The Micro-Cities’ Terminator
Why Brazil’s Minister of the Economy intends to extinguish one-fourth of the country’s municipalities
Brazil is currently divided into 26 states plus a Federal District, Brasília, the capital. In its turn, these states are divided into a total of 5,570 municipalities, which require adequate infrastructure, a permanent influx of public resources, and a set of local civil servants to function according to any city’s attributions. Not to mention the existence of a political elite composed of mayors, vice-mayors, and municipal councilors (the legislative branch of government), who all have their salaries paid by resident taxpayers, just like in any other country. However, most of these micro-cities are far from registering budgetary surpluses or from being self-sufficient. On the contrary, these end up permanently depending on the transfers emanated by the federal government’s Municipalities Participation Fund (MPF). This means the whole country — fellow citizens residing in other municipalities and states — basically support the continued existence of these tiny territorial units whose economic and political relevance are quite questionable.
Faced with such an intriguing scenario, Brazil’s Minister of the Economy and former “Chicago Boy” Paulo Guedes has been considering a drastic measure in the context of an overarching de-bureaucratization reform: extinguishing municipalities with less than five thousand inhabitants. These subnational entities would be merged with larger neighboring geographical subdivisions in order to enable a desired fiscal, budgetary and bureaucratic relief within Brazil’s longstanding federal pact. As everyone knows, low populations inevitably lead to low tax collection. Many of these tiny Brazilian cities aren’t even affording to cover 10% of their actual municipal budgets. Therefore, in the near future, if the Minister’s proposal gains strength and everything goes as planned, the country could be eliminating 1,217 (22%) of its existing municipalities alongside their 2,434 mayors and vice-mayors posts as well as over 11 thousand municipal councilors and over 30 thousand civil servants’ positions.
It is worth noting that 1,079 municipalities were created after the year 1990, meaning that these are all reasonably recent. The entire debate about the future of micro-municipalities in Brazil is based on a comparison with small- and middle-sized cities which also depend on the resources from the federal government’s MPF. Proportionately speaking, micro-municipalities are home to just 2% of the country’s population but end up getting a 10% slice of the available funds. The MPF encompassed BRL 93.4 billion (USD 17.5 billion) in 2019 alone. On the other hand, slightly larger municipalities which account for 15% of Brazil’s population ended up getting 37% of this amount, while even bigger cities containing 26% of Brazilian inhabitants, only had access to 18% of the above-mentioned amount. This means micro-municipalities received on average BRL 2,408 (USD 452) per citizen, while larger and more relevant political subdivisions (between 500 thousand and one million inhabitants) received only BRL 177 (USD 33) per person.
There is no doubt Brazil has been politically, economically, fiscally, and morally troubled prior to and during the COVID-19 pandemic and is likely to remain so throughout the initial years of the new decade. Historic bureaucratic hurdles, a heavy State apparatus, confusing, conflicting and overlapping tax systems, corruption schemes and scandals, poor infrastructure and persistent inequalities have always prevented the country from sustaining job creation and economic prosperity for long periods of time. The current government’s economically liberal platform had to be downplayed in 2020 for obvious reasons but is likely to regain space in 2021. Eliminating 22% of Brazil’s municipalities may sound radical and insensitive. However, the country should start somehow and take structural measures to ensure long-lasting fiscal health and fitness.
If the country has the positivist motto “Order and Progress” on its national flag, the idea is not to miss the next train towards it. Former Minister of Planning Roberto Campos (1964–1967), who served during the military dictatorship, used to say that “Brazil does not miss an opportunity to lose an opportunity”. His grandson now runs Brazil’s Central Bank. Maybe it's time to get it right.