The Week Ahead in Brazil #58

The Week Ahead in Brazil #58 - Political trend stays neutral (Eletrobras vote, CPI, FHC and Lula). Economy advances (GDP, reforms advance). Management starts to suffer (Salles and Bolsonaro).

#politicapublica #analisisepolitica #gestaopublica #economiapolitica
Short term

What is happening in Brazil? 

1. Politics – Ernesto Araujo, former Minister of Foreign Relations, and Eduardo Pazuello, former Minister of Health minister, have given testimony to the Federal Senate’s Parliamentary Inquiry Committee on the Pandemic (CPI). The testimony of Mayra Pinheiro, secretary of Work and Health Education Management of the Ministry of Health, was scheduled for Thursday (20), but was moved to Tuesday (25). In the coming weeks, Senator Renan Calheiros (MDB-AL), rapporteur of the CPI, is expected to present a preliminary report.

The Provisional Measure on the privatisation of Eletrobras (MP 1031/21) was approved at the House of Representatives. The Commission of Science and Technology, Communication and Informatics (CCTCI) will hold a public hearing about the issue on Monday (25). The Ministers of Science, Technology and Innovations, Marcos Pontes, and of Mines and Energy, Bento Albuquerque, are expected to attend the meeting.

The former presidents Luiz Inácio Lula da Silva (PT) and Fernando Henrique Cardoso (PSDB) had lunch together on Friday (21), at the home of former minister Nelson Jobim.

On Sunday, President Jair Bolsonaro (no party) took part in a motorbike ride with supporters in Rio de Janeiro. Some ministers and Eduardo Pazuello accompanied the president, all of them without wearing face masks to prevent the spread of the Covid-19 virus.

2. Economy – The value of Brazil’s exports to China grew 36% in the first four months in 2021, compared to the same period last year. The increase was caused by the rise in international soybean and iron ore prices. The Asian country is the leading destination of Brazilian exports, with 34% of the total volume. With 10%, the United States is the second main importer of Brazilian products.

The Ministry of Economy has raised its GDP forecast in 2021 from 3.2% to 3.5%. The Focus survey, which measures analysts’ estimates, showed an increase from 3.21% to 3.45%. Meanwhile, the Federal Senate’s Independent Fiscal Institution (IFI) maintained its forecast of 3% in its latest fiscal tracking report (RAF). 

3. Public administration – On Wednesday (19), the Federal Police carried out an operation against the Minister of the Environment, Ricardo Salles. There were 35 warrants of search and seizure against the minister, the president of the Brazilian Institute of Environment and Renewable Resources (IBAMA), Eduardo Bim, and other members of the institute. The Federal Police is investigating a corruption scheme to operate in the illegal export of wood.

The former health minister, Eduardo Pazuello, appeared before the commission for two consecutive days (19 and 20) supported by habeas corpus. For the government and support base senators, the former minister showed himself well prepared at the hearing and managed to exempt President Jair Bolsonaro from any guilt. However, opposition senators accuse the former minister of lying several times and left episodes unexplained. 

How to read it.

1. The political trend for the week remains neutral. The CPI held two potentially damaging hearings for the government, but the expectation that the government could come out scratched by the testimonies of Araújo and Pazuello did not materialise. Araújo’s diplomatic training proved effective, as did Pazuello’s media training sessions and habeas corpus. Both avoided more significant problems for the government. As mentioned in last week’s report, the impact of the CPI remains limited. This does not mean that its importance as a factor of influence for political calculations has diminished, only that it is not generating additional wear on the government’s image nor causing greater damage to relations between the Planalto and parliament.

The government continues to have favourable political conditions, especially in the lower house, as seen by the progress of the MP for the privatisation of Eletrobras and the reading of the opinion on the administrative reform. Popular support for the government remains stable, as evidenced by the demonstrations of support for Bolsonaro in recent weeks, and there has been no increase in institutional conflicts. The political trend this week is not positive only because of the CPI, a circumstantial factor that generates much uncertainty in the political environment. Structurally, however, the government continues to enjoy broadly good political conditions.

For the long term: the corruption suspicions involving Salles must be closely monitored. Some government supporters are beginning to call for the minister’s dismissal, as fighting corruption was one of Bolsonaro’s main election agenda. If the administration fails to act, the most loyal base of supporters may suffer some reduction. In addition, his permanence as minister creates a hopelessly embarrassing situation in the international arena, especially in the relationship with the United States. FHC and Lula’s relationship is also important because it brings two nationally strong political parties closer together, increasing the cost and limiting the options for Bolsonaro’s party affiliation. As a result, politicians allied with the government are pressuring the president to make a decision soon and professionalise his re-election campaign.

2. The trend for the economy remains positive. Anticipated last week by several banks, there seems to be a consensus among government and market that GDP in 2021 will grow more than initially expected. Moreover, the risk of non-compliance with the spending cap, a permanent concern for the economic team and the market, seems to show signs of improvement. This is due to the increase in primary revenue and the fall in spending on Bolsa Família and salary bonuses, not to the fiscal effort.

Additionally, rising commodity prices, a devalued exchange rate and increased global trade increase the plausibility of continued economic growth. Given these factors, it would not be surprising if GDP growth projections increase in the coming months.

3. Public management is on a negative trend. The operation against Salles and the removal of Ibama’s leaders appointed by him should cause some temporary paralysis in the management of the environment. If the minister is kept in office, it is possible that the public servants will increase their resistance to the public policies designed by Salles. The issue is that Salles – besides being a minister who follows orders from the president – is engaged with an agenda that does not seem to be aligned with the public interest.

The “leadership” factor has also worsened significantly. Salles’ clashes with the Federal Police and Ibama staff have left him isolated, without conditions for leadership in the ministry and limited international dialogue. While he continues to head the portfolio, he is not likely to obtain free foreign resources, nor is he likely to change the rules for using the Amazon Fund, which has Norway and Germany as its main donors. The situation is largely unfavourable to Salles, who still has the support of Congress and the President himself. The other downfall in leadership came from Bolsonaro, by promoting agglomerations and motorbike rides, even more so without wearing a mask, causing wear and tear to the leadership of the Health Minister. It is possible that health workers will become more disengaged in fighting the pandemic.

Finally, the pace of vaccination in Brazil slowed, due to a lack of vaccines. With this, the flow of Brazilians going to Miami or Dubai to get immunised against Covid-19 has increased. Many are supporters of the Bolsonaro administration, which perhaps allows them to observe the administration more critically. 

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