The Week Ahead in Brazil #71

What is happening in Brazil?

1. Politics – On Tuesday (17), the Lower House concluded the vote, in two rounds, over the Proposed Amendment to the Constitution (PEC) 125/11, the Electoral PEC. The PEC approved the return of party coalitions for proportional elections (councillors, state and federal deputies). The bill was sent to the Senate, but there is resistance to its approval. Also on Tuesday (17), the Minister of Defence, Walter Braga Netto, attended a public hearing in the House. Mr Braga Netto explained issues related to Defence, but also clarified his manifestations on the parliamentary inquiry committee (CPI) and the printed vote issue.

The president of the Supreme Court (STF), Justice Luiz Fux, received the President of the Senate, Rodrigo Pacheco (DEM-MG), on Wednesday (18). Mr Pacheco went to talk about the sharpening of Bolsonaro’s statements against the STF and propose a new meeting between the heads of the three branches. Fux cancelled the meeting that had been previously scheduled because of Bolsonaro’s statements against members of the Court. Later, the Chief of Staff, Ciro Nogueira, also met with justice Fux to improve institutional dialogue and propose holding the meeting.

On Friday (20), the Federal Police (PF) fulfilled search and seizure warrants against supporters of the president, following the order of Justice Alexandre de Moraes, the Supreme Court (STF). Thirteen search warrants were authorized, including against singer Sérgio Reis and congressman Otoni de Paula (PSC-RJ), for articulating a violent protest against the STF. On the same day, President Jair Bolsonaro submitted to the Senate a request for the impeachment of Justice Alexandre de Moraes. The STF released a note of protest against the request, and the President of the Senate said he sees no political and legal conditions for the opening of the removal process.

Bolsonaro fully vetoed the value of R$5.7bn allocated to 2022 election campaigns. The new value will be defined by the Superior Electoral Court (TSE) and must be included by the Executive, in the Annual Budget Bill (PLOA), until August 31.

The Constitution and Justice Committee of the Senate must hear Augusto Aras, on Tuesday (24), at 10 am. Aras was nominated by President Bolsonaro for another two years ahead of the Attorney General’s Office (PGR). The hearing of André Mendonça for the position of Justice of the STF has not yet been scheduled.

The XP/Ipespe survey for August presents three distinct and complementary sections. In the section about the government’s evaluation, the survey shows that those who consider the government as bad or terrible are still on the rise, increasing from 52% to 54%, in relation to last month. Those who think the management is good or great fell from 25% to 23%. These numbers contrast with those of governors (26% bad/worst, 39% great/good) and mayors (14% bad/worst, 49% great/good). The disapproval of the way the president manages the country reached 63%.

Another survey, released on Thursday (19), from PoderData, also brings unfavourable numbers to the government: 56% of respondents evaluated Bolsonaro’s work as bad or terrible, and 64% of participants disapprove of the government.

On the electoral side, the survey brought results of voting intentions. Former President Lula (PT) continues to lead in voting intentions, both in the first and second rounds. In the simulation for the second round, Bolsonaro would lose to Lula and Ciro, and would be tied, by the margin of error, with Sergio Moro, former Minister of Justice, with the former Minister of Health Luis Henrique Mandetta, and with the governors Eduardo Leite (PSDB-RS) and João Doria (PSDB-SP).

Finally, completing the adverse situation for the government, the section “Conjuntura” does not bring positive perceptions for the government. Most respondents support the work of the CPI, and disapprove of Bolsonaro’s conduct in combating the coronavirus, again in sharp contrast with the approval of the performance of governors and mayors. Respondents were technically tied with Bolsonaro’s impeachment (50% in favour, 46% against), and is opposed to the printed ballot (58% against, 36% in favour). The biggest problems in Brazil, according to the survey, are health (18%), corruption (17%), education (16%) and inflation/cost of living (12%).

2. Economy – The Minister of Economy, Paulo Guedes, in a hearing on tax reform (PEC 110/19), in the Senate, criticised the proposed model, reported by Senator Roberto Rocha (PSDB-MA). PEC 110/19 brings together federal, state and municipal taxes. In the House, the vote on the income tax reform has already been postponed three times.

The governor of the Central Bank, Roberto Campos Neto, warned that the institutional conflicts, the new projects of the Executive, as the Auxílio Brasil, and the postponement of payment of precatórios, may harm the monetary policy. Nevertheless, he stressed that the debt/GDP ratio will be close to 80%, well below the estimates of previous months, which had put it at up to 100%. The Associated Press revealed that Bolsonaro would regret having sanctioned the independence of the Central Bank. On Thursday (25), at the request of PSol and PT, the STF will judge whether the law that granted the independence of the BC was formally legal or not.

The commercial dollar closed the trading session on Friday (20) quoted at R$5.3803, the highest quotation since May, ending the week with a high of 2.58%. The Ibovespa closed the week with a loss of 2.6%.

3. Public administration – The Brazilian Court of Auditors (TCU) must decide this week on the auction of the 5G frequency bands. On Wednesday (18), a majority was formed to approve the bidding rules, but there was a request for views, postponing the final decision.

The Health Minister, Marcelo Queiroga, said, in an interview on Tuesday (18), that he is against the mandatory use of masks.

How to read it?

1. The political trajectory continues negative. If last week’s level had been the lowest, this week brought an even greater setback. Indices of disapproval continue to grow and are at very high levels. The biggest setbacks, however, were in the level of institutional conflict and the quality of the presidential coalition.

Bolsonaro did not listen to appeals from his allies and went ahead with the impeachment request against Justice Moraes. This occurred on the next day after Pacheco and Ciro’s appeasement mission to the STF. It didn’t work, for one side or the other. Moraes continued to curb the most virulent impulses of government supporters, and Bolsonaro decided not to remain inert. This, however, was not an innocuous act: it was bad for the government, as it generated more resistance in the Senate and the STF towards André Mendonça and worsened the political climate.

In the previous week, the results of the votes in Congress had already been negative for the government. The coalition still sustains the government, but the disarticulation is growing, as seen in the impasse in the vote on the income tax reform. There is little discussion about structural reforms, overshadowed by institutional conflicts. The hesitation still occurs because parliamentarians are already paving the way for their reelections with parliamentary amendments, the nomination of allies for the Executive and conversations about coalitions. In addition, the feeling of doubt also increases in politicians regarding the reelection of Bolsonaro, still without a party. The XP survey brings a dire scenario against Bolsonaro. With popularity down between 20 and 25 per cent support, there are doubts about how many points a bigger Bolsa Família paycheck could bring for Bolsonaro. Politicians know all this, and the coalition may become more fragmented in the coming months.

2. The trend for the economy remains positive, but with a trajectory very close to neutrality. Fiscal conditions have not yet worsened effectively, although the government’s attempts to spend more are close to being successful. This bad signal has generated negative market reactions, as can be seen by the oscillations in the stock market and the dollar exchange rate. The cost of the public debt is also impacted by the fiscal risk. For politics, there is still the inflation factor, something that erodes purchasing power and takes away support for reelection. What is still going very well is the trade balance, but that alone does not solve the economic problems. Although the Central Bank is now vigilant and independent in carrying out monetary policy, it is not known to what extent it will be effective.

3. The trend in public management continues neutral, without oscillations that would provoke a change in the trajectory.

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