The Week Ahead in Brazil #75

What is happening in Brazil?

1. Politics – On Tuesday (21), President Jair Bolsonaro will open the annual session of the United Nations General Assembly.

The rapporteur of the parliamentary inquiry committee on the pandemic (CPI), Renan Calheiros (MDB-AL) should present his final report on Thursday (23). The forecast is that Senator Calheiros will demand the indictment of Bolsonaro for several wrongdoings. The rapporteur also received a memo, prepared by jurists, which present evidence of crimes supposedly committed by Bolsonaro and other members of the government.

The president of the Senate, Rodrigo Pacheco, rejected the Executive the Provisional Measure (MP) 1068/2021, which limited the removal of content published on social networks. Earlier, the Attorney General of the Republic, Augusto Aras, had sent a request to the STF for the MP to be suspended, and Justice Rosa Weber, of the Supreme Court (STF), suspended the effectiveness of the MP.

The Constitution and Justice Committee of the Senate (CCJ) should vote on Wednesday (22), the report of Senator Simone Tebet (MDB-MS) on the proposed amendment to the Constitution (PEC) of the electoral reform (PEC 28/2021). The senator is positioned against the return of party coalitions approved by the House of Representatives.

The House of Representatives concluded, on Thursday (16), the vote on the new Electoral Code (PLP 112/21). Deputies approved quarantine of four years before the election, for judges, members of the Public Ministry, federal police, civil police, municipal guards, military and military police. Bolsonaro announced that he will veto this section if it is approved in the Senate.

A Datafolha survey shows that 53% of respondents disapprove of the Bolsonaro government, against 22% approval. In the previous survey, in July, rejection was 51% and approval 24%.

The PowerData poll, meanwhile, shows the disapproval rate at 62%, and approval at 29%, with no significant changes from the previous survey.

2. Economy – Several banks and consulting firms have revised downwards their forecasts for GDP growth for 2022. Itaú, for example, projected 1.5% growth but revised the rate to 0.5%. The drop is attributed to the water and political crises and high inflation.

The Macrofiscal Bulletin of the Ministry of Economy (in Portuguese) shows GDP growth of 5.3% for 2021 and 2.5% for 2022:

Private banks have announced interest rate hikes for home financing. Itaú and Santander will raise rates by one percentage point. The measure is considered an anticipation of the decision of the Monetary Policy Council (Copom) on the basic interest rate on Tuesday and Wednesday (22). The market expects an increase of one percentage point in the Selic to 6.25%.

The government raised the Tax on Financial Transactions (IOF). For individuals, the rate will rise from 3% to 4.08%, and from 1.5% to 2.04% for companies. The idea is that the increase will contribute as a source for Auxílio Brasil, the government’s new social programme. The decision is valid from September 20 until December 31, 2021. The financial market reacted negatively, imposing losses of 2.07% in the Stock Exchange.

3. Public administration – The Ministry of Health recommended the interruption of vaccination of adolescents with the Pfizer vaccine. Vaccination remains for adolescents with comorbidities. The decision was not discussed by the technical bodies of the ministry. The National Health Surveillance Agency (Anvisa) maintained the recommendation for vaccination of adolescents and said it was not consulted about the change of position of Health.

The Federal Council of Medicine (CFM) recorded a drop of 25.9% of elective surgeries in Brazil in the first half compared to the same period of 2020.

How to read it?

1. The political outlook remains negative. Institutional conflicts have diminished, but remain latent. The political articulation between the Executive and the Legislative is not as strong as before. The level of popular support for the government remains unchanged.

Political instability is likely to increase this week, for two main reasons. First, the presentation of the report of the CPI will bring strong criticism to the actions of the federal government and should generate some reaction from the Executive. Second, Bolsonaro’s speech at the UN might cause some political noise, especially if the President decides to address controversial issues.

In addition, other factors are striking the government: the failure of the Fake News MP, the approval of the quarantine for police officers and other categories linked to Bolsonaro to become candidates, and the issue of André Mendonça’s appointment.

2. The economy remains in a neutral mode in the short term. The pressure to find a source for the Auxílio Brasil programme could bring more fiscal problems. Besides this, the inflationary trajectory continues to show signs of increasing. In light of this, the Monetary Policy Committee (Copom) is expected to increase the basic interest rate at 1 percentage point, in order to bring inflation within the target, which is a good sign of monetary policy.

In the real economy, the Central Bank’s activity index (IBC-Br) showed a 0.6% advance in July, especially in the retail and services sectors. The index was above the market consensus (0.35%). This more favourable view of the economy is supported by data presented in the Macrofiscal Bulletin.

3. Public management is on a negative trend again. The Health Minister’s statements reveal that the management of the pandemic continues without transparent methods and ignoring recommendations based on science.

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