The week ahead in Brazil #35

Short term

What is happening in Brazil?

1. The Supreme Federal Court (STF) decided to bar the attempt to allow the re-election of the speaker of the Lower House and the president of the Senate on Sunday (6) night. For the Lower House, deputy Arthur Lira stepped forward as a candidate with the government’s support. In contrast, the group led by the current speaker, deputy Rodrigo Maia, has not presented a name yet. There is much rumour about who will run for the presidency of the Senate, but no clear contenders so far.

The Senate approved a bill that reforms the natural gas sector in Brazil  (PL 4,476/2020) on Thursday (10). As the bill was approved with modifications, it must return to the Lower House for another assessment.

A recent poll from Datafolha shows that President Jair Bolsonaro continues to enjoy steady and high approval ratings, at 37%. At the same length of the mandate, former presidents Fernando Henrique Cardoso (45%), Lula (47%) and Rousseff (62%) had higher approval ratings.

Widespread rumours indicate that Mr Bolsonaro is inclined to invite former president Michel Temer to become the new Minister of Foreign Relations or to another official role in the government.

2. Senator Márcio Bittar postponed his report on the Constitutional Amendment Proposal 186/2019 (PEC Emergencial) to 2021, the main proposal to improve Brazil’s fiscal trajectory. This is part of the Mais Brasil reform package, a string of three constitutional amendments presented to Congress in November 2019.

The Monetary Policy Committee (Copom) decided to keep the Selic rate at 2%. The Treasury raised R$56bn (£8.35bn)[1] on Thursday (10). The average bond maturity is increasing, and the rate is decreasing.

The government vetoed a R$4bn (£597m) emergency aid to public transportation that was established on a congressional bill (PL 3364/2020).

3. Governors and mayors are searching for ways to secure vaccines against Covid-19. They argue that the Ministry of Health is stalling, waiting for the results from Oxford vaccine and negotiating a batch from Pfizer and Covax, and there is no clear plan to start a vaccination campaign. The state of São Paulo acquired the Coronavac, pending the Anvisa green light to start the vaccination. The Federal Supreme Court is demanding a clear vaccination plan from the Ministry of Health.

Álvaro Antônio was fired as Minister of Tourism on Wednesday (9). On the previous day, Mr Antonio criticised the behaviour and performance of the Minister of Government, Luiz Eduardo Ramos. Mr Antônio was replaced by Gilson Machado, the President of The Brazilian Tourist Board (Embratur).

President Jair Bolsonaro zeroed the taxes on imported firearms. From 2021 on, imported guns and pistols will no longer pay a 20% tariff. The Chamber of Foreign Trade (Camex), a unit from the Ministry of Economy, issued a resolution on Tuesday (8).

The new public procurement bill (PL 4,253/2020) was approved by the Senate on Thursday (10) and was submitted to the Presidency of Brazil for its sanction.

How to read it?

1. The political scenario has crucial elements to remain positive: no serious institutional conflict, strong popular support and regular coalition in Congress.

Last week’s assessment drew on plausible scenarios for the election of both Legislative houses. That has not changed yet: the government might have a supporting Lower House in the event his contender, deputy Arthur Lira, wins the election, and it might have a more hostile Lower House if Mr Maia’s group continues to rule it. The trend will become more evident as the election day, in February, approaches.

The approximation between Mr Bolsonaro and Mr Temer is a sign that the political scenario can have a positive outcome for the government. Mr Temer is politically savvy and can help to improve Mr Bolsonaro’s political skills. Furthermore, the former president could become a moderate Minister of Foreign Relations, improving the relationship with the United States and China. However, it would intensify the “old politics” practices to the government.

2. Despite the postponement of the fiscal reforms, the economy continues to provide encouraging signs of recovery. A crucial element in that analysis is the perception of growing support to avoid any concessions over the spending ceiling, and, so far, there are no signs of the extension of the emergency payments, nor of increased spending with the social programmes. The record issue of public bonds at better conditions reflects that perception.

While this is conjectural and does not resolve the fiscal problems, it is important because it potentially provides a better baseline for the economic recovery in the next couple of months.

3. In terms of public management, signs continue to be negative. The government looks adrift towards the fighting of Covid-19, partly due to mismanagement, partly because the issue was dragged into a political rift.

After the previous public disagreement between Mr Salles, the Minister of Environment, and Mr Ramos, the episode between Mr Antonio and the government’s leading political negotiator reveals a recurring problem within the government. Mr Ramos was able to sustain his position so far.

[1] £1 = R$6.7

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