The Week Ahead in Brazil #70

What is happening in Brazil?

1. Politics – On Monday (9), President Jair Bolsonaro (no party) delivered the Brazil Aid proposal (Auxílio Brasil) to the speaker of the Lower House, Arthur Lira (PP-AL). The new social programme is a reformulation of Bolsa Família. The monthly payment values were not presented, but they should be by the end of September. Bolsonaro tries to enable a readjustment of at least 50% for the Brazil Aid, contemplating more than 16 million families.

On Tuesday (9), the Plenary of the Lower House rejected, by 229 votes in favour to 218 against, the Proposed Amendment to the Constitution (PEC) 153/19 that proposed the printed ballot in Brazil. The matter needed 308 votes in favour to be approved.

On the same day as the vote on the PEC, military vehicles drove through the Praça dos Três Poderes on their way to the Formosa Training Camp to invite President Jair Bolsonaro (no party) and Defence Minister Walter Braga Netto to a military exercise. Parliamentarians criticised the presence of the vehicles, on the day of the vote on the proposition on the printed vote.

The Senate approved on Tuesday (10), a project that revoked the National Security Law (LSN), created in 1983. The bill repeals the crimes of slander and defamation against the presidents of the three branches of government and provides for punishment for acts of incitement to civil war, insurrection and espionage. The matter had already been approved by the federal deputies in May and is now under presidential review.

In the parliamentary inquiry committee (CPI), the testimony of the government leader in the House, deputy Ricardo Barros (PP-PR), was controversial and the session was interrupted. Barros should be summoned for a new testimony. It is planned a confrontation between Minister of Labour and Social Security, Onyx Lorenzoni, and Congressman Luis Miranda (DEM-DF), for Wednesday (18).

The Lower House concluded the vote, in the first round, the Proposed Amendment to the Constitution (PEC) 125/11, the Electoral PEC. On Wednesday (11), the proposal to return party coalitions was approved, but the resumption of the so-called “distritão” was rejected. The “distritão” established that the federal, state and district deputies would be elected by the majority system, in which the most voted are elected, regardless of the weight of the party. As part of the deal to overthrow the “distritão”, the return of coalitions for proportional elections (councillors, state and federal deputies) was articulated, allowing more small parties to survive. Coalitions were extinguished in 2017 through a constitutional amendment. The matter is scheduled to be voted by the Lower House plenary on Tuesday (17). If approved, will be sent to the Senate, where the trend is of rejection.

Justice Alexandre de Moraes, of the Federal Supreme Court (STF), attended a criminal notice presented by the Superior Electoral Court (TSE). Moraes determined the opening of an investigation against President Bolsonaro for leaking a secret enquiry. According to the complaint, Bolsonaro would have disclosed an investigation opened by the Federal Police (PF) to investigate the invasion of the internal system of the TSE in 2018.

The president of the PTB, Roberto Jefferson, was arrested preventively on Friday (13). Justice Alexandre de Morais, of the Supreme Court, granted the request of the Federal Police (PF) for Jefferson’s arrest for the crimes of slander, incitement to crime and manifestations “offensive to the democratic state of law”.

2. Economy – The sending of the Brazil Aid was followed by a Proposal of Amendment to the Constitution (PEC) to postpone the payment of “precatórios”, estimated at R$90bn for 2022, and create a public fund. Precatórios are judicial debts owed by the Union to companies, public servants and social security beneficiaries. The government proposed to dilute the payment of precatórios over R$66m, which are to be paid in ten instalments, the first of which is 15% and the rest in annual instalments, and proposed the Selic as the adjustment rate for all precatórios. Technicians criticised the proposal to create the Brazil Fund, associating the idea with a new edition of the so-called “creative accounting”.

The governor of the Brazilian Central Bank, Roberto Campos Neto, expressed concern over the fiscal situation. Campos said to be “a central bank can’t control inflation expectations with the uncontrolled fiscal”.

Private banks estimate inflation around 7% for 2021.

3. Public administration – The Office of the Controller General (CGU) has indicated an overpricing of up to R$130m in a tender by the Ministry of Regional Development (MDR) to buy 6,240 tractors and agricultural machinery. The MDR has initiated procedures to renegotiate contracts with indications of overpricing or, in cases where this is not possible, to cancel the purchase.

The Minister of Education, Milton Ribeiro, stated that Brazilian universities should be for the few. The statement generated controversy and was made in an interview with TV Brasil. Ribeiro defended the promotion of federal institutes, with technological and professionalising teaching, created in 2008, as a way to increase Brazil’s productivity.

How to read it?

1. The political trend is negative. Since the beginning of this report, this was the worst week for politics. With low ratings of popular support, but with a coalition in Congress still favourable, Bolsonaro suffered a severe political setback this week, mainly due to the high level of institutional conflict.

The adversities in the Legislative were great. First, Bolsonaro saw his main banner of the last month fail. The government still has a majority in the House, as seen by the 229 votes in favour of the printed ballot, surprising most political analysts who were expecting something around 120-150 votes in favour. Nevertheless, the rejection of the matter showed the government the limits of its parliamentary coalition. Just to understand what this means in numbers: only 39% of the PP bench, the party of the new Chief of Staff (Casa Civil) and the speaker of the Lower House, voted in favour of the matter. In the PL, the party of the Minister of the Secretary of Government, which is responsible for political negotiations, the number was even lower, with just 27% in favour. On the MDB and DEM benches, 46 and 47% voted for the approval of the PEC. The parties that most voted in favour were PSC (100%), PSL (85%) and Republicans (82%). Second, in the Senate, the repeal of the NSL was not well received by the government either and was seen as a defeat.

If in the Legislative the week was bad, the problems were even greater in the Judiciary. Bolsonaro was included in the STF’s investigation on leaking information, being the fifth investigation of which Bolsonaro is now part. In addition, there was the arrest of Roberto Jefferson, one of President Jair Bolsonaro’s most radical supporters. And there is still the possibility of Bolsonaro filing, on Monday (16), a request for impeachment against Justices Alexandre de Moraes and Luis Roberto Barroso. In other words, there are no signs of cooling of the institutional conflict.

While Bolsonaro’s most loyal electoral bases appreciate this sort of rhetoric and conflict, a fair share of the electorate that voted for him in the last election does not seem to support these attitudes. It is possible that continuum institutional confrontation could further diminish Bolsonaro’s chances of re-election. Moreover, it may be that the situation will reach a point where Bolsonaro’s supporters realise that his stance will no longer attract voters, undermining the banners of the conservative right. The signs of political improvement have yet to appear.

2. The trend for the economy remains positive, but some indicators are beginning to sway metrics towards a neutral trend. On the fiscal side, after some relief in previous months, risk has increased significantly. The idea of turbocharging a new social program has always been a problem. The government’s proposal, in search of electoral dividends, seems dangerous, both because of the increase in the average value and the number of families benefited. Besides, the way found by the government, to split payment of precatórios, generated the noise of default, adding more problems of expectations. Finally, Roberto Campos Neto’s observation on the fiscal issue is an important warning for a newly independent central bank. Raising the basic interest rate indefinitely to fight inflation with the fiscal side “out of control” will only worsen the economic situation.

2. The trend in public management is neutral, despite the disastrous statement by the Minister of Education. Other factors that would cause changes in the metrics are yet to appear, both on the negative and positive sides.

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