The week ahead in Brazil #46

Short term trends

What is happening in Brazil?

1. President Jair Bolsonaro went to the National Congress to deliver the provisional measure (MP 1031/21), which deals with the privatization of Eletrobras, and the regulatory framework of the postal sector. The studies for the privatisation of Eletrobras and the Post Office have been requested to the National Bank for Economic and Social Development (BNDES). The Lower House could begin the discussion about Eletrobras next week.

On a visit to the State of Ceará, Mr Bolsonaro criticized the states’ decision to impose partial lockdowns and restrictive measures to reduce hospitalisation cases because of the pandemic. Governors reacted to the president’s speech and were invited by Mr Lira to talk about budget measures to combat Covid-19.

An XP/Ipespe poll revealed that the evaluation of the government as good or great increased from 30% to 31%.

Senator Márcio Bittar (MDB-AC) presented the substitute report for the Constitutional Amendment Proposal (PEC) 186/2019 on Tuesday (23) to implement fiscal controls. The draft included modifications that would allow the government to grant emergency aid outside the spending cap. In addition to restricting salary increases for public servants, the substitute freed the Union, states, and cities to spend the minimum constitutional percentages on health and education. After criticism from parliamentarians on Friday (26), Mr Bittar retreated and agreed to remove the untying. The Senate’s agenda indicates that the new report might be read on Tuesday (2).

The speaker of the Lower House, Arthur Lira (PP-AL), postponed the Constitutional Amendment Proposal (PEC 3/21) to restrict the possibility of arresting or removing congress members from office. The PEC was criticised by experts and congress members for watering down the fight against corruption. Mr Lira established a special commission to debate the PEC. The permanent committees of the Lower House are likely to be installed on Thursday (4).

2. The current account balance in the last 12 months recorded a deficit of 0.65% of GDP, the lowest outcome in 13 years. The result stems from the depreciation of the Real and the decrease in the trade balance deficit.

The Brazilian unemployment rate rose to 13.9% in 2020. Although it has decreased over the course of the pandemic, the rate is the highest since 2012. The average 2020 rate was 13.5%.

On Monday (22), following the announcement of a change in command at Petrobras, the oil company’s shares fell more than 20%. Foreign investors withdrew R$ 9.2bn (£1.18bn)1 in three days.

Following the announcement of the “Emergency PEC” report, the granting of emergency aid has moved forward. Although the amount or duration of the aid is not yet defined, there are indications that it will be paid for 4 months, each one of R$250.00 (£32.00) or R$300.00 (£38.50).

Bolsonaro enacted the autonomy of the Brazilian Central Bank on Wednesday (24).

3. The Pfizer/Biontech vaccine is the first jab to obtain definitive registration from the Brazilian Health Surveillance Agency (Anvisa). The CoronaVac and AstraZeneca vaccines were only authorised for emergency use.

The Brazilian Telecommunications Agency (Anatel) approved the 5G network auction on Thursday (25).There were no restrictions on Chinese Huawei’s participation.

Following the change of Petrobras’ CEO, there are rumours that the president of the Bank of Brazil, André Brandão, has informed the government that he plans to resign. Mr Brandão would have complained of wear and tear with Bolsonaro, who had expressed his intention to fire Mr Brandão after he announced the closure of branches and a voluntary dismissal program.

Although there is no legal obligation, the Federal Police was not consulted by the government about the four decrees to amplify the use of weapons.

1 £1.00 = R$7.80


How to read it?

1. Politics continues to bring positive elements to the policymaking process. The government’s approval ratings remain stable, and the political support in Congress remains favourable. Although there has been a tension increase with governors due to the announcement of restrictive measures, the level of conflict with the Legislative is low, which favours the approval of the government agenda.

The adjustments in the “Emergency PEC” might reveal that there are points to be debated in Congress. Senator Márcio Bittar gives the impression that he is pursuing a path that does not form a consensus on the matter. It could be overcome next week with the new substitute. The delivery of bills related to the privatization of Eletrobras and Correios is also a sign that the political climate is favourable. Considering the interests involved in these matters and the 570 amendments proposals to the MP 1031/21, it can be said that the debate around the bills will be intense.

2. The economy continues on a slightly positive trend. Monetary policy has expanded its capabilities with the Brazilian Central Bank’s autonomy. Although no practical effect has been felt, this measure should bring good results.

The main problem continues to be the fiscal risk. While it is not worsening in its foundations, the government and Congress still need to work harder to improve it. The granting of emergency aid at a lower cost seems imperative to avoid major socioeconomic problems, especially with the current unemployment rate, another reason why Mr Bolsonaro is criticising local lockdowns. It does not exempt the government from finding an adequate fiscal solution. Cutting expenses or selling companies is a good way to find this improvement. The “Emergency PEC” is a positive attempt to curb expenses, and the advance of the privatization of Eletrobras and Correios goes in the direction of getting cash. Both initiatives need to be seen with caution, as they arouse suspicions among many analysts. Nonetheless, Mr Bolsonaro stepped up and took practical action to support them.

Despite all that, Bolsonaro’s interferences in public companies scared away a significant portion of investors, contributing to the Real devaluation.

3. The public administration remains neutral. Although there has been a change in the Ministry of Citizenship, the appearance of the government leadership remains, for the most part, submissive to presidential decisions and with little room for discussion. When dissatisfied, Bolsonaro threatens his subordinates with dismissal, as demonstrated by the case at Banco do Brasil and Petrobras or the mismanagement at the Ministry of Health. Moreover, when technical answers are against his opinion, Mr Bolsonaro tends to circumvent the participation of these departments or avoid their pieces of evidence in the policymaking process, as was the case of the Federal Police regarding the decrees that expand access to weapons.

Despite all this and Mr Bolsonaro’s poor performance to fight the pandemic, Anvisa approved Pfizer’s vaccine, which is a positive achievement, as well as the arrival of more material for vaccine manufacturing. The announcement of the 5G auction allowing the participation of Huawei is also a partial fruit of good public management.


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