The week ahead in Brazil #30

Short term trends

What is happening in Brazil?

1. On Monday (2), Deputy Rodrigo Maia, the speaker of the Lower House, affirmed he is committed to approving essential bills to improve the economy. He warned that the Constitutional Amendment nº 186/2019 (PEC Emergencial), that enacts several measures to decrease public spending, needs to be approved before the 2021 budget. Mr Maia also said the Minister of Economy, Paulo Guedes, is making significant efforts to comply with the spending cap, but he is almost alone in that task within the government. On Thursday (5), Mr Guedes met with political leaders to stress the importance of speeding several bills, including the PEC Emergencial.

The Senate approved the bill proposal (PLP 19/2019) that sets the autonomy of the Brazilian Central Bank. The bill needs to be approved by the Lower House, but the vote is yet to be scheduled. The National Congress overturned the presidential veto on the extension of the payroll-tax cuts, but sustained another veto on expanding the list of beneficiaries of the emergency payments.

President Jair Bolsonaro travelled to the states of Sergipe and Alagoas on Wednesday (4), and Santa Catarina and Paraná on Friday (6).

2. Car sales in Brazil increased for the fourth consecutive month. Car dealers are celebrating the recovery of the industry, after sales went down 80% at the peak of the pandemic. Despite the revival, October fell 15% year to year, and the car industry has shrunk 25% in comparison to the same period of 2019.

The offer of credit to very small and small companies is increasing. It is mostly attributed to two government initiatives that limit the rate and offer guarantees to financiers. One is Pronampe, the government’s Programme for Support to Micro and Small Businesses, and the other is Peac, a similar programme but for medium-sized companies.

Some analysts say the extension of the payroll-tax cuts means fiscal pressure, but others affirm it was necessary to preserve jobs. The International Monetary Fund – IMF stressed the importance of providing greater fiscal support in Brazil and other countries during the crisis. This is in line with other analysis. There were no updates on the emergency payments extension or the funding of the Renda Cidadã social programme.

3. The Brazilian government set up a three-day trip to the Amazon region with diplomats from South Africa, Germany, Canada, Colombia, Spain, France, Peru, Portugal, the UK and Sweden. The mission was headed by the Brazilian Vice-President, Hamilton Mourão, along with other ministers. This Tweeter thread from the Acting British Ambassador, Liz Davidson, offers a balanced overview of the mission. In general, there were critics that the tour missed to stopping at any deforestation areas.

How to read it?

1. Mr Maia’s public commitment to advance on the reforms on one end, and Mr Guedes pushing on the same direction was a lively display of political support.  Furthermore, the approval of the autonomy of the Brazilian Central Bank by the Senate was possible due to this favourable political scenario.

From a political perspective, the decision-making process about economic measures is difficult in ordinary times. During this pandemic, the outcomes can be considered as constructive as it can be. Politics timing is rarely perfect and there are tensions in the political negotiations, especially in this remote deliberative system. Despite all that, the government is being able to conduct its agenda.

As for the other perspectives, there were no conflicts this week between government officials, such as Mr Salles, the Minister of Environment, and legislators. The approval ratings continue high.

2. The overturn of the presidential veto on the payroll-tax cuts was a given. The government negotiated all possible alternatives, such as the creation of the “digitax”, but all it managed to get was to keep the veto on expanding the list of potential beneficiaries of the emergency payments. Costing R$10bn (£1.4bn[1]) per year, the government could take the matter to the courts.

The government is pursuing the approval of the PEC Emergencial, probably the most important proposal to curb public spending. IMF’s report calling for more fiscal support did not appear at the best time for Mr Guedes.

The economic activity is giving positive signs of recovery.

3. Mr Mourão’s initiative to invite diplomats to visit the Amazon region was positive. It was a slight  leadership improvement. Apart from being a very interesting trip, the government was able to show that it has the means and knowledge to control the region. However, it was not great as it could have been.  Several journalists and diplomats on tour pointed out that the government did not take them to the areas where illegal deforestation is occurring.

[1] £1.00 = R$7.06

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