The Week Ahead in Brazil #66

What is happening in Brazil? 

1. Politics – At the request of the General Prosecutions Office (PGR), the Federal Police opened an enquiry to investigate whether President Jair Bolsonaro (no party) has prevaricated by not having informed the control bodies about the corruption allegations on the Covaxin vaccine procurement process.

Still echoing Bolsonaro’s controversial statements from previous weeks, the president of the Federal Supreme Court (STF), justice Luiz Fux, spoke to the president to respect the limits of the Constitution.

On Wednesday (14), Bolsonaro was hospitalized in São Paulo to treat an intestinal obstruction. The president was discharged on Sunday (18).

The House of Representatives and the Federal Senate are in recess until July 31. Activities will resume on August 2. The parliamentary inquiry committee (CPI) was extended for another 90 days and should resume sessions from August 3. The Lower House analysis about the printed vote will be continued in the House after the recess. The trend is for rejection.

2. Economy – The House approved PL 6726/16, which imposes stricter limits on the salaries received by public officials above the salary ceiling of R$39,200. The proposal affects all civil servants in all three branches of government and at the federal, state and municipal levels. Estimates indicate that the project could save up to R$3bn per year. Currently, more than 25,000 servers earn above the ceiling.

Tax experts and the National Confederation of Municipalities (CNM) indicate that the new tax reform proposal for income tax can withdraw more than R$23bn from states and municipalities.

The Ministry of Economy estimates that inflation this year may exceed the 5.25% ceiling, reaching 5.9%. Concerning the GDP, the new projection is a growth of 5.30% for 2021.

Congress approved an increase from R$2bn to R$5.3 bn for Special Fund for Campaign Financing. Congress created the electoral fund in 2017 with resources from the National Treasury. In 2018, the resources for the election were R$ 1.7bn. The text follows for presidential sanction.

The Central Bank bought 41.8 tons of gold in June. It was the most significant purchase since December 2000. The goal is to increase stability in times of crisis.

The law that allows the privatization of Eletrobras was sanctioned on Tuesday (13) by President Jair Bolsonaro.

3. Public administration – President Jair Bolsonaro appointed the current Attorney-General and former Minister of Justice, André Mendonça, to become a justice at the Federal Supreme Court (STF) on Tuesday (13). First, Mendonça needs at least 14 votes to be approved in the Constitution and Justice Commission (CCJ) of the Federal Senate. The score is still uncertain, and there is resistance to his name, but the trend is that he will be approved.

The Brazilian Court of Audit (TCU) anticipated the vote on the 5G auction to August 18. If approved, the norms for the auction will be sent to the National Telecommunications Agency (Anatel) to proceed with the process.

How to read it?

1. The political trend remains negative, despite the parliamentary recess. The level of institutional conflict is high, especially with the Judiciary, although Bolsonaro’s hospitalisation has contributed to its cooling. There are signs of wear and tear in the presidential coalition. However, it is still functional, and the government’s approval and rejection ratings seem to have stabilised at a level not very comfortable to Bolsonaro.

The government will have difficult days ahead. It will have to equalise the issues of the CPI, which are advancing on accusations of corruption and mismanagement in the government, with seeking support for the approval of Mendonça to the position of STF minister in the Senate, and to advance the issue on the printed ballot in the House of Representatives. Bolsonaro still has to decide whether or not to veto the R$5.7bn electoral fund approved by Congress. If he rejects, he harms the PSL and PT, the most significant beneficiaries by the fund, and causes damage in the Centrão parties that form the ruling base; if he approves it, he loses more popular support among his faithful base. Some analysts agree that the tendency is for him to criticise the amount of the fund but to sanction it anyway, alleging imperative legal issues. Thus, it makes the speech that would retain supporters and avoid problems with the parties’ hotshots.

Besides all this, the pressure for Bolsonaro to decide which party he wants to stay in has increased. The issue of the party fund may weigh on this decision for two reasons. First, outside a political party, Bolsonaro is alienated from the agreements built to allocate these resources to candidates. The candidates themselves will be harmed if they delay choosing the party. In addition, all the presidents of parties interested in Bolsonaro’s membership have already said that the president is welcome to participate but not to command and control the party. Second, it is possible that the way Bolsonaro and his political supporters were elected in the previous election, heavily supported by social media, will not be repeated, making the fund an essential instrument. The municipal elections have already shown this trend.

One of the disadvantages of the Congress remote deliberation system is the speed with which the National Congress approves some matters. In a superficial analysis, a manager could say that this is good, that it would be an increase in the parliament’s productivity, but it is the opposite. As was the case of the party fund, the low density of discussions on various topics weakens the democratic aspect and places much more decision-making power on parliamentary leaderships, such as rapporteurs, committee chairs, etc.

2. The economy continues with a positive trend. The advance of the proposal to limit the “super salaries” is a positive sign for improving the fiscal framework. There are still doubts about the progress of the other reforms, both tax and administrative. Inflationary persistence has surprised government technicians, but the monetary policy seems to be adopting the necessary measures to control inflation. The question is how the US inflation and the consequent rise in the US interest rates may affect these plans in Brazil.

The sanction of the law allowing for the privatisation of Eletrobras deserves to be seen as a significant achievement by the government. In January 2021, when former Eletrobras’ CEO Wilson Ferreira Junior resigned from his post, the signal was that the privatisation would not have support from the government itself. It is an essential measure for modernising the sector, attracting private investment and increasing economic productivity.

3. Public management is neutral. Government leaders seem confused amid the various crises the government faces: water crisis, a crisis with the military and the Senate, crisis triggered by the CPI. In general, public policy-making processes continue to lack transparency, and many departments have performed poorly in budget execution.

Despite these negative aspects, daily Covid-19 vaccination has increased, showing the universal public health system (SUS) resilience. The Ministry of Health has adopted a more technical approach in decision-making processes, and Minister Marcelo Queiroga manages it in a balanced way. The departure of the former Minister of the Environment, Ricardo Salles, has also mitigated Brazil’s image problems, although it has not yet generated practical improvements.

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