The week ahead in Brazil #25

Short term trends

What is happening in Brazil

1. On Monday, President Jair Bolsonaro, along with ministers and politicians, revealed a social programme named “Renda Cidadã” (Citizenship Income), to replace the PT-era “Bolsa Família”. The programme would be funded by limiting the payment of judicial debts, called precatórios, and with money from Fundeb, the Fund for Basic Education Development. Congress members and the markets reacted negatively.

The Congressional session to decide over the presidential vetoes on Wednesday (30) was cancelled by the President of the Senate, Davi Alcolumbre. He alleged the lack of political consensus. The opening of the Joint Budget Committee (CMO) was postponed, and the meeting of the Tax Reform Joint Committee was cancelled. The Special Secretary of Finance, Waldery Rodrigues, delivered his presentation on Monday (28) at the Covid-19 Joint Committee. He clarified some economic issues and reinforced the importance of the structural reforms.

The Speaker of the Lower House, Deputy Rodrigo Maia, tweeted on Tuesday (29) that the Minister of Economy, Paulo Guedes, was blocking the debate on the tax reform. Mr Guedes mentioned, on the next day, that Mr Maia has a political arrangement with left-wing parties to delay the voting on privatisations. Mr Maia replied that “Paulo Guedes is not in his right mind. A pity”.

Mr Bolsonaro travelled to the state of Pernambuco on Thursday (1).

2. Following criticisms on the “Renda Cidadã” funding, Mr Guedes said the use of precatórios is not adequate or sufficient to that end, raising doubts over his role in the process. The government is having difficulties in finding a source to consolidate and expand social programmes.

Unemployment numbers hit a record high, with 13.1 million people looking for a job.

In a long interview, Mansueto Almeida, the former Secretary of the Treasury, expressed fiscal concerns and exploited alternatives to minimise risks, such as the undesired comeback of inflation and the rise of interest rates in 2021.

On Thursday (1), the Federal Supreme Court (STF) ruled in favour of Petrobras, allowing it to sell its refineries without the National Congress approval.

3. The announcement of the “Renda Cidadã” was criticised as a flaw of communication.

Mr Bolsonaro announced Judge Kassio Nunes to be appointed to replace Supreme Court Justice Celso de Mello, who will retire this month. Mr Nunes will have to be approved by the Senate. Politicians received well Mr Nunes’ appointment.  

The Minister of Environment, Ricardo Salles, passed three resolutions through Brazil’s National Environmental Council (Conama) that could weaken protected biomes. Supreme Court Justice Rosa Weber demanded explanations.


How to read it?

1. Despite the political mess on the announcement of “Renda Cidadã”, the political trend remains positive. It does not mean a free pass, but a positive set of conditions under which the government has more chances to approve its agenda.

The first reason is that the government continues to have a steady popular approval and support. It could have some changes in the next couple of months due to the decrease in the value of the emergency payments, but I expect it to have a small effect, instead of a U-turn. Second, the coalition continues to function within its limits and characteristics, providing a positive context in Congress. It could be seen this week in the episode of the postponement of the Congressional session, to make time for the negotiations over the reforms and the social programme continue. Third, the tension between Mr Maia and Mr Guedes is not a general and open conflict between the Executive and Legislative branches, and Mr Bolsonaro does not seem inclined to escalate it.

2. While it is becoming more apparent that the government and congress members are pursuing ways to spend more, the neutral trend is pending two major fiscal factors: how the “Renda Cidadã” the overturn of the veto on the payroll-tax will be funded? It is easier to make public policy by spending money, not by trading one bad policy for a better one. Instead of a spending review, we see a run for more spending.

The economic team has the technical expertise to propose sound policies, but some issues are impeding them to deliver. The most important right now is the role of politics in the economic policymaking process. The political coalition is pursuing more political power, a preference expressed by rebranding social programmes, while resisting to privatisation. Furthermore, Mr Guedes’ tension with Mr Maia is not productive. It might cause unnecessary delays on the privatisation processes, on the structural reforms and other important economic measures.

The form “Renda Cidadã” was proposed, only two weeks after Mr Bolsonaro having said that “Renda Brasil” was out of the table, maximises instability and uncertainty between political actors. It diminishes the role of the Ministry of Economy in the process.

3. After several weeks in a neutral trend, the public management entered in a negative trajectory. There are two major reasons for that. One is that the environmental policy stands out amongst other government areas as a policy prone to make huge mistakes not only for itself but across the government, affecting Brazil’s international image. On top of that, the Minister of Environment, Ricardo Salles, and other top-tier officials are not capable of contesting critics, if that would be the case, with solid arguments e sound evidence.

That leads us to another problem in our metrics, corroborated by the “Renda Cidadã” announcement fiasco: the public administration paradigm retroceded to a more closed political decision-making model, instead of advancing in a more logical and transparent framework. When dealing with low salient issues, denominated as “quiet politics”, it could be the case. However, environmental and socio-economic policies are high salient issues right now, and decisions would be under examination by the public opinion.


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