The Week Ahead in Brazil #49

Short term trends

What is happening in Brazil?

1. Politics – The Constitutional Amendment 109 (EC 109) was enacted on Monday (15) by the National Congress. Aimed to improve the fiscal situation in Brazil, it paved the way to a limited new emergency aid, presented on Thursday (18) through a provisional measure.

The latest Datafolha poll shows an increase in the disapproval rating of the Bolsonaro administration. It increased from 40% to 44% since January. The approval ratings remain stable at 30%. Regarding how president Jair Bolsonaro is handling the pandemic, the disapproval rating increased from 48% to 54% in the same period. To most people, Mr Bolsonaro should be the main actor in the Covid-19 fight and, at presente, he is perceived as the responsible person for the current pandemic crisis in Brazil. The approval ratings from Datafolha converge with the XP/Ipespe poll from last week, although the disapproval number is found to be higher (54% against XP’s 45%).

Brazil’s National Congress assessed 29 presidential vetoes on Wednesday (17). Congress fully confirmed 15 vetoes, such as Veto 30/2020 related to Law 14.034/2020 about New Basic Sanitation Framework. Other vetoes were partially or fully overturned, including Veto 48/2020 about the tax pardoning to religious institutions.

Senator Major Olimpio (PSL-SP), 58, was the third Brazilian senator to die from Covid-19. He was an ally of Mr Bolsonaro but became his opponent, especially regarding the pandemic overall management. Senators reacted strongly against the government.

2. Economy – As the National Congress overturned the presidential veto regarding religious institutions’ tax and pension debts, the Ministry of Economy estimates a loss of R$1.4bn (£183.7m) between 2021 and 2024. President Bolsonaro said he was legally bound to veto an article that would allow the pardoning of federal debts. Still, he pointed out that Congress could overturn it, relieving religious institutions from their debts.

The veto confirmation over the New Basic Sanitation Framework unlocks the sector modernisation. President Bolsonaro vetoed an article that would allow state companies to extend 30 years in their current contracts with cities. Brazil has more than 35m Brazilians without access to drinkable water and more than 100m without sewage collection and treatment.

The Brazilian Central Bank’s Monetary Policy Committee (Copom) increased the Selic rate from 2% to 2.75% on Wednesday (17). After six years without a rise in Brazil’s benchmark interest rate, Copom signalled that another 0.75% increase is likely to occur in the next meeting, scheduled for May.

Non-official estimates indicate that tax revenue is up 4.7% in February and 10.2% y/y. The increase is likely to come from a rise in two federal taxes: the corporate income tax (IRPJ) and the social contribution on profits (CSLL).

Brazil increased in 260,353 the number of formal job posts in January. It is the largest number for January since 1992.

The government presented its plan for the new emergency aid through Provisional Measure 1,039/2021 on Thursday (18). Payments will begin in April, ranging from R$150 (£19.6) to R$375 (£49.2), and are estimated to reach more than 46m people.

3. Public Management – Following last Sunday’s (14) rumours that he would be replaced, Eduardo Pazuello, the Ministry of Health, held a press conference on Monday (15) with an overall assessment of his term as a minister. On the same day, Dr Ludhmila Hajjar announced that the president invited her to become the next minister, but declined declaring technical issues. Soon after, President Bolsonaro announced Dr Marcelo Queiroga as the new Minister of Health. Dr Queiroga is known to promote precautionary measures, such as the use of mask and social distancing.

The president of Banco do Brasil, André Brandão, resigned on Thursday (18). Mr Brandão will continue on the job until the end of March. Last month, Mr Bolsonaro tried to fire Mr Brandão after he announced the closure of branches and a voluntary dismissal program. The new president will be Fausto de Andrade Ribeiro, a Banco do Brasil employee.

Brazil’s Covid new cases and the death rate are the highest in the world. On Friday (19), Brazil registered 89,409 new cases and 2,730 deaths.

1 £1.00 = R$7.62

How to read it?

1. The political scenario continues favourable for the policymaking process. First, the government’s support in Congress remains strong, as the fast approval of the “Emergency PEC” exemplifies, but a more compelling factor is that Congress did not overturn the presidential veto on the basic sanitation framework. Lawmakers (especially senators) were prone to overturn it, but the government’s perspective prevailed amongst deputies. This is politically important because the veto goes against the political nature of deputies and their interests, as it reduces the space for the appointment of staff jobs and the influence they currently have in state sanitation public companies.

The second relevant perspective is the government’s popular support. While it is clear that the reproval ratings are increasing, the approval numbers remain stable. Considering the economy and the pandemic handling as the two major factors of disapproval, it is less likely it will continue to grow. The economy will have some temporary relief with the new emergency aid; the pandemic probably reached its worst phase, but with the vaccine rollout increasing by the day, the government is likely to get a less negative image: the government is watching this factor and is even broadcasting its vaccination campaign in major TV channels (including Globo).

2. The economy continues its positive contribution to public policies. The increase in tax revenue and the creation of new jobs indicated that the economy is developing in a productive way. The new emergency aid will boost the economic activity. Furthermore, the new basic sanitation law will create space for new investments in Brazil and will modernise the sector, impacting consumers positively.

The monetary policy seems appropriate, as the Selic rate increase was past overdue. Nonetheless, it surprised many analysts, because they expected a lower increase. We take it as a sign of sound analysis and transparency in Copom’s decision-making process to tackle inflation.

3. The change in the Ministry of Health was much expected. While the new minister is not necessarily better than General Eduardo Pazuello, it is hard to imagine that a health professional with some political skills would perform worse. Most political analysts highlighted the fact that Dr Queiroga would not be an autonomous minister, and would soon act according to Bolsonaro’s orders. It is a possibility, considering Mr Bolsonaro’s relationship with his former ministers of health. But it could bring a difference: Gen Pazuello’s military background and his lack of scientific and health knowledge made him a perfect follower of every president’s decision, with no space for a public policy discussion. The mere arrival of a doctor with extensive knowledge of the healthcare system and of medicine itself, might represent an improvement to the public management factor. We will continue to observe the evolution of Dr Queiroga’s work.

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