The Week Ahead in Brazil #78

What is happening in Brazil?

1. Politics – The news that the Minister of Economy, Paulo Guedes, and the president of the Central Bank, Roberto Campos Neto, have offshore accounts had negative repercussions in parliament. The Chamber of Deputies approved an invitation for Campos Neto to present explanations, but Guedes was summoned.

The Senate’s President Rodrigo Pacheco (DEM-MG) and Senator Roberto Rocha (PSDB-MA) presented the new text of the tax reform (PEC 110/2019). The version presented proposes the merger of ICMS and ISS into the Tax on Goods and Services, called IBS, and PIS and Cofins into CBS (Contribution on Goods and Services). The proposal has support, but there is still no political consensus to vote for it.

The Senate approved the New Regulatory Framework for Railways (PLS 261/2018), authored by Senator José Serra (PSDB-SP). The project is now being considered by the Chamber of Deputies.

The pressure for the hearing of André Mendonça for the position of minister of the Federal Supreme Court (STF) has increased. Senator Esperidião Amin (PP-SC) presented a request for urgency in the processing of Mendonça’s nomination. The trial for nominees to the STF ministers in the Commission of Constitution and Justice (CCJ) is regulated by the rules of the Federal Senate and final approval is set in the Federal Constitution.

The national directories of DEM and PSL approved the merger between the two political parties, under the name União Brasil. If approved by the Superior Electoral Court (TSE), the party will have the largest bench in the Chamber of Deputies.

Justice Alexandre de Moraes, of the Federal Supreme Court (STF), established that President Jair Bolsonaro has 30 days to give testimony in the enquiry investigating his alleged interference of the Federal Police. Bolsonaro chose to give his statement in person, rather than in writing.

Bolsonaro partially vetoed the law that established the free distribution of feminine sanitary pads. The president said that, although the project is worthy, legislators cannot create expenses for the Union without indicating the source of revenue, as established by the Fiscal Responsibility Law (LRF) and other legal provisions. Parliamentarians want to overturn the vetoes.

The Genial/Quaest survey shows that the negative assessment of the government rose from 48% in September to 53% in October. The positive assessment fell from 23% to 20% in the same period.

2. Economy – The IPCA, Brazil’s inflation indicator, rose 1.16% in September. It is the worst result for the month since 1994. The accumulated increase over 12 months reached 10.25%.

Petrobras increased the price of gasoline and cooking gas by 7.2%.

3. Public administration – The federal government cut 87% of the budget for science and technology in 2021, reducing from R$ 690 million in 2020 to R$ 89.8 million. The reduction was approved by the National Congress on Thursday (7).

The private sector bid on 5 of the 92 concession blocks of oil exploration. The amount collected was R$ 37 million.

Vice President Hamilton Mourão will not be part of the delegation to the United Nations Climate Summit (COP26). The delegation will be led by the Minister of Environment, Joaquim Leite.

How to read it?

1. The political trend remains neutral. Bolsonaro continues to avoid institutional conflicts, the presidential coalition remains stable, but popular support has worsened. The shorter week, due to the holiday on Tuesday (12), tends not to bring many problems.

The government suffered this week with the issue of the veto on sanitary pads and the news about Guedes’ offshore companies. The issue of sanitary pads is important, but Bolsonaro does not seem to have erred in vetoing the device. The Legislative branch cannot create expenses for the Executive without indicating a source of funding. It is a technicality, but the government could have built an alternative to the problem.

The votes of the week were more favourable to the government. Nevertheless, the problem with Guedes may hinder the evolution of reforms and important issues in parliament, such as the PEC of precatórios and the reform of the tax revenue. Popular support seems to have worsened, mainly due to economic issues. The Quaest survey makes an important cut, showing that those earning up to 2 minimum wages are those who most disapprove of the government, identifying the economy as the country’s main problem.

2. The economy remains on a positive trend. Despite inflation and interest rate hikes, monetary policy should affect the inflation in October, slowing its pace. The September index, which already came in below expectations, must have represented the 12-month inflationary peak.

Besides this aspect, the increase in the vaccination rollout and the approaching end of the year should reduce the unemployment rate and increase the level of economic activity. The developments of the new social programme remains unknown.

3. Public management remains in neutral mode. The issue of the vice-president not going to COP 26 brings noise, but, in practice, it seems to be a good decision for the process of public policymaking. Although Mourão is qualified and committed to the theme, he does not have executive functions to effectively represent the environmental agenda. As I mentioned in previous reports, the department actually leading the environmental issue is the Ministry of Environment. Of course, the support of the vice-president is important, but it is not essential and could cause confusion in the dialogue with representatives of other countries. In addition, Mourão would not speak on behalf of Bolsonaro, as they remain misaligned on several issues.

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