Brazil finance chief bails on Mercosur to focus on budget talks

Brazil Finance Minister Fernando Haddad will skip this week’s Mercosur summit in Rio de Janeiro, prioritizing negotiations in congress to raise tax revenue over trade and economic talks with his South American counterparts.

Haddad was scheduled to appear in Rio, where ministers, central bank governors and heads of state from Brazil, Argentina, Uruguay, Paraguay and Bolivia — the newest member of the South American customs union — are gathering to discuss trade agreements, including a deal with Singapore and a long-elusive pact with the European Union that is once again facing hurdles in its final stages.

But he is instead returning to Brasilia, the capital, where proposals to raise public revenue to eliminate Brazil’s primary fiscal deficit, a pledge he’s made for next year, continue to linger in congress. The minister is under pressure from investors to deliver on the goal, but President Luiz Inacio Lula da Silva won’t accept cuts to key social and investment programs. Meanwhile, lawmakers remain reticent to raise taxes.

The job of representing Haddad, who was supposed to host fellow Mercosur finance ministers in Rio, will be taken up by Planning Minister Simone Tebet. Mercosur has been a major priority for Lula, who has sought to use Brazil’s position as the bloc’s rotating president to reunite its members behind a push for the finalization of deals including the agreement with the EU. The leftist leader heightened the stakes of the gathering last month, when he said he wanted to put the finishing touches on the EU deal before the end of the summit, when Brazil relinquishes the bloc’s presidency. 

But optimism about the agreement that has been in the works for more than two decades faded this weekend amid renewed environmental concerns from France’s Emmanuel Macron. Haddad, meanwhile, shared his own worries about the fate of the fiscal target with Lula during their flight home from a trip to the United Nations Climate Change Conference in Dubai and a state visit to Germany, according to two government officials familiar with the situation who requested anonymity to discuss internal matters.

The combination of factors, the officials said, led the pair to decide it would be best for the minister to return to Brasilia, where he still needs to convince lawmakers to help him raise 168 billion reais ($34.3 billion) in new revenues that, according to his budget outline, are needed to hit the zero-deficit target.

Haddad now plans to spend the rest of the week pressing congressional leaders for the approval of a provisional measure expected to bring in 35 billion reais in additional revenue by reducing fiscal incentives for companies.

Failure to approve it would be the final nail in the coffin of the zero-deficit goal that most economists already consider unreachable.