The Week Ahead in Brazil #47

Short term trends

What is happening in Brazil?

1. President Jair Bolsonaro made several remarks regarding Covid-19. Bolsonaro criticised the restrictions imposed by mayors and governors and their consequences to the economy, mentioning that public health in Brazil has always been a problem area.

Senator Flavio Bolsonaro bought a mansion in Brasilia for R$5.7m (£723,000). He is struggling with charges about kickbacks from political staff when he was a state lawmaker. Having financed R$3.1m (£393,000) of the total value of the negotiation, politicians raised concerns that his paycheck is insufficient and are calling for a legislative inquiry.

2. The Brazilian economy recorded a contraction of 4.1% in 2020. Despite that, market analysts considered the result as one of the “most resilient performances in Latin America“. The fall was lower than predicted by economists due to some factors: the massive emergency aid, the performance of developed economies and the commodities boom. The agriculture sector increased 2.0%, now representing 6.8% of the Brazilian GDP, while the industry and services sectors shrunk by 3.5% and 4.5%, respectively.

On Wednesday (3), senators approved the “Emergency PEC” (PEC 186/2019). It placed the new emergency aid outside the spending ceiling, limited its cost at R$44bn (£5.60bn), and established triggers, such as freezing public servants’ salaries or increasing the national minimum wage above the inflation, if the public debt is over a threshold. Now, the bill is likely to be voted and approved by the Lower House in two rounds next Wednesday (10).

The government temporarily increased a tax (CSLL) on the banking sector to fund the tax relief on diesel and gas. The rise will come into force in July 2021.

3. Governors and mayors are demanding a coordinated response to the pandemic from the Ministry of Health. They are calling for measures such as unified curfew, suspension of presencial school and prohibition of events, including religious ones. The answer to such requests was negative.

Brazil is registering successive record highs in new cases and deaths due to Covid-19. The Ministry of Health reduced its March vaccine rollout forecast from 46m in jabs to 38m. The Washington Post published an editorial expressing concerns about the Brazilian variant of Covid-19 and how the country is mismanaging the vaccine rollout.

After the government’s nomination of Joaquim Silva e Luna as Petrobras’ new CEO, four board members resigned. Folha indicates that military personnel in public controlled companies acting as directors or board members is ten times higher in the Bolsonaro administration than in previous administrations.

1 £1.00 = R$7.88

How to read it?

1. The influence of politics in the policymaking process remains positive. The government’s approval ratings are stable, there were no relevant changes in its political support in Congress, and the level of conflict between the government and the other branches is low. The Senate’s approval of the “Emergency PEC” can be considered as one more evidence of that favourable political scenario, and I assess that it will be the same in the Lower House next week.

Despite that positive political setting, Bolsonaro is increasing his harshness over how governors and mayors are imposing restrictions as a response to the spike in Covid-19 cases. That might be a strategy to create pressure from business owners, employees and his supporters to local governments to pin on them their financial problems. While it is unlikely that this situation would escalate into a nationwide conflict, it is plausible to affirm that federal lawmakers will accommodate some of that pressure, transferring them to the Ministry of Health, seeking to speed up the vaccine rollout.

2. In spite of the current difficulties imposed by the pandemic and partial lockdowns in several states and cities, the economy continues in a positive trend.

The GDP numbers revealed the effect of emergency aid to avoid a more profound economic crisis. The advancement of the “Emergency PEC”, while not generating short term fiscal relief, is a sign that the government and Congress are seeking to prevent further deterioration of the Brazilian fiscal condition. More importantly, however, was that it created a way to another round of emergency aid without breaking any rules.

3. The public management factor changed to a negative trend. While there were no changes in the paradigms of the administration, the all-high numbers of new cases and deaths due to Covid-19, combined with Bolsonaro’s speeches, contributed significantly to that assessment. The constant changes to lower the number of vaccines to be distributed to states reveals crucial problems in the policymaking process, with a negative impact on the economy and health of the population.


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