The week ahead in Brazil #27

Short term trends

What is happening in Brazil?

1. On Wednesday (14), Senator Chico Rodrigues, one of the three government vice-leaders in the Senate, was searched by the police in a scandal of ­misuse of coronavirus funding. Police found roughly R$30,000 (£4,100)[1] in his underwear. Mr Rodrigues was dismissed of his leadership position on the next day, and President Jair Bolsonaro said his government has no connection to any wrongdoings of Mr Rodrigues. On Thursday (15), the Supreme Court Justice Roberto Barroso ordered Mr Rodrigues to be suspended for 90 days from his legislative activities. Senators say it is interference and it is up to them to decide about it. Justice Barroso submitted his decision to a plenary vote at the Supreme Court next Wednesday (21).

Mr Bolsonaro’s administration rejection has decreased. An XP Ipespe poll revealed that 31% of the population considers the administration as poor or terrible. It was 36% in September. He travelled on Friday (16) to a biogas plant inauguration in the state of São Paulo, and later to Resende, a city in the state of Rio de Janeiro.

At the Senate, the Minister of Environment said on Tuesday (13) that the federal government is legally responsible for oversight 6% of the Pantanal lands. State governments would be responsible for the remaining part.

2. The housing market is booming. From January to August, the credit offers to house buyers hit a 44% high in comparison to the same period of last year. The rise is attributed to a number of factors, such as support from lower interest rates and a previous decrease in house prices.

On Wednesday (14), the International Monetary Fund – IMF released the ‘Fiscal Monitor’ report. It warned that fiscal support should persist in sustaining recovery. It pointed out that Brazil spend almost 11% of the GDP in response to Covid-19, and public debt will reach 101.4% of the GDP in 2020. Both levels are higher in Brazil than in emerging countries.

Despite some talk, there were no clear-cut advancements on the structural reforms or the funding of the “Renda Cidadã” social programme.

The Brazil-US trade flow is down 25%. It is the lowest level in eleven years, between January and September. Brazil exports mostly finished goods to the US. Experts say it is mostly a consequence of the pandemic effect.

3. The government is concluding a bill proposal to privatise the Brazilian postal service, known as Correios. The Ministry of Communications announced that it is expected to complete the privatisation in 2021.

The Federal Justice denied a request of the Federal Prosecution Service (MPF)  to suspend the Minister of Environment, Ricardo Salles, from his government activities. In July, the MPF accused Mr Salles of dismantling the protection of the environment and requested his suspension. The inquiry is scheduled to be judged on 27 October.

Next week, the Senate will vote several authorities, such as directors to regulatory agencies, a minister to the Federal Courts Account (TCU) and a justice to the  Federal Supreme Court (STF). The informal recess continues from 26 to 30 October.

How to read it?

1. The Brazilian presidential coalition operates under a delicate balance between political support in Congress in exchange for political space in the Executive. In some cases, it ends in corruption and clientelist practices. In the situation of Mr Rodrigues, the corruption charges do not seem related to the Bolsonaro administration. It does not look good for the government with an anti-corruption drive to have a close ally under investigation for corruption, but it is a good sign that that the administration immediately dismissed Mr Rodrigues from his role. However, this was not the first case of close allies and corruption charges. It is worth reminding that Deputy Ricardo Barros, leader of the government in the Lower House, and Senator Fernando Bezerra, leader of the government in the Senate, and Senator Flávio Bolsonaro are under investigation for corruption.

Apart from that, Mr Bolsonaro’s approval continues strong, without any institutional conflicts, and his coalition continues to be supportive. The likely approval of two of his appointees to become ministers, one at the Courts Account and another at the Supreme Federal Court, is an evidence of this political power. The hearing of Mr Salles at the Senate was also politically positive: only one senator argued that he would be incompetent, while the others were light-touch in their remarks.

There are ongoing political talks over the reforms and the funding of “Renda Cidadã”.

2. The Brazilian public debt raises serious concerns amongst economists and market analysts, adding uncertainties in the short term. Despite the fiscal dangers ahead, the IMF’s overall recommendation to maintain fiscal support should be read with a focus on improving the quality of spending, which would require a fast review of lesser needed programmes.

The bill proposal to privatise Correios is good news. The merit, however, relies more on declaring a will than getting fast cash. It will take some time, as the government has to draft a viable bill, and the Congress must approve it.

The matter of how to fund “Renda Cidadã” remains uncertain.  

3. The downsizing of the Brazilian government is not an easy task. Every announced in that way is potentially positive, but there is a time-lapse from when the government announces and when it delivers it.

Mr Salles gained some leverage this week at the Senate and the Federal Justice. However, it does not change the international pressure over Brazil to preserve the environment, as public policies continue unexplained.

It is positive to finally have directors of regulatory agencies approved by the Senate. Their role might produce a better business setting for foreign direct investment.

[1] £1.00 = R$ 7.25

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