Brazil’s Currency to Strengthen With Reforms, Economy Chief Says

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Brazil’s real will strengthen and the economy will beat expectations this year as privatizations, investment and structural reforms turn a cyclical rebound into a sustained recovery, according to Economy Minister Paulo Guedes.

A long-delayed tax bill is making progress in the legislature while resistance to a planned overhaul of public sector careers is falling, the minister told Bloomberg News on Thursday, forecasting both proposals to be approved this year. While the first reform is designed to improve Brazil’s business environment, the second intends to reduce costs of public servants over time.

“As reforms make progress, everybody will see that the currency is mispriced, that it will strengthen,” Guedes said during a two-hour interview at his office in Brasilia. “The currency had an overshooting and is now finding its equilibrium -- if it’s going to be 5.0 per dollar, 4.8 per dollar or 3 per dollar... I have my hunch, but I won’t say.”

Read More: Brazil Rushes to Approve Tax Reform Before Presidential Election

The Brazilian currency lost about a quarter of its value in 2020 amid investor concerns about excessive public spending during the pandemic. A recent surge in commodity prices, coupled with aggressive interest rate hikes by the central bank and an improved fiscal outlook have helped to shore up the real in the past few weeks. It is now up about 5.8% since the end of March, the world’s best performing major currency.

Guedes forecast that Latin America’s largest economy, after suffering a less painful recession than its neighbors last year, will surprise again in 2021 with the creation of 1 million jobs during the first four months of the year.

“Many countries are still on the floor, but Brazil is standing and has started to walk fast,” he said.

The better-than expected performance should be partly credited to government programs to assist the poor and to protect jobs during the pandemic, according to Guedes. Together, those programs made a hole in Brazil’s budget but what matters is that the administration has managed to keep recurring expenses in check, he said.

Read More: Brazil Economy Outperforms Expectations During Second Covid Wave

See below for other key comments by the minister.

Tax Reform

• President Jair Bolsonaro and the heads of both houses of congress have agreed to split up into several chapters a proposal to overhaul the tax system in order to speed its progress
• Changes to income and consumer taxes will be first submitted to the lower house
• A proposal to renegotiate tax debts will be first submitted to the senate

Eletrobras Privatization

• Bill allowing the privatization of power utility Eletrobras is likely to be approved next week, according to Guedes
• Discussion was delayed because lawmakers tried to make unwelcome, last-minute changes to the text

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