What is happening in Brazil?
1. Politics – President Jair Bolsonaro (no party) sanctioned Law 14.197/21, repealing the National Security Law (LSN). Bolsonaro vetoed 4 articles, which must be confirmed or overturned by the National Congress.
On Wednesday (1), the Lower House passed a bill that changes income tax rules (PL 2337/21). Among the changes, highlights include the inclusion of taxing profits and dividends at 15% and reducing Corporate Income Tax (IRPJ) from 15% to 8%. The bill was sent to the Senate, where experts expect changes to be made.
The Senate rejected the Provisional Measure (MP) 1045/21, which promoted changes in labour legislation. The original text, sent by the government in April, instituted the new Emergency Programme for the Maintenance of Employment and Income. The aim was to preserve jobs and ensure the continuity of business activities, with permission to reduce wages and suspend labour contracts due to the pandemic. Senators alleged that deputies modified the MP beyond its original scope, with the inclusion of “jabutis”, bill amendments without thematic pertinence. The original text contained 25 articles, but arrived in the Senate with 94 articles approved by deputies. The speaker of the House, Arthur Lira (PP-AL), regretted the Senate’s decision to reject the MP.
The demonstrations on September 7, Brazil’s independence day, have multiplied. Despite political requests to postpone the release of the manifesto “The square is the Three Powers”, the text circulated unofficially in the media and social networks. The Brazilian Federation of Banks (Febraban) issued a note reaffirming its support for the document already released, despite pressure from Banco do Brasil and Caixa Econômica Federal in the opposite direction. The Federation of Industries of Minas Gerais (Fiemg) released another manifesto with criticism of the Supreme Court (STF), more aligned to Bolsonaro’s speech, but, soon after, a “Second Manifesto of Mineiros to the Brazilian People” was signed by businessmen asking for stability and state reforms.
On Sunday (5), STF minister Alexandre de Moraes authorised Roberto Jefferson’s transfer to a hospital for health treatment. Jefferson, a close ally of Bolsonaro, was arrested on several charges, including to incite violence against the Supreme Court (STF)
A Genial/Quaest survey revealed that 48% of respondents evaluate the government negatively, an increase from 44% in July. The worst rating is in the Northeast region (59%), among women (51%) and 16-24 year olds (52%). Respondents rank health/pandemic and the economy as the country’s main problems. Regarding the elections for 2022, the poll shows Lula ahead of Bolsonaro, both in the first and second round.
The PoderData poll was also released. The difference between those who disapprove (63%) and those who approve the government (27%) is the largest difference ever recorded since the beginning of the mandate:
2. Economy – GDP shrank 0.1% in the second quarter. The result was below the median of market expectations, but the positive growth projection for the second half remains. The largest reduction in relation to the first quarter, in terms of supply, was in agriculture and livestock, and in terms of demand, in investments. The GDP estimate for 2021 is around 5%.
The National Electrical Energy Agency (Aneel) authorized a new tariff flag for electrical energy consumption. The water scarcity flag increases inflationary pressure for 2021.
3. Public administration – The announcement of the measures due to the water shortage was criticized by energy specialists. They point out that the government should have acted earlier and elaborated public policies longer ago. Furthermore, that there was no transparency in the debate about the subject. Nevertheless, the risk of rationing is still low.
Vaccination against Covi-19 broke monthly records in August. A total of 51.9 million doses of the vaccine were applied, 26 percent more than in July. Of this total, 20.8 million second doses were applied, an 87% increase over the previous month.
The Ministry of Education is studying the creation of ten new federal institutes of professional and technological education in the country, mainly in states of the Northeast region.
How to read it?
1. The trend in politics remains negative for the fifth consecutive week. Negative trends that last one or two weeks are bad for a specific point, temporarily hindering the improvement of some public policies that need to be articulated between the Executive and the Legislative, but which then start to flow again in a regular manner. Rough edges are smoothed out and processes begin to follow their normal course within the government. The effect of this prolonged negative scenario on public policies and the economy, however, is different. It affects the interest of all stakeholders in the process, whether they are the government, civil society or private companies. It is a situation of continued instability, during which political uncertainties prevail over the stability and predictability of political acts.
The main cause of this problem is the increase in institutional conflict. On one side, Bolsonaro has given daily statements about the demonstrations on September 7 and that it is an important moment to combat, according to him, authoritarian actions and measures, especially regarding the STF. Part of the business organizations have placed themselves contrary to this understanding. Febraban’s position is particularly important, because banks in Brazil have superior business power not only in relation to other sectors of economic activity, but also over their counterparts in the United States and the United Kingdom. We will explore this subject in more detail in another text, but for now, it is important to understand that the economic and financial sector wants institutional stability, something that Bolsonaro has difficulty making possible. The Judiciary, with all its deficiencies and needs for improvement, is key to guarantee the legal order, especially for the survival of companies and attraction of foreign investments.
Another aspect that reveals a dysfunctional political scenario is the disarticulation of the government in approving its legislative agenda. Besides the tension with the governing base in the House, now there is friction in the Senate, something that Ciro Nogueira (PP-PI) has not yet managed to equate. With this, Arthur Lira loses efficiency and also fails to deliver on his promises. The recent tension between the two legislative houses makes the presidential coalition more porous and weakened.
To conclude an adverse political scene, Bolsonaro and the government have low popular support. Admittedly, the floor of support remains around 25%, but rejection continues to rise. The September 7 demonstrations in support of the government should be numerous, but they are unlikely to improve the rejection of the government. First because what the average voter is concerned about, according to the polls, is health and the economy, not the printed ballot, threats to disrupt the existing order or rejection of the STF. Criticism of the Supreme Court should be one of the main demands of the demonstration, especially those directed at Justices Alexandre de Moraes and Luis Eduardo Barroso. Secondly, the final outcome of the demonstrations it is yet to be known. If violent acts occur, and even if they lead to the death of a participant in the protest, nobody knows what might happen. My view is that the scenario that could benefit Bolsonaro is the least likely: numerous support and moderate speeches.
2. The economy has gone into neutral mode. The fiscal factor is still in the positive, as are foreign trade and balance of payments results, job creation and tax collection. However, persistent inflation, poor GDP performance in the second quarter and high political risk brought the economy into neutral mode. The slight drop in GDP was not entirely unexpected, and expectations are for growth in the coming months.
Let us await the effective impact of the energy hike on inflation, as well as the federal government’s willingness to spend to improve its popular support base.
3. The trend in public management continues neutral, without oscillations that would provoke a change in the trajectory. Despite criticism on the response time to the water shortage, and the absence of the word “crisis” in the statement of the Minister of Mines and Energy, the measures are pointed out as necessary, and there is no forecast of energy rationing, as it happened in 2001. Besides, the administrative paradigm has not changed recently.