Brazil’s government backs new basic income payments to poor

2/2 © Reuters. Outbreak of the coronavirus disease (COVID-19), in Rio de Janeiro © Reuters. Outbreak of the coronavirus disease (COVID-19), in Rio de Janeiro 2/2

By Ricardo Brito and Marcela Ayres

BRASILIA (Reuters) – Brazil’s government on Monday detailed how it would pay for a new minimum income program called Renda Cidada, with President Jair Bolsonaro and Economy Minister Paulo Guedes still pledging to honor the country’s spending cap and fiscal rules.

The proposed program would replace Bolsa Familia, the successful flagship welfare program of former Workers Party President Luiz Inacio Lula da Silva, which pays women a stipend on the condition that they send their children to school and has been credited with reducing poverty in Brazil.

Renda Cidada, which translates as “Citizen Income,” would draw from funds already dedicated to Bolsa Familia, as well as from an education fund called Fundeb, said Senator Márcio Bittar, speaking on the sidelines of a meeting between top officials at Bolsonaro’s official residence.

At the same meeting, Guedes said the aim was for the new program to begin on Jan. 1, just as emergency pandemic payments to the poor are set to end.

While Bolsonaro had previously given free reign to Guedes on economic policy, the president’s backing of big spending to support the economy amid the coronavirus pandemic has led to tensions with Guedes, who favors fiscal discipline.

Renda Cidada is a new version of a planned social welfare programme called Renda Brasil that Bolsonaro cancelled earlier this month after it received waves of bad press over a two-year freeze on pensions and payments for disabled people. Guedes said the policy had been misrepresented and he had never called on cuts for the poor, sick or vulnerable.

Paying for Renda Cidada will involve an accounting maneuver allowing the government to tap into 55 billion reais ($ 9.7 billion) in the budget earmarked for future debt payments.

“This would put the federal government in the same situation as local states and municipalities: accumulation of unpaid debt,” said a senior trader at a bank in Sao Paulo, speaking on condition of anonymity.

“It … raises concerns over accounting manipulation and does not change the country’s underlying fiscal condition.”

Brazilian markets reacted negatively to the news, amid fears of looser fiscal policy. The real closed down 1.46% at 5.64 per dollar, the stock market fell 2.3%, and longer-term interest rates spiked sharply higher.

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