The Week Ahead in Brazil #69

What is happening in Brazil?

1. Politics – The pressure of President Jair Bolsonaro (no party) about electronic ballot boxes generated reactions from the other branches of the Republic. In the Judiciary, on Monday (2), the Superior Electoral Court (TSE), by unanimity of its ministers, decided to open an investigation into Bolsonaro’s accusations that the electronic ballot boxes are unsafe, as well as the threat to the conduct of elections. The TSE also asked the Federal Supreme Court (STF) to include Bolsonaro in the fake news case. On Wednesday (4), justice Alexandre de Moraes granted the request.

On Monday (2), the president of the STF, Luiz Fux, made remarks of democratic guarantees, stating that there are limits that must be respected. On Thursday (5), in the face of increased criticism of Mr Bolsonaro to justices Alexandre de Moraes and Luis Roberto Barroso, Mr Fux announced the cancellation of the meeting that would take place between the heads of the three branches. On Friday (6), Mr Fux spoke with the Attorney General of the Republic, Augusto Aras.

In the Legislative, the speaker of the Lower House, deputy Arthur Lira (PP-AL), said the “yellow button remains pressed” but showed goodwill to the government to give survival to the discussion of PEC 135/19. The president of the Federal Senate, Rodrigo Pacheco (DEM-MG), was more emphatic and said that whoever preaches that there will be no elections in 2022 “will be considered an enemy of the nation”.

Also, in reaction to Bolsonaro’s criticism of electronic ballot boxes, on Wednesday (4), prominent people in business, bankers and intellectuals released a manifesto in defence of the Brazilian electoral system.

On Thursday (5), the special commission of the Lower House on the Proposal of Amendment to the Constitution (PEC) 135/19 rejected the report of deputy Felipe Barros (PSL-PR) that proposed manual and public counting of printed votes, would have immediate application and reduced the attributions of the Electoral Justice. On Friday (6), the special committee approved the report rejecting the PEC 135/19. Special committees that analyse proposed amendments to the Constitution only make recommendations through reports. Although no rule prevents PECs with recommendations for rejection to be taken to the Plenary, they usually do not reach the Plenary. Therefore, the announcement of the president of the Lower House, Arthur Lira (PP-AL), to schedule the matter is correct, although it is not the usual. It was a political decision. For the approval of a PEC in the Plenary of the House, at least 308 votes in favour in two sessions are necessary.

The Commission of Labor, Administration and Public Service (CTASP) of the House of Representatives approved the summoning of the Minister of Defense, Walter Braga Netto, to explain alleged threats to the holding of elections. The minister must appear before the commission on 17 August.

Quaest poll shows that there was no significant variation in approval or rejection of the Bolsonaro government from July to August. The complete survey is here:

2. Economy – The Brazilian trade balance registered a surplus of US$7.6bn in July. It is the second-best result in the historical series for the month since 1989. From January to July, the accumulated surplus is US$44.13bn, an increase of 47.6% compared to the same period last year. The Ministry of Economy projects a trade surplus of US$105.3bn for 2021, the highest volume to be recorded for one year, more than double the amount reached in 2020.

On Wednesday (4), confirming market forecasts, the Central Bank’s Monetary Policy Committee (Copom) decided to increase the basic interest rate by one percentage point. With this increase, the Selic moves from 4.25% to 5.25% per annum. It was the fourth consecutive hike, and Copom announced that it would make another increase, of the same magnitude, in September. The note revealed that the Central Bank understood that inflation is persistent, changing the evaluation that inflation was only temporary and punctual.

By 286 votes in favour and 173 against, the Lower House approved the privatisation project of Correios, the Brazilian postal service. The matter goes to the Senate and is expected to be approved until September.

3. Public administration – Bruno Bianco has been named attorney-general (AGU). He replaces André Mendonça, who concentrates on the nomination he will face in the Federal Senate for the position of minister of the Federal Supreme Court (STF). Bianco recently took over as executive secretary of the Ministry of Labor and Social Security and was head of the Special Secretariat of Social Security and Labor of the Ministry of Economy.

The National Institute for Space Research (Inpe) released that 8,712 km2 were deforested in the Amazon between August 2020 and July 2021. This is the second-largest deforestation recorded, with a 5% decrease compared to the previous period.

How to read it?

1. The political trend is negative. As predicted last week, the main factor was the increase in institutional conflict. The solidity of the coalition has increased since the appointment of senator Ciro Nogueira (PP-PI) as Chief of Staff, and popular support has not changed significantly but remains low.

The influence of politics in public policy-making had everything to have a very positive week. The approval of the privatisation of the Correios and the loss of traction of the CPI, combined with the arrival of Ciro, would have given the government a smooth scenario for the week. The only reservation was about the printed ballot, which had been generating tensions and conflicts since July 29th. The reaction of the Judiciary was harsh, and the conflict may last longer than desirable. Congress, however, still hesitates to adopt a more vigorous stance. This symbiosis between the Planalto and the Lower Houses gives the president a breathing space and binds the House president to a slower and more moderate reaction. The Defence Minister’s mandatory presence to the Lower House’s hearing committee could ease the issue of the printed ballot, but this is unlikely to happen.

Bolsonaro is likely to face rough weeks. Popular support is low, big business and bankers have withdrawn their support for the government, and the presidential coalition may suffer some shake-ups in the future. The CPI lost its way pursuing a corruption narrative and has distanced itself from inquiring into the government’s management acts, giving the administration some temporary relief.

The institutional conflict is at its worst level, generating a lot of instability. There is still legislative support, which can be seen by the approval of the privatisation of the Correios, but not enough to guarantee the government’s agenda. The guarantees that the names of André Mendonça for the Supreme Court and Augusto Aras for the Attorney General’s Office would be approved with tranquillity in the Senate have diminished. In any case, this political turbulence reduces the predictability of results, with negative impacts on the financial market and the productive sector. The manifesto of large economic conglomerates, still frightened by the effect of the pandemic on business, should be understood within this context. The last thing big businesses want is an unstable government.

2. The trend for the economy remains positive. Trade results were positive, and Copom’s decision met with the expectations of the financial market, earning praise for the Central Bank. Economists warned that the Central Bank was posturing behind the curve, too cautious, meaning that the measures to tackle inflation were below expectations. If the decision to raise the basic interest rate can bring greater control to inflation, it can also bring greater fiscal risk.

The advance of the privatisation of the Correios is good news and shows the government’s commitment to the liberal economic agenda. It was an important step. If, on the one hand, the government is making progress in reducing the size of the State and increasing its efficiency, on the other hand, it resists by seeking ways to increase the spending with social programmes. While it is crucial to support the poorest layers of the population and adopt measures to reduce socioeconomic inequalities, one cannot fail to observe that such initiatives are partly motivated by electoral issues and should be observed.

3. The trend in public management is neutral. Although there have been several dismissals and appointments in recent days, both in the Casa Civil and in the Secretaria de Governo, there have not been significant performance management changes.

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