• Central bank could lose ministry-level status under one plan
  • Proposal could open Central Bank chief to more law suits

Much of Brazil’s plan to cut as many as 10 ministries by the end of the month is little more than re-branding, without saving the government much money, according to a cabinet member participating in the discussions.

Under one proposal, the Central Bank, the attorney-general’s office and the comptroller-general’s office would simply be stripped of their ministry-level status and otherwise left unchanged, said the person, who asked not to be named because the proposal isn’t public. Other cabinet members would be regrouped under existing ministries, representing only small savings, the official said.

There are currently 38 officials in Brazil with the status of minister, including the heads of nine secretariats and four institutions. Not only would the proposal generate few savings, but stripping the Central Bank of its ministerial status may raise questions about its operational independence and legal protection for bank president Alexandre Tombini, according to Carlos Kawall, chief economist at Banco Safra and former Brazil Treasury Secretary.

“There’s no way to reduce the structure of the Central Bank, there are no savings, so just to take away the ministry status, since the costs wouldn’t change, doesn’t seem to be a good sign,” Kawall said. “It could lead the market to interpret this badly, something that would take a lot of work to undo.”

Legal Action

In Brazil, legal action against government ministers and sitting lawmakers can only be heard by the Supreme Court.

Tombini threatened to step down if he loses the status of minister because he fears a wave of legal action from citizens claiming damages due to Central Bank decisions, newspaper Folha de S. Paulo reported, without saying where it got the information. The Central Bank’s press office declined to comment on ministerial reform and said Tombini never threatened to leave his post.

The ministerial reform certainly won’t make up for lost tax revenue as Latin America’s biggest economy sinks into recession, according to David Fleischer, professor emeritus of political science at the University of Brasilia. The government this week cut its primary budget forecast for 2016 to a deficit from a surplus of 30.5 billion reais ($8.3 billion).

Drafting a 2016 budget that acknowledges the government won’t save enough to pay down its debt next year heightens the risks of a credit rating downgrade, Fleischer said. The administrative reform “is not solid enough” to convince rating agencies that Brazil is looking for serious savings by cutting ministries, Fleischer said.

“The ratings agencies will probably remember Shakespeare, and recognize that this reform proposal is ‘much ado about nothing,”’ Fleischer said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE