The week ahead in Brazil #29

Short term trends

What is happening in Brazil?

1. Deputy Ricardo Barros, the leader of the government in the Lower House, said on Monday (26) that Brazil should correct some distortions in Brazil’s 1988 Constitution. Mr Barros’ remarks followed Chile’s approval to create a new constitution on Sunday (25).

On Monday (26), General Rêgo Barros, the former press secretary of the Presidency of Brazil, published an article in which he indirectly criticizes the changes in Mr Jair Bolsonaro’s behaviour. The position of press secretary was abolished in October, causing the dismissal of Mr Barros.

On Thursday (29), the Minister of Economy, Paulo Guedes, said Febraban, Brazil’s banking association, is working along with another minister against the economic objectives. Mr Guedes was at a virtual meeting with senators to address economic issues.

The governor of the Brazilian Central Bank, Roberto Campos Netto asked Deputy Rodrigo Maia, the speaker of the Lower House, for his support to advance on the economic reforms. Mr Maia said it is up to the government’s allies. In another episode, the Minister of Environment, Ricardo Salles, replied to Mr Maia’s tweet, calling him “Nhonho”, a pejorative nickname.

The Senate scheduled a floor vote on the autonomy of the Brazilian Central Bank on Tuesday (3). On Wednesday (4), the National Congress might appreciate the presidential vetoes related to the basic sanitation framework and the extension of the tax on the payroll.

Mr Bolsonaro travelled to the state of Maranhão on Thursday (29).

2. The Brazilian Central Bank decided to keep the Selic rate at 2% on Wednesday (28).

The government extended fiscal incentives to the car industry until 2025.

As in previous weeks, the “Renda Cidadã” social programme continues to be debated without definitions on scope or source of funding. Uncertainty on approving the programme this year is rising.

3. On Wednesday (29), the government had to withdraw from the idea to privatize the basic units of health (UBS). A decree was published the day before authorizing studies to create private partnerships to run and operate more than 4,000 UBS posts. UBS is the first point of entry to the Brazilian Public Health System (SUS).

On Friday (30), Vice-President Hamilton Mourão said Brazil would “of course” buy a Chinese vaccine against Covid-19. Mr Mourão said Mr Bolsonaro’s remarks of not buying Coronavac was a political rift with João Doria, the governor of the state of São Paulo.

Justice Rosa Weber suspended the resolution that revoked environmental protections. In September, the Brazilian Environment Council (Conama), presided by Minister Ricardo Salles, revoked four resolutions that restricted deforestation and protected the occupation of lands, amongst other regulations. In 2019, Conama had its composition reduced from 96 councillors to 23.

On Tuesday (27), the government published the Brazilian Federal Strategy for Development for the next ten years.

How to read it?

1. The political scenario is changing but remains positive. The government’s approval rating continues very high. The tensions between the Legislative and the Executive are becoming more frequent and increasingly diverse in recent months. It could turn into a conflict if not moderated. The recurrence of episodes involving Mr Maia, Mr Barros, Mr Guedes and Mr Salles is leading to months of foot-dragging, adding difficulties and delays on the advancement of structural reforms. The coalition is divided between winning the local elections and the politics in the Legislative, either by running committees or being on the winning side on Mr Maia’s succession next year. That is having an impact on the quality of politics, but not negatively determinant as would be a lack of a coalition or the existence of a proper opposition.

The overturn on presidential vetoes are very likely to happen, and they reflect this moment of tension and untidy coalition. At least two factors could change the future scenario. The first is the outcome of the local elections, as it could reveal if Mr Bolsonaro will become stronger or weaker. He is giving attention to it, as his trips to the North and Northeast regions might suggest. The other factor is to what extent will he try to influence the succession of Mr Maia. A higher degree of interference will cause more problems in the short term, but it might be compensated with an ally as speaker of the house. The issue will be if he bets on a losing candidate.  

2. This is a decisive week for the fiscal situation. The overturn on the veto on the payroll-tax cut could cost R$10bn (£1.35bn)[1], and the government’s plans to compensate this loss are unclear. The monetary policy, despite the Real devaluation and the risk of inflation, seems to be less worrying than the fiscal policy.

3. Mr Mourão’s remarks on the Covid-19 vaccine from China was seen as balanced and positive. Not only he gave a sense of pursuing a good solution to a public problem, as he toned down the speech against the Chinese origins of the vaccine.

 Mr Salles is a continuous source of trouble to the administration. He has been able to cause damages to the international image of Brazil, to collect criticisms on the environment management and to increase the tension with members of the Legislative and ministers. Yet, despite Mr Bolsonaro’s complacency, Mr Salles is becoming too much of a burden.

The release of a strategy of development for Brazil is positive news, as it gives an overall direction of what the administration aims to accomplish. Moreover, it brings the useful notion of scenarios to the administration. Throughout the document, however, there is little evidence between the relationship of the problems and the solutions proposed, nor how they expect to achieve those objectives. Furthermore, many of the solutions presented in the document are beyond the government’s control, requiring additional management and political skills to guarantee success.

[1] £1.00 = R$7.43

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