The Week Ahead in Brazil #50

Short term trend

What is happening in Brazil?

1. Politics – On Sunday (21), president Jair Bolsonaro met some supporters at the gates of Palácio da Alvorada to celebrate his birthday. At the occasion, he made some harsh remarks criticising governors over restrictive measures.

Also, on Sunday, a representative group of economists, bankers and businessmen published an open letter demanding more effectiveness in handling Covid-19. The letter, sent to representatives of the Judiciary, Legislative and Executive and published on media outlets, was signed by hundreds of leaders, including former ministers of finance, professors and heavyweight bankers, such Roberto Setúbal and Pedro Moreira Salles from Itaú Unibanco, and José Olympio Pereira from Credit Suisse in Brazil. Overall, they demanded (1) faster vaccination rollout, (2) incentives to the use of masks, (3) implementation of social distancing measures and (4) national coordination of actions.

On Tuesday (23), Mr Bolsonaro made a statement on national TV and radio that the government is taking measures to tackle Covid-19.

On Wednesday (24), Mr Bolsonaro held a meeting with the presidents of the Judiciary, Justice Luiz Fux, and both Legislative houses, senator Rodrigo Pacheco (DEM-MG) and deputy Arthur Lira (PP-AL), state governors and government ministers to discuss the creation of a strategic committee against Covid-19.

After the meeting, the speaker of the Lower House, Arthur Lira (PP-AL), made a harsh speech in which he called for an improvement of the government’s response; otherwise, Legislative measures would be put in place. “Legislative remedies are known and bitter. Some are fatal”, he added. Mr Lira also said there is a limit to all things. On the next day, Mr Bolsonaro and Mr Lira had a closed-door meeting and said there is no disagreement between them.

The Minister of Foreign Affairs, Ernesto Araujo, attended a meeting at the Senate on Wednesday (24). He was questioned and criticised about his performance in securing international support to fight Covid-19 in Brazil. Felipe Martins, an international adviser to Mr Bolsonaro who accompanied the minister at the hearing, was seriously criticised by senators for making a gesture considered offensive in Brazil and used by right-wing white supremacists. Mr Martins explained he was adjusting his lapel. On the next day, senators increased the pressure for the dismissal of Mr Araujo and are pursuing ways to hamper the very functioning of the ministry until the removal of the minister. On Sunday (28), Mr Araujo engaged in a public quarrel with senator Kátia Abreu (PP-TO), the president of the Foreign Affairs Committee, accusing her of lobbying in favour of Huawei to participate in the 5G bidding. Senators protested on strong terms.

2. Economy – The National Congress approved the 2021 Federal Budget on Thursday (25), pending presidential sanction. There was a decrease in the amount destined to several areas, such as pension, social care, and subsidies to small farmers. Most of it was relocated to increase the budget to projects of the Ministry of Regional Development. Technical staff from the Ministry of Economy warned that the approved budget is highly challenging and poses a threat to the basic operation of the government. One example was reducing 90% of the budget allocation to the Brazilian Institute of Geography and Statistics (IBGE), responsible for the Brazilian census.

Toyota, like other carmakers, announced a 7-work days interruption of its car production in Brazil. The paralysation is to avoid the spread of Covid-19 amongst workers.

Roberto Campos Neto, the governor of the Brazilian Central Bank, affirmed that the Selic rate would continue to stimulate the economy.

The Minister of Economy, Paulo Guedes, attacked the economic forecasts made by the Independent Fiscal Institution (IFI), a Senate’s fiscal watchdog. Mr Guedes said IFI’s economic predictions are faulty and inaccurate. Politicians and economists broadly criticised his remarks.

3. Public Management – Marcelo Queiroga, the new Minister of Health, engaged in several meetings throughout the week. In all of them, he advocated for science-based policies to tackle Covid-19. Moreover, he determined that all the ministry’s public servants should wear masks during work. Mr Queiroga also signalled he plans to demilitarise the department, replacing military personnel with health professionals.

The number of Covid-19 new cases and deaths in Brazil continues to expand. Despite inaccuracies in the vaccination schedule, the national production of vaccines and imports are increasing. Mr Queiroga affirmed Brazil is closer to vaccinate 1m people per day in April.

Rodrigo Limp Nascimento, the Secretary for Electric Energy, was appointed as the new CEO of Eletrobras. He is graduated in electrical engineering with extensive experience in the electrical sector.

After knowing about the budget cut, Susana Guerra, president of IBGE, resigned, alleging personal reasons.

How to read it?

1. The political trend for the next couple of weeks is neutral. The tension between Bolsonaro and lawmakers increased from the previous weeks due to a series of situations: the president disregarded Lira’s public support to Dr Ludhmila Hajjar to become the new Minister of Health and made his threatening birthday speech. Apart from that, the dire Covid-19 situation in Brazil and its consequences ignited a reaction from the population, private sectors and politicians. From last Sunday on, when the “letter” was released, up to Lira’s speech on Wednesday, there was an evident change in Mr Bolsonaro’s behaviour regarding the pandemic. It means that instead of fighting back the pressure, Bolsonaro reacted to avoid conflict. Moreover, Congress members are putting pressure on the government over the dismissal of Mr Araujo and his international adviser. The Minister of Environment, Ricardo Salles, is another minister that lawmakers wish to eject from the government.

The baseline for the following weeks is the persistence of tension between the Executive and Legislative branches. After that, will it return to a pre-tension era or evolve to a conflict? Very hard to say, but it seems more likely to return to a positive trend than to deteriorate. First, there were no meaningful structural changes in the political context that allows us to say politics tends to decline. Besides that, Bolsonaro has steady popular support at 30%, the control of most crucial legislative committees, the vaccination is increasing and the emergency payments could improve his approval ratings. Second, Bolsonaro was politically savvy to accommodate some of that pressure from business and Congress leaders. He does not want to fully and quickly accept the requests for ministerial changes because it could send a wrong message to his supporters, but he incorporated most of the management part of the requests. Therefore, the deterioration of the political context would be if Bolsonaro tries to adopt a radical stance against Covid-19, confronting lawmakers, governors and business elites, but this is an unlikely scenario for now.

2. The economy is also in neutral mode. There were no meaningful changes in the fiscal or monetary policies to justify any changes, and the same goes for the trade and unemployment results. Market analysts expressed concerns that the worsening of the pandemic would push for more public spending, weighing on inflation and demanding a more aggressive stance from BCB. However, as the recent government’s measures related to Covid-19 suggest, the economy could regain its recovery path if the pandemic retrocedes.

3. The change in the Ministry of Health looks like an improvement. Dr Queiroga is advocating for a science-based approach, and he halted the confidence bleed. Not only that, but Bolsonaro also seems to have incorporated it, at least partially. However, it is too soon to say it could bring an effective improvement in the Covid-19 response.

The Ministry of Foreign Affairs and the Ministry of Environment are on the parliamentary radar. Senators are demanding that both ministers be replaced fastly, accusing them of mismanagement and negatively influencing Brazil’s international presence. After the situation with senator Katia Abreu, the pressure for the dismissal of Minister Araujo reached a new peak.

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