The week ahead in Brazil #28

Short term trends

What is happening in Brazil?

1. Following charges of corruption and a judicial order suspending his legislative activities, Senator Chico Rodrigues requested 121 days of unpaid leave on Tuesday (20). The Federal Supreme Court (STF) called off the plenary analysis of the case, as the decision has lost its object.

The Minister of Environment, Ricardo Salles, complained again about budget cuts. He said the Minister of Government, Luiz Ramos, has a “gossip girl” posture. Mr Ramos is responsible for the political negotiations between the government and the Legislative branch, with influence on the federal budget. Deputy Rodrigo Maia, the Speaker of the Lower House, and Senator David Alcolumbre, the President of the Senate, criticized Mr Salles’ behaviour. On Sunday (25), Mr Salles apologized to Mr Ramos.

President Jair Bolsonaro said the federal government would not buy Coronavac, China’s Sinovac vaccine being tested by the Butantan Institute in São Paulo. Mr Bolsonaro announced it on Wednesday (21), after the Minister of Health, Eduardo Pazuello, said the federal government would buy 46 million doses of Coronavac. Governors and politicians protested.

This week, Mr Bolsonaro travelled to Campinas in the state of São Paulo to inaugurate Sirius, a giant particle accelerator. The Senate will have an informal recess next week.

2. A US delegation headed by National Security Adviser Robert O’Brien came to Brazil to increase bilateral relations. Amongst several initiatives, a protocol on trade and transparency and a memorandum of understanding were signed.

On Monday (19), Brazil and the United States signed a protocol that updates the 2011 Agreement on Trade and Economic Cooperation (ATEC) on three areas: customs administration and trade facilitation; good regulatory practices, promoting the use of regulatory impact analysis (RIA); and anti-corruption measures. It aims to increase bilateral trade and investment.  On Tuesday (20), the Minister of Economy, Paulo Guedes, and the President of the Export-Import Bank, Kimberly Reed, signed a $1bn memorandum of understanding to finance exports to Brazil, including in telecommunications. There were reports that it was a move to prevent Brazil from adopting Huawei’s 5G network.

The government is negotiating with the Brazilian Development Bank to receive R$100bn (£13.6bn)[1] to help to pay national bonds. Brazil has R$643bn (£88bn) of debt maturing between January and April. The Treasury says all is under control.

The “Renda Cidadã” social programme continues without definitions on scope or source of funding.

3. The Senate approved several authorities to regulatory institutions, such as the Brazilian Water Agency (ANA), the Brazilian Sanitary Surveillance Agency (ANVISA), the newly created Brazilian Data Protection Authority (ANPD), the Securities and Exchange Commission (CVM), the Brazilian Agency of Petroleum, Natural Gas and Biofuels (ANP), the Brazilian Civil Aviation Agency (ANAC),  the Brazilian Agency for Waterway Transportation (ANTAQ), the Brazilian Telecommunications Agency (ANATEL) and the Brazilian Electricity Regulatory Agency (ANEEL).

The Senate also approved Mr Kassio Nunes to become a justice at the Federal Supreme Court (STF), and Mr Jorge Oliveira to become a minister at the Federal Courts Account (TCU).

The episode of Mr Bolsonaro disallowing Mr Pazuello put pressure on the Brazilian Sanitary Surveillance Agency (ANVISA) to release the importation of Coronavac and substances to produce the vaccine at the Butantan Institute.

 A report from the Lower House indicated that the government executed 77.7% of the special budget as a response to the Covid-19 effects, including the emergency payments.

[1] £1.00 = R$7.33

How to read it?

1. The political environment remains favourable. The government’s approval rates continue high, the institutional conflict is low, and the coalition continues to agree on most issues.

While the situation of Senator Chico Rodrigues did not cause any negative political impact on the government, Mr Salles’ case is different, as it can cause a political problem in the future. It exposed a paradox that puts Mr Bolsonaro’s supporters in a collision route with the ‘pragmatic wing’ of the government, respectively represented by Mr Salles and Mr Ramos.

This tension is not yet bad news for Mr Bolsonaro: by keeping this division within the government, he has leverage with both sides. He must preserve governability, but he also needs to keep his supporters very close. They will be handy to help to compensate any rating decrease, such as when the emergency payments end.

As for the vaccine episode, Mr Bolsonaro was aware that buying Coronavac could have negative repercussion amongst his radical supporters, due to the Chinese origin of the vaccine. Furthermore, he did not want to give credit to the Governor of São Paulo, João Doria, a fierce political opponent who is leading the negotiations with the Chinese.

2. The time to decide over the fiscal situation is coming. Brazil continues shortening the debt profile, but it seems it has a plan in the short term. In the first week of November, the presidential vetoes are likely to be voted by Congress. Some fiscal challenges, such as the “Renda Cidadã” funding, will follow political choices. While some politicians praise for fiscal responsibility, others are pushing for more spending. Having that in perspective and all other economic forecasts stable, the economic trend remains neutral for the time being.

As for the Brasil-US protocol, it seems like a positive understanding. It might have some tangible outcome in the long term.

Despite Mr Bolsonaro’s rhetoric against Coronavac and what the newspapers reported about the 5G, the international trade with China is very important, as is Chinese investment, even more in a scenario of fiscal deficit. It is plausible to affirm that critical economic sectors will pressure the government to tone down the speech.

3. At last, public management achieved a positive trend, with a change in the leadership and paradigm factors. The policymaking capacity also improved with the budgetary execution. The approval of several directors to occupy positions in regulatory institutions provides a positive effect on how the Brazilian state operates. It improves the policymaking process, enhancing a basic and crucial element of the public policy machinery.

The problems brought up by the tensions between Mr Salles and Mr Ramos do not justify the poor management of the environment. At this point, it would be somewhat speculative to say Mr Salles is using the budget as a scapegoat for his management issues. With some luck, the fires in the Amazon region and the Pantanal wetlands are decreasing since last week due to the rain. Other problems, however, might come up, such as deforestation.

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