The Week Ahead in Brazil #55

Short term trends

1. Politics – The Covid CPI was installed on Tuesday (27). The work plan of the rapporteur, Senator Renan Calheiros (MDB-AL), was approved, summoning the former Ministers of Health Luiz Henrique Mandetta and Nelson Teich on Tuesday (4), Eduardo Pazuello, on Wednesday (5), the president of Anvisa, Antonio Barra Torres, and the current minister of Health, Marcelo Queiroga, on Thursday (6).

The speaker of the lower house, Arthur Lira (PP-AL), said the tax reform report will be presented on Monday (3).

There were pro-government demonstrations in several cities. A survey by PoderData shows that 35% of Brazilians approve the current federal administration. In the previous survey, the index was 34%.

2.Economy – The Treasury announced that the federal public debt is below the target, with the lowest average cost since 2005, at 7.64% a year. The balance of jobs created in March was 184,000.

The government expects to inject R$ 40 billion into the economy with the postponement of the collection of the Federal Severance Pay Fund (FGTS), and another R$ 56 billion, with the anticipation of the 13th salary of retirees and pensioners.

On Wednesday (28), the dollar reached the lowest price since January 26.

This week, the Minister of Economy, Paulo Guedes, made controversial statements about the Covid-19 and Fies, a federal programme to fund education to poor students. The minister gave an interview to O Globo, and presented economic information.

The auction of the Rio de Janeiro State Water and Sewage Company (Cedae) raised R$ 22.6 billion on Friday (30).

On Wednesday (5), the Monetary Policy Committee (Copom) is expected to raise the basic interest rate by 0.75 percentage points.

3.Public administration – The Ministry of Economy made changes in the top leadership. The main change was the departure of the Special Secretary, Waldery Rodrigues, who will now be a special advisor. Bruno Funchal, secretary of the National Treasury, will take Rodrigues’ position.

Brazil’s Health Regulatory Agency (Anvisa) rejected the request for marketing authorisation for the Sputnik V vaccine. The vaccine has already been approved for use in 60 countries.

How to read it?

1. The political scenario remains in a negative trend. The main reason is the beginning of the Covid CPI. The government tried, unsuccessfully, to prevent Calheiros from becoming the CPI’s rapporteur, and the government’s allies in the CPI are in the minority and have little experience in this type of work. Bolsonaro sought, with much delay, Calheiros’ interlocutors for some approach. No one knows for sure Calheiros’ motivations. Some say he wants to destroy the government; others, that he seeks negotiating points; almost no one believes he just wants to conduct the report. What is known is that this week should be one of the most difficult for the government, with the hearing of former ministers.

The unfavourable situation with the CPI has kept Bolsonaro low on conflict, away from polemical statements. Guedes seems to have assumed this role momentarily, with statements that add negative weight to the political scenario. Bolsonaro has been holding meetings with business sectors, improving dialogue in search of political support.

Popular support for the administration remains stable. The approval level revealed by PoderData is in line with other institutes regarding stability, although at a level above other surveys.

2. The economy continues on a positive trajectory. The results presented were positive for the economy, both in the monetary and fiscal aspects and in the creation of new jobs. The Copom meeting should not bring any surprises in relation to the increase in the Selic rate and the exchange rate seems to be improving.

The success of the Cedae auction proves that the new basic sanitation framework works, and may bring real benefits for both the State and the population.

The injection of resources from the FGTS and the 13th salary bonus may improve economic activity in the coming months, amplifying the effect of the emergency aid.

The presentation of the tax reform is important, because it improves several aspects of the economic activity. The proposal is to create a Tax on Goods and Services (IBS), by eliminating three federal taxes, besides ICMS and ISS. It is not for the short term, but it deserves note as it creates a positive momentum.

3. Public management continues in neutral mode. Leadership in the ministries has improved, especially in Health. Regarding the Ministry of Economy, there is still no way to assess the changes in leadership positions yet. The department has achieved relevant achievements in the management of public policies, but the team was worn down with the approval of the 2021 Federal Budget. It is possible that the new members will be able to move forward. Guedes, in turn, should focus his energies on managing the ministry, instead of making avoidable statements on issues that add little to his work.

Regarding the Ministry of Health, the vaccination progress also seems to show signs that the change from Pazuello to Queiroga was beneficial for the management. At the Ministry of Foreign Affairs, the new minister, Carlos França, seems to be surprisingly positive, with a more moderate management than that of his predecessor. The management of the Ministry of Environment continues to show no signs of progress.

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