The Week Ahead in Brazil #82

What is happening in Brazil?

1. Politics – The lower house approved, in the first round, the constitutional amendment proposal (PEC), known as the PEC of Precatórios (PEC 23/21) on Wednesday (3). The PEC was approved by 312 votes in favour and 144 against. It was necessary 308 votes in favour. There was information that the government released R$1.2bn of the budget of the rapporteur-general amendments (RP-9), the so-called “secret budget”, on the eve of the vote to increase the chances of approval. The second round of voting is scheduled to occur on Tuesday (9).

On Friday (5), Justice Rosa Weber, of the Supreme Court (STF), determined the suspension of all payments made from the rapporteur-general amendments. The plenary of the STF will consider the decision between days 9 and 10 of November. Weber’s decision met the questioning of four political parties: PSOL, New, Citizenship and PSB.

The president of the Federal Senate, Rodrigo Pacheco (PSD-MG), announced an intense effort to hold hearings on 30 November and 1 and 2 December. Pacheco also stated that the Senate is urgent to solve the issue of precatórios and fiscal space that respects the spending cap.

The Commission of Economic Affairs of the Senate (CAE) should resume the analysis of the project (PL 591/21) that allows the privatization of the Correios, the Brazilian postal service on Tuesday (9). On the same day, still in the Senate, the Infrastructure Commission (CI) will hold a public hearing to hear the Minister of Mines and Energy, Bento Albuquerque.

The Committees of Financial Supervision and Control; and Labour, Administration and Public Service of the lower house will hear the Minister of Economy, Paulo Guedes, on Tuesday (9). He was summoned to explain financial movements abroad through his offshore in a tax haven. (Agência Câmara de Notícias)

Ipespe poll (in Portuguese) shows stability in the government’s approval ratings. The index of those approving the government remains at 30%, as well as those who disapprove (64%). The survey also brought electoral scenarios, with the leadership of former President Luiz Inácio Lula da Silva (PT), and asked about the ideological positioning of those interviewed: 24% would be left or centre-left and 35% right or centre-right.

2. Economy – The Brazilian trade balance had a surplus of US$2bn in October. The value represents a 54.5% drop compared to the same month in 2020. In the year, the balance remains positive at US$58.6bn, up 29.6% over last year. (Valor)

The government announced a reduction, until December 31, 2022, in 10% of the rates of import taxes of 87% of products traded with countries outside Mercosur. Automobiles and other products were excluded from the list. (Estadão)

Petrobras carried out an information campaign to explain how much it receives per litre of gasoline. According to the advertising, the company receives R$2.33 per litre, representing 35.5% of the final price. The price is also composed of federal taxes (10.5%), the cost of ethanol handling in gasoline (17.8%), the profit margin of distributors and retailers (10%) and ICMS (26.2%), a state tax. (Valor)

Industrial production fell 0.4% in September, compared to August. It was the fourth consecutive month of decline. (Folha)

The net profit of Itaú Unibanco, in the third quarter, was R$6.78bn, representing a high of 34.8% over the same period of 2020. Bradesco, the second-largest private bank profited R$6.77bn in the third quarter, with a high of 34.5% compared to 2020 to the same period last year. It was the second-highest profit in its history.

Volkswagen announced investments of R$7bn in Brazil and Argentina until 2026. (Estadão)

3. Public administration – The National Telecommunications Agency (Anatel) held, on Thursday (4), the 5G tender. Claro, Vivo and TIM bought the main frequencies, generating R$47.2bn. The average premium reached 212%. About 90% of this value is an obligation of investments. (Valor)

The Brazilian government decided to join the global pact to cut methane emissions last week, during COP26, in Glasgow. The agreement establishes that countries must commit to reducing methane emissions by 30% about 2020 levels. (Valor)

How to read it

1. The trend in politics has changed to positive. The level of institutional conflict remains low, completing, on Monday (8), two months in which Bolsonaro has reduced controversial statements. By our metrics, the index is close to reaching its best value since I started writing these reports. Support in Congress, while not as good as at other times, is still supportive of the government and should remain stable. Finally, the level of support for the government remains low but stable.

This week, the fiscal issue remains at the centre of political decisions in Brasilia. The approval of the PEC of Precatórios in the second round remains possible and received explicit support in the Senate. The decision of Justice Rosa Weber may have put some difficulty in the negotiations and may have a negative effect on the vote of the PEC, but the tendency is that it will be limited. Still, should this “RP9 for PEC” be the case, the government has other ways and power resources to secure political support in the vote.

Another issue that deserves close monitoring is Guedes’ hearing in the House. He should be extensively provoked by the issues of his offshores and many other economic issues (such as the gasoline price, inflation, currency devaluation to name the most salient ones). The opposition will try to wring controversial statements out of the minister. Although the reason for his calling is the ownership of offshores, it would be good for him to have an initial presentation to establish a favourable technical context for discussions.

2. The trend for the economy remains positive. The monetary policy has been conducted positively by the Central Bank, and fiscal policy remains well-structured. Inflation may cool down in the coming months, and the decision to reduce import tariffs will effectively contribute in the same direction.

Volkswagen’s investment announcement was extremely positive, in contrast with Ford’s decision to stop manufacturing cars in Brazil back in January 2021. The announcement is a critical demonstration of confidence in the Brazilian economy.

3. Public management has improved. While some metrics remain poor, the successful completion of the 5G tender is an important milestone of the state’s management capacity. The benefits of 5G go beyond the amount raised or the volume of investments companies will make in Brazil. They will allow secondary private investments in several economic activities and may contribute to the country’s development.

The change in the speech and commitment of the Brazilian delegation at COP 26 was also a valid sign. Although not binding, even the adhesion to the agreement was not expected by analysts, journalists and politicians. It was a positive surprise. The implementation of the measures remains challenging, but we will follow the issue closely. For now, the Brazilian government’s decision deserves support for the statement.

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