The Week Ahead in Brazil #67

What is happening in Brazil? 

1. Politics – President Jair Bolsonaro (no party) announced a ministerial reform on Wednesday (21). Bolsonaro appointed Senator Ciro Nogueira (PP-PI) to replace Minister Luis Eduardo Ramos as Chief of Staff. Ramos will be the new Secretary-General of the Presidential Office, replacing Onyx Lorenzoni, who will head a new Ministry of Labour and Employment. The new unit will be created from the dismemberment of the structure of the Ministry of Economy. With that, there will be 24 ministries.

Ciro’s move to the Civil House involves another critical issue: the political affiliation of Bolsonaro, who remains without a political party for more than 600 days. Several reports revealed that, after the failed attempts to create his own party, the Alliance for Brazil, or to join the Patriot Party, Bolsonaro could now join the PP. There are still rumours about creating a “super party” with the union of PSL, PP and DEM, which could accommodate President Bolsonaro and his sons.

Estadão published a report revealing that Defence Minister Walter Braga Netto threatened that Brazil would not have elections in 2022 if printed voting is not approved. The threat reached the speaker of the Lower House, Arthur Lira. On the same day, Bolsonaro also made statements to supporters with similar contents. The report shows that Lira dealt with the episode to Bolsonaro and warned that he would not embrace any institutional ruptures. Braga Netto stated that the matter is pure invention.

PoderData poll shows that 62% of Brazilians reject the administration of the Bolsonaro government, with 32% approving. There was no significant variation from the previous survey.

2. Economy – The Brazilian Institute of Geography and Statistics (IBGE) informed that the National Wide Consumer Price Index – 15 (IPCA-15), a preview of inflation, reached 0.72% for July. The accumulated figure over 12 months is 8.59%. Economists project that higher inflation could drive up the basic interest rate (Selic) in the next meeting of the Central Bank’s Monetary Policy Committee (Copom). After three consecutive 0.75 percentage point hikes, the market is projecting a new increase of between 0.75 and 1.0 percentage points.

The government announced a net increase (discounting inflation) in federal tax collection of 24.49% for the first semester compared to the same period in 2020. The number set a new record of the series started in 1995. With this, the government decided to release R$4.5bn from this year’s budget, deblocking R$7.3bn in total. The Ministry of Education will receive the most significant portion of the release, around R$1.6bn.

According to the Brazilian Institute of Economics of the Getúlio Vargas Foundation (FGV), Brazil’s GDP should grow 5.2% in 2021.

3. Public administration – President Jair Bolsonaro (no party) has indicated the reappointment of the Attorney General of the Republic, Augusto Aras. Aras’ two-year term expires on 26 September and can only be reappointed once. Although he is not legally obliged, Bolsonaro did not follow the suggestion of the triple list of candidates formed by the National Association of Prosecutors of the Republic (ANPR), a tradition maintained between 2003 and 2017. 

The creation of the Ministry of Employment and Social Security will leave under the command of Onyx Lorenzoni the control of pensions, data management and several workers’ funds, such as FAT and FGTS.

How to read it?

1. The political trend has evolved from neutral to positive. The institutional level is still high, including Braga Netto’s alleged threats, but it has improved compared to past weeks. The government’s approval and rejection ratings remain bad for Bolsonaro but are now stable. The major factor of improvement was the condition of the presidential coalition and the quality of political articulation.

It took a long time, but the government seems to have got it right by bringing Senator Ciro Nogueira (PP-PI) to become the new Chief of Staff. The trend is that the arrival of Ciro will rehabilitate the political condition of the government in two dimensions. In general, an immediate improvement is expected in the political articulation with Congress. Ciro knows well the desires and fears of politicians in both legislative houses, is a skilled political negotiator and should impose himself on other ministers to meet the demands of parliamentarians. He will make his political capital available to the Planalto to increase the government’s chances of approving its plan, such as the structural reforms, including with the senators, which leads us to the second dimension. As said here before, in the House of Representatives, the government’s situation is good, but not in the Senate. There was no senator appointed as a minister, while there are five federal deputies. Specifically, Ciro should have more tools and resourcefulness to improve the government’s situation in the Senate, as in the wear and tear caused by the CPI. In addition, he should improve the climate for the approval of André Mendonça for the position of minister of the Federal Supreme Court (STF) and the reappointment of Augusto Aras to the Attorney General’s Office. The solution to the veto of the electoral fund should also be one of the first issues in Ciro’s charge.

Even if the new Chief of Staff could satisfactorily make these changes, there are some unknowns that only time will reveal. The most important one is whether Bolsonaro and Ciro will manage to cooperate, that is, whether Bolsonaro will not undermine his minister. The other is how the work of the minister of the Secretariat of Government, deputy Flávia Arruda (PL-DF), will turn out. Arruda has the mission of carrying out the government’s political articulation, especially in the Lower House, where the president of the PL, Valdemar da Costa Neto, and the president of the Chamber, Arthur Lira, cooperated with her and facilitated her work. There was an expectation that her participation in the government would be sufficient to improve political articulation. Still, the impression that some interlocutors have is that she could not achieve the necessary transformation. Hence, in practice, Ciro tends to control the entire political negotiation agenda, but they may reach an understanding about the division of labour.

2. The economy continues on a positive trend. Amidst news of rising inflation, the performance of tax collection and GDP projections are positive factors. Despite the high number of unemployed, the unemployment rate should drop, with the release of the results of the Pnad Continuous Survey this week. It is expected that job creation will continue to improve, which should be confirmed by the numbers of new jobs created with formal employment contracts, to be released this week by Caged.

3. Public management remains in a neutral trend. There is still a lot of unnecessary noise in the administration caused by the CPI and Braga Netto. The Ministry of Economy has made positive advances to improve the federal administration. Still, it is necessary to know whether the other ministries are able or not to formulate public policies that effectively promote the common interest.

It is possible that the trend will remain neutral for a few more weeks because there are many uncertainties in the ministries’ management. In health, for example, although Covid-19 vaccination is increasing, there is no clarity about the development of other public health policies. Additionally, it remains unknown whether ministries have projects and structures ready to execute the newly-released R$7.3bn. It is tempting to spend that money in poorly conceived projects, not always in the best model of evidence-based public policies. It is also unknown how Ciro will play the role of coordinator as minister. Finally, it remains to be seen if the new ministry headed by Onyx Lorenzoni will increase executive fragmentation or work in line with Guedes.

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