The Week Ahead in Brazil #74

What is happening in Brazil?

1. Politics – The September 7 demonstrations had a large turnout of supporters of President Jair Bolsonaro (no party), especially in Brasilia, São Paulo and Rio de Janeiro. Part of the participants asked for unconstitutional requests, such as the closure of the Supreme Court (STF) and the National Congress. Bolsonaro gave speeches in Brasília and in São Paulo, where he made a statement claiming he would no longer comply with judicial decisions of Justice Minister Alexandre de Moraes and calling into question, again, the credibility of electronic ballot boxes. No violence was reported.

The day after the demonstrations, there were reactions from the other branches of government. The speaker of the lower house, Arthur Lira (PP-AL), made a statement in which he criticized excesses and radicalism, as well as the insistence on discussing the issue of electronic ballot boxes. In general, he showed himself open to dialogue, asked the country to take care of real problems and reaffirmed the importance of the Constitution. Rodrigo Pacheco (DEM-MG), president of the Federal Senate, stated that the solution for Brazil does not lie in antidemocratic outbursts, but dialogue, understanding and respect among the Powers. Pacheco cancelled the remote deliberative sessions and committee meetings scheduled for Wednesday (8) and Thursday (9) in the Senate. Finally, the president of the STF, Luis Fux, made a blunt statement, indicating the possible crime of responsibility of Bolsonaro and stating that the STF won’t be shut down.

On Thursday (9), with the help of former President Michel Temer, Bolsonaro presented an official statement in which he said he had no intention of causing disruption and that he respects the other Powers. On the same day, Temer mediated a phone call between Bolsonaro and Justice Alexandre de Moraes.

The PSDB declared that will oppose the Bolsonaro government, but has not decided whether or not to support the opening of impeachment proceedings.

On Sunday (12), there were demonstrations against Bolsonaro. The number of protesters was low.

A meeting of the special committee of the lower house on administrative reform (PEC 32/20) is planned for Tuesday (14).

2. Economy – On September 8, the first business day after the demonstrations, the Ibovespa fell 3.78% and the dollar rate rose to R$ 5.32, a daily high of 2.89%. On Thursday, after the release of the “Statement to the Nation”, the Ibovespa closed up 1.72%.

Car production was the lowest for August in 18 years. With a 21.9% drop compared to the same month in 2020, the auto industry produced 164,000 vehicles last month. Leaders of the automakers attribute the drop to the lack of semiconductors and the political crisis. Despite this, there were no layoffs.

The IPCA inflation index reached 0.87% in August. With this, the accumulated IPCA in 12 months reached 9.68%. The main factor was the hike in gasoline prices, which had an individual impact of 0.17 p.p. on the August IPCA.

3. Public Administration – Vice President Hamilton Mourão led a visit to the Amazon region in Pará on September 9-10. The entourage was composed of parliamentarians and heads of diplomatic missions.

The National Telecommunications Agency (Anatel) rescheduled the board meeting on the 5G auction for Monday (13). Market expectations are that the auction, initially scheduled to take place in October, will be held in November.

How to read it?

1. The trend in politics remains negative. Among our metrics, the quality of the government’s base in Congress remains reasonable, but approval ratings remain low, and the level of institutional conflict remains high.

From our analysis last week, the most likely scenario for September 7 has materialised, with the large presence of supporters and calls for the disruption of order. The radicalism of Bolsonaro’s speech, especially in relation to Alexandre de Moraes and the printed ballot, was the peak of the demonstration.

The reaction of the Legislative and Judiciary institutions came strong and in stages. Although Bolsonaro tries to individualize the criticism to one or another minister of the STF, the judiciary knows that criticism of one of its 11 components is an attack on the Court. Thus, despite the lack of self-criticism, the strong reaction of Fux and Barroso is not surprising. In the Legislative, Arthur Lira still tried to contemporize, but revealed his disappointment in relation to the return of the issue of the printed ballot. The mayor had said that Bolsonaro had made a commitment to him not to deal with this issue after the decision of the Plenary. In this episode, the impression is that Lira felt not only betrayed, but disrespected by Bolsonaro. Pacheco, in the Senate, spoke less and did more: he cancelled the Senate sessions and should reject the MP on social networks.

Temer’s aid to Bolsonaro was the most important political outcome of the week. The press portrayed the “Declaration to the Nation” not as a positive and appeasing gesture, but as an act of weakness and backtracking by Bolsonaro. I think this exacerbated the disappointment of Bolsonaro’s supporters. The gesture brought negative effect on Bolsonaro’s most loyal supporters and gave some relief to the financial market, what is the quality of this gesture and how long can this condition last? Stopping the escalation of institutional attack is different from working to improve the relationship between the Powers. In my analysis, based on Bolsonaro’s history of behaviour and his interactions with supporters, it is reasonable to argue that Bolsonaro has only suspended, for a few weeks at most, his belligerent mode. He is also unlikely to make major efforts to improve institutional relations.

If the institutional side can give the government temporary relief – and even pass some important projects – big business and financial institutions are unlikely to do the same. Environments of political instability are bad for business, and the private sector seems to be giving unmistakable signals that Bolsonaro is swaying more than tolerable.

2. The economy remains in neutral mode. Inflation is well above initial expectations and with a poor outlook for 2022. The government’s legislative agenda may get temporary relief, but should they move forward, the short-term effect is uncertain.

3. Public management also continues in neutral mode. There were no changes in paradigms, nor in the decision-making process.

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