The Week Ahead in Brazil #72

What is happening in Brazil?

1. Politics – On Monday (23), the Governors’ Forum forwarded invitations to hold a meeting between them and the presidents of the three branches of government. Invitations were sent to President Jair Bolsonaro (no party), the speaker of the Lower House, Arthur Lira (PP-AL), and the Senate’s President, Rodrigo Pacheco (DEM-MG), as well as the president of the Supreme Court (STF), Justice Luiz Fux. In addition to concerns about the institutional conflict, the governors want to address the issues related to political influence on the military police, which could cause a governance crisis in the forces. The expectation is that Bolsonaro will not heed the invitation.

Arthur Lira (PP-AL) said, at an event for investors, that Congress will not advance on agendas that break with fiscal responsibility. Lira also published an article stating that he “refutes any possibility of an adventure against democracy”.

Augusto Aras was reappointed to the post of Attorney General of the Republic (PGR). After being tested by senators on Tuesday (24), the Senate approved Aras’ name with 55 votes in favour and 10 against. The examination of André Mendonça for the position of justice of the Supreme Court (STF) has not yet been scheduled.

Senate’s President Rodrigo Pacheco (DEM-MG) rejected the request for impeachment of a justice of the Supreme Court (STF). Pacheco claimed that the request made by President Jair Bolsonaro (no party) did not meet the minimum elements to proceed.

The Federation of Industries of the State of São Paulo (Fiesp) is coordinating a manifesto calling for harmony between the three branches of government. The text “The square belongs to the Three Powers” should be released on Tuesday (31). The Brazilian Federation of Banks, Febraban, is one of several entities that support the manifesto. Banco do Brasil and Caixa Econômica Federal, state-controlled banks, decided to leave the entity because they disagree with the decision.

2. Economy – The Federal Supreme Court (STF) confirmed as valid the law that granted autonomy to the Central Bank of Brazil.

The Minister of Economy, Paulo Guedes, minimized the increase in the cost of energy. In an event for entrepreneurs, Guedes said: “what’s the problem now that energy will be a little more expensive because it rained less?”. The statement comes amid high inflation, which registers a high of 9.30% in 12 months.

After three months of surplus, current account transactions registered a deficit of US$1.6bn in July. Federal tax collection reached R$171.3bn in July, above market expectations, representing a real increase of 15% compared to July 2020.

3. Public administration – A survey by the Institute for Applied Economic Research (Ipea) shows that the federal government invested less in science and technology in 2020 than in 2009.

The Brazilian Court of Audit (TCU) approved the auction notice for the 5G frequency bands. With this, the auction should take place by October

How to read it?

1. The trend in politics remains negative. Although some political actors have made gestures with attempts to appease the institutional conflict, Bolsonaro has given signs that he does not intend to decrease the pressure on the STF and other issues, such as the printed ballot. The movement of the governors had no effect, as well as the attempt of Pacheco with Fux the week before. To each attempt to reduce the conflict, Bolsonaro’s response has been to exacerbate the issues that generate these conflicts.

The most recent of these responses is the encouragement of the September 7 demonstrations, which are expected to be attended by government supporters. The first relevant point is that the demonstration must be large in numbers and across the country. It may help recover some of the political support in Congress, but there is no expectation that it will produce changes in the government’s approval ratings. The second important point is the issues that the demonstration will defend. Controversial themes – such as those against the ministers of the STF, in favour of guns, auditable/printed ballots and even military intervention – should dominate the demonstration, but may generate more resistance in non-militant voters, contributing to an increase in disapproval rates.

2. Despite rising inflation, the trend in the economy is still positive. Monetary policy is active in fighting inflation, and fiscal policy has not yet been affected by negative issues, such as the postponement of judicial debts or the increase in social programmes. In any case, the creation of new job vacancies and the increase in the federal tax collection are positive aspects and represent the real economy.

3. The trend in public management remains neutral, without oscillations that cause changes in the trajectory.

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