The Week Ahead in Brazil #77

What is happening in Brazil?

1. Politics – The National Congress appreciated several presidential vetoes. The scheduled vote on other vetoes was postponed.

Protests against President Jair Bolsonaro took place in several cities in Brazil. The demonstration was led by left-wing parties and had low attendance. Demonstrators called for Bolsonaro’s impeachment and protested against rising inflation and unemployment.

To mark the 1,000 days in office of President Jair Bolsonaro, the federal government released a balance sheet of various actions taken during the period. Throughout the week, Bolsonaro and several ministers travelled the country to carry out inaugurations and political meetings.

The speaker of the lower house, Arthur Lira (PP-AL), held meetings with Congress members, with President Jair Bolsonaro and the Minister of Economy, Paulo Guedes, to craft a legislative solution to the increase in fuel prices. One of the ideas is the creation of a fund to cushion price fluctuations.

The Senate is expected to vote, on Tuesday (5), the New Regulatory Framework for Railways (PLS 261/2018), authored by Senator José Serra (PSDB-SP). Since the publication of the Provisional Measure (MP) 1065/21, in August, R$ 81 billion (£11.16bn) have been announced in investments in railways in the coming years.

On Wednesday (6), the Senate’s Economic Affairs Commission (CAE) must hold a public hearing to discuss the Post Office (Correios) privatization project (PL 591/2021), presented by the Executive Branch.

The most recent Ipespe survey shows that 55% of respondents consider the government as bad or terrible, and 23% as great or good. The disapproval rate is 64% and the approval rate is 30%. There was no significant change in relation to August. The survey also presents electoral scenarios.

2. Economy – On Monday (27), the president of Petrobras, Joaquim Silva e Luna, disclosed that the company is responsible for no more than R$ 2.00 (£0.28) in the total value of the price of gasoline. The statement was a response to President Jair Bolsonaro’s comment. On Tuesday (28), Petrobras announced an 8.9% diesel increase, but on Wednesday (29), it approved a social programme to subsidise the purchase of cooking gas, worth R$ 300 million (£41.3m). The increase in fuels is one of the main factors of inflation growth.

The Brazilian Institute of Geography and Statistics (IBGE) announced that the unemployment rate in the quarter ended in July fell to 13.7%, generating 3.1 million jobs in the period. The rate for the previous quarter was 14.7%. The General Cadastre for Employed and Unemployed (Caged) also reported a drop in unemployment, with the opening of 372,000 new jobs.

The gross government debt slid in August to 82.7% of GDP. In July, it was 83.1%.

The September trade balance closed with a surplus of US$4.3bn, a result 15% lower for the month in relation to the same month in 2020. In the year-to-date, the surplus reached US$56.4bn, the highest value registered for the first nine months of the year since 1997.

3. Public administration – The Ministry of Health let thousands of kits for diagnosis of Covid-19 and other medicines expire. The cost reaches R$80m (£11m).

A report in Estado de São Paulo shows that the budget allocated to the Ministry of the Environment to combat deforestation in the Amazon shrank 16% between 2019 and 2020, while the resources for the Army-led Law and Order Operations (GLO), for the same purpose, increased 178%. The article also compares the variation in the deforested area: 10,100 km² deforested in 2019 and 10,800 km² in 2020.

The government regulated, on Friday (1) the Cédula de Produto Rural (CPR) Verde, a title that allows private investors to remunerate rural producers for environmental preservation of their properties.

How to read it?

1. The policy trend remains neutral. The indicators remain stable, with no changes that indicate a change in levels.

Despite this neutrality, the week was slightly favourable for the government. The CPI hearings did not cause any harm to the government, the demonstrations on Saturday were small and the administration held various events to publicise the achievements of the “thousand days”. Moreover, even though the presidential vetoes that were rejected were numerous, others were equally maintained.

If the institutional conflict remains reduced for another week and some important votes move forward, the political climate should evolve towards a more positive situation.

2. The economy remains on a positive trend. Despite the weak financial market performance for September and high inflation, there are positive results. Job generation is still not ideal, and it would be best to have a faster recovery with better paying jobs, but one should not disregard that the recovery of jobs is occurring. Possibly, the unemployment rate should continue to drop with the arrival of the end of the year, the recovery of the tourism sector and the progress of vaccination. 

On the fiscal side, the continuous drop in the ratio of public debt to GDP is a positive factor. It is still not known, however, how the issues of precatórios and the increase in the average value of the social program will be equated.

If we consider only exports and the Selic rate, the exchange rate will probably appreciate in the coming months, possibly contributing to a drop in inflation. The inflow of foreign direct investment may also contribute in the same direction. The main unknown factor remains the political behavior of President Jair Bolsonaro.

3. Public management continues in neutral mode. On the one hand, errors and mistakes in the management of public policies continue to happen in the critical areas, such as public health and environment. On the other hand, the ministries of Economy and Infrastructure promote consistent advances.

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