The week ahead in Brazil #19

What is happening in Brazil?

1. The National Congress continues deciding over presidential vetoes, ranging from the mandatory use of masks to administrative procedures. Usually, the Senate and the Lower House vote vetoes in joint sessions, but due to the pandemic, they have to confirm or reject them separately. 

A very important veto was firstly rejected by the Senate on Wednesday (19), but kept by the Lower House on the day after. The majority of both houses can only reject a veto. Through veto 17/2020, President Bolsonaro refused a salary increase to health, education and other municipal and state public servants. The Senate decided to overturn this veto by 42 votes to 30, which was not expected, but the Lower House confirmed it by 316 votes against 165.

2. Following the Senate’s overturn on veto 17/2020, the Minister of Economy, Mr Paulo Guedes, said it was a “crime against the country”. Kept by the Lower House, it prevented a potential fiscal loss of R$132bn (£18bn). The Senate plans to invite Mr Guedes to explain his remarks.

On the spending side, the government will open R$5bn (£680m) in funding to infrastructure, after ceding to pressure from ministers. Besides that, members of Congress are calling for an extension of the emergency payments. The government has plans to continue some sort of cash transfer programme. It might disclose a version of a programme called “Pró-Brasil”, initially set to fund projects. It is now partially adjusted to include income and employment as well, branded as “Renda Brasil”.

The most robust job growth for July in eight years was set: a net addition of 131,000 formal jobs. 

3. The Minister of Environment, Ricardo Salles, fired the head of ICMBio, a department in charge of protecting national parks and forests.  No explanations were given. 

At the Ministry of Health, the management remains with no significant changes. That means top management is occupied by military personnel and the minister himself is still interim. 

An annual audit found that the budgetary execution at Environment is very low. Overall, 2019 remained at 11%, half of the 2018 performance and way below 51% of 2017 budget execution. Besides that, the budget of the Ministry of Defence was reported to have an increase of roughly 50%, with more funds than the Ministry of Education.

How to read it?

1. The most relevant factor was the coalition test over veto 17/2020. After a defeat at the Senate, the appointment of Deputy Ricardo Barros, the new government leader at the Lower House, proved to be effective, along with the decisive help from the Speaker of the House, Rodrigo Maia.

It is unknown why the Senate decided to overturn the veto. One interpretation is that it was trying to force Mr Bolsonaro to pick a side (Mr Guedes’ or that of other ministers prone to increasing government spending); another is that the Senate decided to leave the decision to the Lower House, forcing the government to abide by “Centrão”; the last one relates to Mr Davi Alcolumbre, the president of the Senate, who went missing on the day, either to prove his value to Mr Bolsonaro or to avoid facing senators in a situation of defeat.

Regardless of that, it is plausible to argue that the political context remains positive. The government’s and Mr Bolsonaro’s ratings are high. There is also a lack of serious and open conflict between the Legislative and the Executive.  The government is in a better position to coordinate the approval or rejection of important bills, and congress members feel they have a more fluid communication channel with the government with Mr Barros. This view will be confirmed or rejected in the voting to take place in the coming weeks. 

2. The economic trend remains neutral. After the initial shock over the veto 17/2020, Mr Guedes learnt that Mr Bolsonaro is providing support to his economic strategy. The departure of Mr Guedes looks unlikely for now, but fiscal pressure remains high, and there is no sign that the reforms are guaranteed to pass.  

The following weeks will be challenging for Mr Guedes. If he is really invited to explain his remarks, chances are on his side, because he will be able to reinforce the importance of the reforms to be presented. Mr Guedes will have to use all his charm to make sure the Congress does not frustrate important reforms being planned, such as the tax system and the public administration.

3. As in previous weeks, the public management trend continues to have an overall negative assessment. This is concluded by the low budgetary execution in ministries, such as those in charge of environment and health. This is an important marker because it reflects poor competence in implementing public policies. 

As for the leadership aspect, it seems that the government is closing the decision-making process into a more arbitrary model. That brings two problems for the quality of the policies: it fosters one-way thinking and widens the gap between promises and what it can deliver in fact.

Lastly, findings that the Ministry of Defence will have a higher budget than Education adds a negative perspective. It probably means a bias within the government to privilege the military, both due to the background of Mr Bolsonaro, but also because many of the presidential ministers and advisors come from a military background.

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