mr. Bolsonaro passed presidential decrees to ease gun ownership rules in a nod to his conservative following, while backing a generous payout program for the poor. Mr. Guedes, seeking to safeguard the country’s fiscal health, had suggested paying out less than $40 a month per person; the administration settled on triple that figure.

After spending as much as $10 billion a month on payouts during the pandemic last year, the country is preparing to resume the payments in the coming weeks. Brazil released figures Wednesday showing its public debt hit a record in January, rising to about $930 billion.

But many investors see Mr. Bolsonaro’s Petrobras nomination as his most audacious move yet, at odds with his administration’s promise to reduce the size of the state in the economy and the president’s own pledge to let the state oil company set prices according to the international market.

On Monday, in the first full day of trading after Mr. Bolsonaro’s nomination of Gen. Silva e Luna, investors fled Petrobras, wiping about $13 billion off the company’s market value, the second-biggest daily loss for the company since the 1990s.

The nomination followed a dispute between Mr. Bolsonaro and the current Petrobras CEO over rising fuel prices, sparking fears that the president intended to force the company to fund fuel subsidies in the country again—a policy that cost it about $30 billion between 2011 and 2016 under leftist administrations.

While shares in the oil producer have recovered some ground since, economists said it would take a long time to repair the damage to the reputation of the company and the country.

“Which Brazilian or foreign investor is going to want to buy Petrobras shares?” said Maílson da Nóbrega, a Brazilian economist and former finance minister who praised Mr. Guedes for his optimism. “I think [Mr. Guedes] hopes that he can push through the reforms and leave his legacy, but it is becoming harder and harder.”

Write to Luciana Magalhaes at and Samantha Pearson at

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