The Week Ahead in Brazil #57

Short term trends

1. Politics – The Senate’s Parliamentary Inquiry Committee to investigate the Covid-19 response in Brazil (Covid CPI) held, last week, the hearings of the director-president of the National Health Surveillance Agency (Anvisa), Antônio Barra Torres, the former minister of the Secretariat of Communication of the Presidency, Fábio Wajngarten, and the regional president of Pfizer in Latin America, Carlos Murillo. On Tuesday (18), the former foreign minister, Ernesto Araújo will be heard, and the testimony of Eduardo Pazuello, former health minister, is scheduled for Wednesday (19). Pazuello obtained a habeas corpus that guarantees him the right not to answer questions that could incriminate him and not be arrested. On Thursday (20), Mayra Pinheiro, secretary of Work Management and Health Education at the Ministry of Health, will be heard.

In the House of Representatives, the reading of a report of the administrative reform proposal (PEC 32/20) is scheduled for Monday (17). In addition, on Wednesday (19), the Commission of Financial Supervision and Control (CFFC) scheduled a public hearing with the Chief Minister of the Cabinet of Institutional Security (GSI), General Augusto Heleno.

On Tuesday (11), the Senate turned the National Program to Support Microenterprises and Small Businesses (Pronampe) into permanent public policy. The bill awaits presidential sanction.

The latest Datafolha poll shows the government’s approval falling from 30% in March to 24% in May. The Poder360 poll shows approval rising from 33% to 36% in the same period. Research Atlas revealed approval rose from 25 per cent in March to 31 per cent in May. The XP/Ipespe survey indicated an increase from 27% to 29%, in the same period, of those who consider the government’s performance as great or good. On Saturday (15), there was a march in Brasilia to demonstrate support to President Jair Bolsonaro (no party).

2. Economy – The level of activity in trade, which fell 0.6% in March compared to February, positively surprised the market, which was expecting a 3.9% retraction.

The National Treasury has indicated risk in the increase in short-term public debt, maturing in up to 12 months. The debt is forecast to reach 18.8% of GDP in 2021. The Treasury has had difficulty in lengthening the average maturity of public debt.

Credit Suisse has raised its GDP projection from 3.2% to 3.6% in 2021. The Itaú indicator indicates the economy is still recovering.

The market foresees continuation in the valuation of the real against the dollar, possibly reaching below R$5 in the coming months.

3. Public management – Public management experts say the testimonies of the director-president of Anvisa, Antônio Barra Torres, and of the regional president of Pfizer in Latin America, Carlos Murillo, exposed flaws in the government’s decision-making process in managing the pandemic.

The Supreme Court (STF) has ordered the federal government to hold the IBGE (Brazilian Institute of Geography and Statistics) Census in 2022. The Census was supposed to be held in 2021, but was cancelled due to budget cuts.

The government announced the release of R$2.61bn for federal universities.

How to read it?

1. The adverse political scenario that had been brewing in recent weeks has taken a lull. The Pandemic CPI in the Senate held important hearings last week, but the government must suffer from Eduardo Pazuello’s testimony on Wednesday (19). If he keeps quiet, he will be the target of constant provocations from the senators; if he speaks, he could leave with many problems and cause many more for the government. It will not be an easy week for the government in the Senate, but the CPI seems to have a limited impact on the political environment, at least for now. Already in the House, the situation is more favourable, and the government has been able to move forward with some agendas: there is support from the presidential coalition and there is the support of President Arthur Lira (PP-AL), with whom Bolsonaro travelled to Alagoas last week.

Despite the tension in the government with the CPI, the level of institutional conflict between the Powers was low. Nevertheless, the government may create some diversionism this week to divert the focus from the depositions of Araújo and Pazuello, resorting to polemical statements, as may occur during Heleno’s hearing in the House on Wednesday (19), the same day as Pazuello’s testimony.

As for Bolsonaro’s popularity level and government approval has not only stopped falling but has shown a slight recovery, which should be maintained in the short term. The recovery of the economy and the start of emergency aid may be explanations for this effect.

2. The economy continues to trend positively. Several financial institutions and market analysts converge on the increase in Brazilian GDP and the appreciation of the real against the dollar. April, May and June economic activity is expected to be positive, with the release of the emergency aid and the injection of resources that the government released from the FGTS and the 13th of pensioners and retirees.

It is possible that, in addition to this injection of resources into the economy and the price of commodities, the improvements in the business environment introduced by Provisional Measure 1,040/2021 and other modernizations have contributed to this result. Nevertheless, the tax issue is still a cause for concern.

3. Public management remains in a neutral trend, with no significant changes in public management. The problems revealed in the testimonies to the CPI are nothing new and show that the general level of management capacity is unsatisfactory. Despite this finding, there are no indications that the administration is improving or getting worse, hence maintaining the neutrality trend.

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