The Week Ahead in Brazil #65


What is happening in Brazil? 

1. Politics – As a follow-up to the testimony of the Miranda brothers on the Covaxin vaccine procurement process, the parliamentary inquiry committee, known as the CPI da Pandemia, heard, on Tuesday (6), the manager of contracts, Regina Célia Oliveira. On Wednesday (7), Roberto Dias, former director of logistics at the Ministry of Health and accused of charging a bribe of $1.00 per vaccine, testified. He was arrested by the an order of the president of the CPI, Senator Omar Aziz, accused of false testimony. On Thursday (8) and Friday (9) others involved in the acquisition process of Covaxin were heard. This week, the CPI should receive a representative of Precisa Medicines, linked to the acquisition process of Covaxin, and two more involved in the process of AstraZeneca, the Reverend Amilton Gomes de Paula and Colonel Marcelo Blanco.

The Ministry of Defence issued a note against the statements made by Senator Omar Aziz (PSD-AM). Aziz said that military should be ashamed of a few rotten officials allegedly involved in wrongdoings in the Ministry of Health. The episode generated institutional friction, which was exacerbated by comments by President Jair Bolsonaro (no party) against the CPI, about the elections and the Superior Electoral Court (TSE) and, in particular, about justice Luis Roberto Barroso of the Supreme Federal Court (STF). The Legislative and the Judiciary have expressed concern over Bolsonaro’s statements.

A survey released by the National Transport Confederation (CNT) shows that 27.7% of Brazilians consider the government’s performance as excellent or good. The disapproval rate of the government increased from 35.5% to 48.2% in the same period. In addition to this survey, the PoderData indicated a government disapproval rate of 61% and approval of 33%, and Datafolha showed that disapproval of the government reached 51% and support of 24%. Finally, the XP/Ipespe survey showed an index of 52% for disapproval of the government and 25% for approval.

2. Economy – On Tuesday (6), the government published the extension of the emergency aid for another three months. In addition, the government is considering increasing the average value of the Bolsa Família from R$190 to R$280 or R$300. The previous discussion on the increase was to reach up to R$250.00 of average value.

Petrobras announced an increase in the price of fuel. Gasoline increased 6.3% and diesel, 3.7%, due to the international market.

The Ibovespa index closed down last week, and the dollar reached R$5.20. The movement of the markets was attributed to political noises.

The government plans to sell 100% of Correios, the Brazilian postal service. The expectation is that the bill authorizing the sale will be completed by the end of August. The auction to sell Correios is expected to take place in March 2022.

3. Public administration – Data from Inpe (National Institute for Space Research) continue to reveal problems in the Amazon. The deforestation area for June reached 1,062 km2.

The current Federal Attorney General and former Minister of Justice, André Mendonça, is likely to be officially nominated as a minister of the Federal Supreme Court (STF). The nomination stems from the retirement of Minister Marco Aurélio Mello.


How to read it?

1. The political trend is more negative than ever. The dynamics of the factors that determine this analysis are anchored in the effects of the Pandemic CPI on the coalition, the drop in popular support and the increase in institutional conflict.

The CPI began with an axis that was not attractive. Public management and public policy are dry subjects with little popular appeal. It is a low-key issue, and the technicality of the debate had not caused any harm to the government. With the change in the focus of the CPI to two cases of corruption, the government began to suffer more. Why does this matter? Besides being more seductive for the opposition to create and develop a narrative that would bring the Bolsonaro government closer to the acts of corruption of previous governments, this move drains all the attention of the government’s dome. In other words, the government’s image eroded, but the management becomes more abandoned or subordinated to the issues that could mitigate the negative effect of the CPI on the government.

If this were not enough, popular support for the government has decreased, especially with the increase in rejection of the government. Even so, some polls still show support for the government at between 24% and 33%, which is no small thing. Two months ago, the floor considered was 30%. Today, it is already possible to believe that the government’s approval could reach 20%, making it even more difficult to approve the government’s agenda. My perception is that the financial aids and the advance of vaccination may hold the indexes in the 20% to 25% range.

Finally, to make the political situation worse, the most unnecessary element is that the government can control the most: Bolsonaro’s institutional attacks. It is clear that his attacks carry a strong electoral component, but the average voter seems to repudiate this behaviour.

2. The economy continues on a positive trend. Monetary policy remains attentive to inflationary movements and pressures. Recent increases in electricity and fuels should add more reasons to raise the Selic rate. In addition, exchange rate volatility adds uncertainty to inflationary estimates. Though stabilized in recent months, fiscal risk has increased as political problems bring populist ideas, in which the State starts injecting resources into the economy.

Despite these concerns, the confidence indexes in economic activity have been increasing. This contrasts with the exaggerated movements in the exchange rate and the falling stock market.

3. The public management is on a negative trajectory. The main change in the trend is the effect of the CPI on the government. Although the main impact is on the political environment, the debate on corruption in the government drains all the administration’s energies to survive this conjuncture. For the duration of the CPI, the government will react to any controversial issue that comes up. The line of investigating alleged cases of corruption will not stop.

By competence of the team at the Ministry of Economy, the activity and the economic outlook are good, but this does not occur homogeneously in the government. A clear example of this was the Ministry of Defence’s note, which should bring deep resistance in parliament and, possibly, operational difficulties for the portfolio in the future. The attention of ministers and secretaries will be more divided between management issues, defence of the government’s acts and the upcoming elections.


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