Brazil’s Tax-Exempt Bond Volume ‘Completely Absurd,’ BTG’s Esteves Says

Esteves: Fiscal Balance Is a Duty, Not an Ideology

At an Esfera Brasil event on Monday, BTG Pactual chairman André Esteves argued that Brazil’s fiscal problem is not ideological. In his view, the country knows the necessary direction: a government that spends more than it earns will eventually face a crisis. Because public spending has already grown substantially, he said, the adjustment is easy to make and Brazil has dozens of qualified economists who could implement the three or four measures needed.

Esteves said the adjustment must come from both sides of the budget. On spending, he called the current growth rate of public expenditure unsustainable. On revenue, he was unusually blunt: the volume of tax-exempt securities in Brazil is completely absurd. He added that he is both a holder and an issuer of those instruments, but said the system is still wrong.

On interest rates, he argued that Brazil is not condemned to permanently high borrowing costs. A 14% rate, he said, is suffocating for any company, including banks. If the rate were cut from 14% to 7%, which he described as perfectly possible, the change would have an enormous impact on society, worth more than any social program or marginal increase in investment.

The sharpest warning came on institutions. Esteves said the economic battle is the easier one; the institutional battle cannot be lost. He pointed to a regulated segment of the economy becoming 20% informal and to insignificant companies creating losses of tens of billions of reais, without giving details. If Brazil loses that institutional fight, he said, it would end up somewhere between Mexico and Russia.

What Esteves’s Rate and Tax Warnings Signal for Brazil

Why Esteves Is Attacking Tax-Exempt Securities He Owns

Esteves’s admission that he is both a holder and issuer of exempt instruments makes the criticism more pointed, not less credible. He frames the exemption volume as a revenue-side distortion rather than a legitimate investor incentive. If a figure with his exposure says the system is wrong, the market signal is that future tax reform could eventually target these securities. Still, he named no specific instruments, so the statement is a directional warning rather than a concrete policy proposal.

The 14% to 7% Argument

His central economic claim is that Brazil is not condemned to high interest rates by identity. The adjustment path he describes — making public spending more efficient and fixing tax distortions — is what he says could create room for the benchmark rate to fall from about 14% to about 7%. This is not a formal forecast from BTG research; it is a speech by the bank’s chairman. The logic matters because lower rates would reduce borrowing costs for companies and the government, reprice assets, and, according to Esteves, deliver more to society than social programs.

Institutional Risk Is the Bigger Warning

The most concerning part of his remarks was not economic. Esteves said the economic battle is easier, but the institutional battle cannot be lost. He referred to a regulated segment of the economy becoming 20% informal and to small companies creating holes of tens of billions of reais, without naming cases. He warned that losing the institutional fight would put Brazil somewhere between Mexico and Russia. Because he gave no details, these remarks should be treated as a broad warning about governance, enforcement and institutional decay rather than as specific accusations.

Election Outcome May Not Change the Fiscal Direction

Esteves tied fiscal adjustment to neither Lula nor Flávio Bolsonaro, saying the necessary measures are nonpartisan and that there is political room to approve them in Congress. He sees the presidential race as a technical tie — 51% to 49% — and says the second round will be influenced by first-round governor results and turnout, with the likely voter currently slightly favorable to the right. For market participants, the implication is that fiscal and rate policy questions will remain central regardless of the winner.

What Investors and Borrowers Should Watch After Esteves’s Warning

• Holders and issuers of tax-exempt instruments: Esteves explicitly called their volume completely absurd despite holding them. That raises the probability that a revenue-side adjustment after the election will target tax exemptions; review exposure before policy details emerge.
• Brazilian companies and borrowers: The current 14% benchmark rate is described as suffocating, and Esteves argues a drop to 7% is possible only with fiscal credibility. Treat lower-rate scenarios as conditional on spending efficiency and institutional confidence, not as a committed path.
• Investors tracking the election: Esteves frames the race as a technical tie and says the necessary fiscal measures are nonpartisan. Focus on Congress’s willingness to approve spending-efficiency and tax reforms, and on second-round turnout, rather than assuming a sharp left-right policy divide.
• Policy watchers: His institutional war language is a signal that markets may react less to specific spending cuts and more to signs that enforcement, regulation and institutional integrity are holding.