The week ahead in Brazil #33

Short term trends

What is happening in Brazil

1. There was a second round of mayoral elections this Sunday (29) in 57 cities, including São Paulo and Rio de Janeiro.

The Senate might vote the new railway framework (PLS 261/2018) in December, and there is growing pressure to vote the “new gas bill” (PL 4.476/2020).

President Bolsonaro travelled twice this week to the state of São Paulo.

2. The fiscal trajectory was discussed by several economists and former policymakers this week. Ana Paula Vescovi said the government should overhaul and consolidate social programmes while enforcing the spending ceiling. Zaina Latif argued that structural reforms are crucial to improve the economy, and it is up to the government to stop spending, as Congress wants the opposite; and, lastly, Samuel Pessoa urged to preserve the integrity of the spending ceiling and to pass structural reforms to create a favourable fiscal scenario; otherwise, inflation will rise.

On Wednesday (25), the Governor of the Brazilian Central Bank, Roberto Campos Neto, said the government needs to find a way to get a credibility boost, which created some noise with the Minister of Economy, Paulo Guedes. Market analysts have cast doubt over the minister’s ability to deliver on his promises.

Discussions over how to fund the Renda Cidadã social programme advanced this week. Lawmakers are working with officials from the Ministry of Economy to present a proposal based on reducing subsidies and cutting expenses. Mr Guedes said there would be no extension of the emergency payments aid.

The unemployment rate has increased from the last three months, reaching 14.6%.

3. Germany reacted to Mr Bolsonaro’s claims that European countries are responsible for buying illegal wood from the Amazon region. Recently, during the BRICS summit, Mr Bolsonaro mentioned that some countries, such as Germany and France, would allow companies to buy wood from illegal deforestation areas. On Sunday (22), during the G20 summit, Mr Bolsonaro also defended the government’s environmental policy.

Deputy Eduardo Bolsonaro, chairman of the Lower House’s Committee on Foreign Relations and also one of the president’s sons, created a diplomatic turmoil with China. He tweeted (and deleted soon after) that Brazil should ban China’s Huawei from the 5G network bidding in Brazil, to avoid spying. The Chinese embassy issued a statement repelling the declarations, and the Brazilian Ministry of Foreign Affairs responded. Additionally, the China-Brazil Business Council (CBBC) launched a long-term strategy to enhance Brazil’s relationship with China.

Brazilian telecom companies issued a statement where they ask for more transparency in the government’s decision-making process over the 5G network. They said competition is vital to preserving competitiveness on the bidding process and integration with the existing infrastructure.

How to read it?

1. The political scenario continues to be favourable. The president avoided any major conflict or harsh declarations that could generate noise. The episode involving Mr Eduardo Bolsonaro and China is not directly a government’s declaration, but it provides a glimpse of the ideological factor surrounding key political members. The president was right in not addressing the issue publicly.

The coalition is likely to be adjusted as a consequence from the municipal elections. It means that, during the next month, political negotiations will increase to set the voting of important bills. More importantly, it is to wonder what these politicians will ask to support the Bolsonaro administration and to what extent it collides with the government’s plan to expend less, sell public companies and pass structural reforms. As for Mr Bolsonaro’s popular support, it has not changed significantly.

2. The economy is on the verge of entering a negative trajectory. It’s been months that the government, especially Mr Guedes, is making unfulfilled promises. This is not his fault alone, but mostly the president’s. Without full political support from the president, Mr Guedes is not capable of implementing the changes he has planned. First, because politicians are looking to spend more, not less; second, Mr Bolsonaro’s background and track record tends to lean to the spending side; third, the growing pressure of economists and market analysts calling for a severe fiscal adjustment is yet to be felt by the president, but it is deeply felt by Mr Guedes, who’s losing support exactly when he needs it most.

3. The public management factor continues on the negative trend. The more recent episode involving China and the 5G in Brazil is an example of how closed the government’s decision-making process is. To have a group of private companies publicly asking for a more transparent process was a critical event the government should pay attention to.

The environmental dimension is another aspect impacting public management directly. The Brazilian government did not present any hard evidence at the time of accusing Germany or France of buying illegal wood from the Amazon region. Instead of scrutinising the environmental policies, top-tier officials and the president himself insist in pointing fingers to other countries, creating a false perception to themselves that their political declarations will improve the policy or resolve environmental problems.

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