The Week Ahead in Brazil #53

Short term

What is happening in Brazil?

1. Politics – The Federal Supreme Court (STF) confirmed the annulment of the convictions of former President Luiz Inácio Lula da Silva related to Operation Lava Jato. The decision makes Lula legally eligible to run in the 2022 presidential elections. 

Senator Jorge Kajuru (Cidadania-GO) released a telephone conversation recording with President Jair Bolsonaro (no party). The dialogue revealed pressure from Bolsonaro to expand the scope of the CPI to states and municipalities, among other issues related to the Senate and the STF.

The president of the Senate, Rodrigo Pacheco (DEM-MG), created the Covid Parliamentary Inquiry (CPI) on Tuesday (13) and expanded its scope to investigate states and municipalities. On Wednesday (15), the STF confirmed its decision determining the installation of the CPI. The installation should occur by Thursday (22).

Quaest’s Digital Popularity Index indicates that Bolsonaro and Lula are technically tied in first place, followed by Alexandre Kalil, mayor of Belo Horizonte. 

2. Economy – The government is studying to cut the R$6.4bn (£830m)1 indicated to the Ministry of Regional Development (MDR), and preserving the R$14.4bn (£1.87bn) in parliamentary amendments. The Budget 2021 needs to be approved until April 22, the deadline for presidential sanction. 

The Central Bank estimates that the foreign exchange rate will stabilise in 2021 and 2022. The fiscal risk persists, but the Central Bank predicts that the flow of dollars into the country should increase in the coming months. The rising inflation continues to draw attention. 

The government expects to attract R$2bn (£259m) in investments with the kaolin exploration auction in Pará. The mineral is used in the manufacture of several products, such as paints, paper and cosmetics.

The government has included nine conservation areas in the investment partnership programme and the Post Office in the National Privatisation Plan.

3. Public administration – On Monday (12), STF justice Rosa Weber, in an injunction decision, suspended parts of government decrees that expand access to armaments. The decision is under final analysis by the virtual plenary of the STF. The decrees would come into force on Tuesday (13).

During the Leaders Summit on Climate, on 22 and 23 April, the United States expects Brazil to present deforestation reduction targets to release financial resources. The Minister of Environment (MMA), Ricardo Salles, asked for resources to preserve the Amazon.

The head of the Federal Police in Amazonas, Alexandre Saraiva, was exonerated after sending a criminal notice to the STF against Minister Salles and Senator Telmário Mota (Pros-RR) for administrative advocacy. 

1 £1.00 = R$7.72

How to read it?

1. The week was unfavourable for the government, but the trend remains neutral. The level of Bolsonaro’s conflict with the STF has intensified, and difficulties with the Legislative have increased. The government’s approval rating has worsened over the past month. As for the coalition, there have been no significant changes.

 The CPI installation may wear down the government, corroborating the perception of its flaws in the fight against Covid-19. Concerning the Legislative, the situation is still favourable, but Bolsonaro will have to open up more space in the government. There is pressure on senators to withdraw signatures from the CPI request, and the issue over the budget creates friction in the House. 

The government’s approval rating is around 27%. The drop stems from the federal government’s incapacity to manage the pandemic and the perception that Bolsonaro is personally erring in the fight against the pandemic. The president is trying to reverse this perception, but it cannot yet be said that he will be successful in this endeavour. 

Bolsonaro has done well to seek support from big business. The group has turned away from the government because of the lack of progress of the liberal agenda and the effects of the pandemic. It is still necessary to wait for the developments of this rapprochement, the relationship with Congress, the effects of the new aid, and how Bolsonaro will behave during this period.

2. Although there are uncertainties regarding the level of government spending and how the 2021 Federal Budget will be balanced, the trend in the economy is still positive. The Brazilian Central Bank is implementing measures to contain the increase in inflation, the emergency aid has begun to be paid, and vaccination has increased the pace.

The auction of concessions reinforced this positive perception last week, showing that the productive sector believes in Brazil in the long term. The direct injection into the government’s cash flow helps in the short term but is less important than the effect that the investments will generate in the economy, such as the creation of jobs and the increase in the country’s productivity. The government would not be able to afford the investments that the private sector will now make.

3. The trend of public administration is still neutral. It takes time to mature to evaluate the effect of recent ministerial changes. The changes in the Ministry of Justice were not well received: the new commanders would have a more political profile, inferring that they would be more prone to accommodations Bolsonaro. Although this may occur, the merit of the changes cannot be taken away yet. 

Regarding the Ministry of Environment, the assessment remains negative. The minister is circulating the idea that he first needs US money to only then preserve the environment, an argument that was rebutted by vice-president Hamilton Mourão, president of the Amazon Council. Although Salles’ management is perceived as very negative, it should be noted that a good part of Congress supports him, which may explain his permanence in the government. 

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