Brazil's New Leader Moves to Revamp Economy

Brazilian President Jair Bolsonaro presented members of his cabinet during a ceremony at the presidential palace in Brasilía on Wednesday.

Brazilian President Jair Bolsonaro presented members of his cabinet during a ceremony at the presidential palace in Brasilía on Wednesday.


Photo:

Eraldo Peres/Associated Press

SÃO PAULO—Brazilian President Jair Bolsonaro’s new government is moving quickly to impose changes to the economy intended to boost sluggish growth, while signaling plans to cut the deficit in part by scaling back Brazil’s pension system.

Mr. Bolsonaro issued many presidential decrees on Tuesday after being sworn in that included a cut to a planned increase in the minimum wage, a money-saving reduction in the number of government ministries and a victory for the country’s powerful agricultural sector.

But the Bolsonaro administration’s biggest challenge will be attacking the giant deficits generated by Brazil’s generous pension system, his new economy minister said at his own swearing-in ceremony on Wednesday.

“Pension reform is the first and the biggest challenge,” said Paulo Guedes, as he took charge of a new ministry that combined the finance, planning and industry ministries.

Mr. Bolsonaro’s party doesn’t have enough votes on its own to get laws approved in either house of Congress, so his government will have to seek support from other parties. Efforts by previous presidents to reduce pension spending have met resistance from unions, legislators and the judiciary.

Mr. Bolsonaro won Brazil’s October presidential elections on a platform that included a strong law-and-order plank, a popular commitment in a country with tens of thousands of murders a year, along with market-pleasing pledges to cut the budget deficit and reduce the role of the state in the government.

With his mix of market-friendly economic policies and social conservatism at home, Mr. Bolsonaro plans to align Brazil more closely with developed nations and particularly the U.S., shifting South America further to the right after decades of mostly leftist rule.

Most important for investors, Mr. Bolsonaro has promised to fix a deepening fiscal crisis left behind by years of free spending by left-wing governments under former Presidents Luiz Inácio Lula da Silva and his successor Dilma Rousseff.

“The government won’t spend more than it takes in,” the former army captain and congressman vowed during his inauguration speech.

Brazil’s pension system generated a deficit projected to reach 218 billion reais ($57.2 billion) in 2019, up from an estimated 202.4 billion deficit in 2018, with total government spending projected at 1.44 trillion reais for this year.

In addition to the attack on the pension system’s deficit, Mr. Guedes reiterated plans announced during the election to boost economic growth by opening up the country’s closed economy to international trade, selling some state-owned assets, simplifying the country’s convoluted tax structure and easing government regulation.

The economy needs “more Brazil, and less Brasília,” Mr. Guedes said, referring to bureaucracy in the country’s capital.

Brazil’s economy grew only an estimated 1.3% in 2018, and is forecast to expand 2.55% this year, according to a survey of economists by Brazil’s central bank. The economy returned to growth in 2017 following a deep two-year recession.

One of Tuesday’s presidential decrees, which takes effect immediately but has to be approved by Congress to become permanent, gives the Agriculture Ministry the right to designate lands reserved for Brazil’s indigenous population.

The move is a loss for the country’s National Indian Foundation, a government agency created to protect Brazil’s indigenous peoples that previously held that power. Land disputes are a frequent source of conflict between farmers and tribes.

U.S. Secretary of State Mike Pompeo, who traveled to Brasília for Mr. Bolsonaro’s inauguration, met Tuesday with the new president and discussed security and economic ties, a U.S. spokesman said, adding that they also spoke about transparency and good governance as necessary to investment in the region.

Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com