The week ahead in Brazil #23

Short term trends

What is happening in Brazil?

1. On Tuesday (15), President Jair Bolsonaro reacted on strong terms to reports that the government was planning to freeze benefits from the elderly and people with disabilities to fund “Renda Brasil”. Mr Bolsonaro said there would be no more talks about overhauling social programmes and anyone proposing to cut such benefits would be sacked from the government. Congress members said they would present a social programme anyway.

warrant of search was issued for Deputy Ricardo Barros’ office. Mr Barros is the leader of government at the Lower House, and he is being accused of corruption and money laundry for activities between 2011 and 2014. He denies any wrongdoing. 

Mr Bolsonaro made a trip to Paraíba, a Northeast state, and made a stop in Ceará, another state in the same region. He also travelled to the state of Mato Grosso, a crucial agriculture cluster in Brazil, especially related to corn and soybean. 

On Monday (21), the Senate will begin to assess 34 candidates to become head of Brazilian embassies.

2. Mr Bolsonaro vetoed the R$1bn (£148m)[1] pardon to churches. Still, he said that he was legally forced to do so, stimulating congress members to veto it.

Across the week, economists have shown a growing concern about the fiscal policy. There are reports that while the Selic rate is at a low 2.00%, Treasury interest rates are increasing and maturity is shortening, reflecting more risk over the fiscal policy. It can affect the exchange rate, inflation, and there is no sign that the structural reforms (tax and administrative) will pass this year.

3. Mr Bolsonaro told supporters that Brazil is overcriticized for the fires in the Amazon and Pantanal. On the next day, he added that Brazil should be congratulated for taking good care of the environment, as most of the power matrix derives from renewable sources. Three senators requested the Ministry of Environment to explain the current state of the environmental policy and the low budget execution up to now. The pressure is rising as eight European countries sent a letter to the Brazilian government calling for action to stop deforestation in the Amazon. The Vice President said he would take ambassadors to the Amazon region in October.

After four months as “acting minister”, Eduardo Pazuello was confirmed as Brazil’s Minister of Health. Meanwhile, regulatory agencies are functioning with 40% of the board of directors in a condition of “interim”. It’s been 14 months that no new directors are confirmed, either because the Executive branch does not appoint anyone, or because the Legislative power does not approve their nomination since last March, when the committees were suspended due to the pandemic.

How to read it?

1. The political trend remains positive. Mr Bolsonaro was savvy in his reaction to the reports. He kept popular support by claiming he is protecting poor constituencies, while not expending more on social programmes for now. It was not without diminishing the team from the Ministry of Economy. It does not change much in the short term: reforms are far from being approved this year, and Mr Guedes will be focused on designing public policy instead of horse-trading in Congress.

Meanwhile, Mr Bolsonaro is expanding and consolidating his presence in the Northeast region with the population, but also with local politicians running for city councillor or mayor. This is important to provide him with a political base in future elections.

It is unclear how Deputy Barros will conduct government business at the Lower House with accusations on his back. He will spare some attention to solving his legal problems, which can decrease his effectiveness. Nonetheless, it is unlikely that the government would search for a replacement.

2. The economic trend keeps neutral, but closer to negative, which is reflected in the Treasury bonds rate. Most of this change is due to fiscal concerns: the reforms won’t generate any tangible results in the next months, the government does not seem determined to sell its big companies and the pressure to spend more continues. Despite the economic stress, it is good news that Mr Bolsonaro found a narrative to stop the “Renda Brasil” and the rising risk it posed to the economy.  

3. At last, Brazil has a Minister of Health, improving our metrics. It was not enough to put the trend into positive. In the environment front, the government continues to cast doubt over the numbers instead of implementing proper policies. Moreover, the regulatory agencies are stalling during a crucial time to improve the environment for business while setting higher standards for public service.

Despite the public service’s good management capacity, the government is having difficulties in creating well-designed public policies and implementing them. Parts of this picture can be seen from the low budget execution, the absence of main directors in regulatory agencies and the often-confusing sense of direction.


[1] £1 = R$6.79

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