What is happening in Brazil?
1. President Jair Bolsonaro delivered the opening speech at the United Nations General Assembly virtually on Tuesday (22) and covered issues ranging from the pandemic, the fires in the Amazon and the Pantanal regions, agriculture production and more. On the one hand, he highlighted the government’s response to the Covid-19, and regulatory advancements, such as the new sanitation and oil and gas frameworks. On the other hand, Mr Bolsonaro accused the Brazilian media of spreading panic, and affirmed his government is a victim of a disinformation campaign on the environmental front.
The latest Ibope poll revealed that the current administration has an approval rating of 50%, with 40% considering the government as great or good. This finding is in line with previous polls. Mr Bolsonaro travelled to Rio de Janeiro, where he attended military and security related events on Wednesday (23) and Thursday (24). On the following day, he went to São Paulo for a bladder surgery.
At the Senate, on Thursday (24), the Brazilian Foreign Minister, Ernesto Araújo, explained the visit of US Secretary of State, Mike Pompeo, to Roraima, a Brazilian state bordering Venezuela. The visit was in the context of providing aid to Venezuelan refugees in Brazil. Senators claim it was a campaign act to the US presidential election. On Monday (28), the Special Secretary of Finance, Waldery Rodrigues, is scheduled to present policy assessments at the Covid-19 Joint Committee.
The next Congressional session is likely to happen on Wednesday (30), when 24 presidential vetoes could be assessed, including those related to the New Basic Sanitation Regulatory framework, and to the extension on the payroll-tax cut. Both could be overturned. The government is negotiating how to accept that outcome, as securing political support to the approval of the structural reforms or the creation of new taxes.
2. On Tuesday (22), the Ministry of Economy updated the public deficit forecast for this year to R$861bn (£121bn)[1]. In July, the report predicted a deficit of R$788bn. The next official release will be in November.
The Brazilian Central Bank adjusted this year’s GDP retraction from 6.4% to 5%, and the inflation rate at 2.1%. The report also predicts a 3.9% GDP’s growth for 2021, which is slightly higher than the market’s 3.5% estimate.
If the veto on the extension of payroll-tax cut is overturned on Wednesday (30), it could mean a loss of R$10bn (£1.4) to the government. A form to compensate that would be the creation of a new tax on financial transactions. However, it faces upfront resistance from congress members, including from Deputy Rodrigo Maia, the Speaker of the Lower House.
3. Mr Bolsonaro’s speech on Tuesday (22) was reported as negative. Ranging from Reuters, AP, Valor, Folha, Estadão, major media outlets classified his speech as distorted, blame-avoiding or negationist.
The Senate approved 34 names to become head of embassies or diplomatic posts. One of them was the Brazilian Ambassador to the United States, Nestor Forster.
There was a public hearing on Monday (22) at the Supreme Court to debate the environment situation in Brazil. The Minister of the Environment, Ricardo Salles, was one of the participants. On another end, the Federal Prosecution Service demands the Federal Justice to decide over a file against Mr Salles to be removed from his ministerial position for poor management.
How to read it?
1. The political trend remains positive. The approval ratings of the government are solid, creating a comfortable political edge. Most analysts attribute that to the emergency payments, and I’m inclined to agree with them that it is a significant factor. I differ from them on what’s going to happen once this cash stops to flow to the poor. Other factors might contribute to keeping a good political power, such as Mr Bolsonaro’s persona, the effect of the municipal elections. Except from the environment, other ministers are not a continuous source of political problems to the government. The better than expected performance of Minister Ernesto Araujo was a proof of that, as is now the limited reach of the Minister of Economy.
Despite the negative repercussion of Mr Bolsonaro’s speech, the government has been smart to avoid unnecessary political conflict. The less reliable political aspect is the government’s coalition. While it remains stable, it is not stellar, meaning it works fine, but it can fail to deliver on the government’s agenda, such as in the payroll-tax cut episode. This is a point of attention, even more because Mr Bolsonaro does not face a credible opposition yet.
2. Despite the deficit numbers, the economic trend remains neutral, waiting for the government’s next decisions. A positive one would be to get quick cash, as the government is proposing, in the form of a new tax, to compensate the revenue loss from the payroll-tax cut and to help to fund the emergency payments. Critics assess it as a tax with an adverse effect on the productive sector, but the government says all is to be solved through the tax reform. A point of concern is the extension of social cash-transfer programmes, but that does not seem a viable option now.
3. The management trend remains neutral for a couple of reasons. Seen as a whole, the government’s capacity of delivering services is stable at a low point. The budget execution is low, there are some mismatches between technical ability or leadership to implement public policies, and the decision-making process is somewhat restricted. However, the policymaking is not worsening, and top tier management is stable for now.
Some areas require attention: the environment, education and public health; a better budget execution; and a serious improvement in the government’s communication. Given the current state of matters, it does not go a long way for the management capacity to become positive and to raise the bar of its policies.
[1] £1 = R$7.09
Arthur Wittenberg 