Bolsonaro Pivots to Interventionism With Firing of Petrobras CEO

(Bloomberg) -- President Jair Bolsonaro’s decision to replace the head of Brazil’s state-controlled oil company is the latest sign yet that the far-right leader is willing to sacrifice the market-friendly policies sponsored by his economy minister in a bid to boost his falling popularity.

Bolsonaro’s decision on Friday to fire the University of Chicago-educated economist at the helm of Petroleo Brasileiro SA after a feud over fuel prices surprised even his inner political circle. There was no room to discuss the move that shows a president increasingly impatient with the government’s inability to appease his political base, including truckers who have been threatening a strike over rising diesel costs, said two officials close to his thinking.

The following day, the president justified his decision by saying that, while he doesn’t intend to interfere at Petrobras, the oil company’s current management has shown “zero commitment to Brazil.” Without elaborating, he added that he’s preparing to replace other parts of his administration that “may not be working,” including in the nation’s power sector.

The president’s office didn’t offer additional comments when contacted by Bloomberg on Sunday.

The move threatens to undermine investor confidence in Latin America’s largest economy at a time its recovery falters amid a second wave of Covid-19. With his popularity dropping to near record lows after a program of cash handouts to the poor expired in December, the president looks increasingly eager to please his political base to the detriment of the austerity agenda of Economy Minister Paulo Guedes.

“That reminds us of other moments of government meddling in economic policy,” said Caio Megale, chief economist at XP Investimentos, recalling a 2013 decision by former President Dilma Rousseff to reduce electricity prices. “The market wants to know if the president’s decision is a new guideline for economic policy.”

The Brazilian real may weaken 2% on Monday while the Ibovespa stock index may drop around 4%, according to the median expectation of 200 institutional investors surveyed by XP on Sunday.

James Gulbrandsen, chief investment officer for Latin America at NCH Capital, which has about $3 billion in assets under management, said the uncertainty leaves Brazil at risk of being shunned by investors.

“If Bolsonaro interferes with electricity pricing, it’s probably game over for his ability to attract foreign capital,” he said.

Roberto Castello Branco, Petrobras’s current chief executive officer, has won investors’ praise by reducing the company’s debt and advocating its independence from the government. General Joaquim Silva e Luna, whose nomination needs to be approved by the state-controlled company board, has been in charge of the Itaipu hydroelectric dam for the past two years, and served as a defense minister in the previous administration.

Silent Guedes

Guedes has kept silent since Bolsonaro’s announcement on Petrobras because there’s nothing he can say about the decision to make it look better, according to three government officials close to him. Yet he’ll try to minimize investor concerns about political intervention by speeding up the approval of austerity measures in congress, the people said, asking for anonymity because the discussions aren’t public.

The economy ministry declined to comment.

Guedes has spent the past few days negotiating with lawmakers on the approval of a constitutional amendment that would make room for the government to provide another round of Covid aid to poor Brazilians in exchange for cuts in public spending in coming years. The bill will ensure fiscal credibility and predictability, and talks are going well as there’s an understanding that the country has no time to waste, the people said.

Despite losing several political battles recently, Guedes doesn’t intend to step down before leaving an economic legacy he can be proud of, the people added.

©2021 Bloomberg L.P.