The Week Ahead in Brazil #87

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What is happening in Brazil?

1. Politics – Justice Rosa Weber, the Supreme Court (STF), released, on Monday (6), the execution of the amendments of the budget’s rapporteur (RP-9) planned for the year 2021. Justice Weber attended, on an interim basis, the request of the presidents of the lower house, Arthur Lira (Progressive-AL), and the Senate’s President, Rodrigo Pacheco (PSD-MG), to suspend the section of the decision previously issued that prevented new appointments this year. (Estadao)

President Jair Bolsonaro edited the provisional measure that creates the benefit of the Auxílio Brasil, the new social programme. The text provides for the payment of an instalment in December this year, with the possibility of an extension until December 2022. MP 1.076/2021 was published on Tuesday (7). (Agência Senado)

The National Congress enacted the Constitutional Amendment 113, which changes the rule for updating the Union’s spending cap. The text comes from the PEC 23/2021, the so-called PEC of Precatórios. With the enactment of the PEC parts considered consensual between the Senate and the House, the ceiling spending will be adjusted for inflation from January to December. The measure should make R$ 65 billion available in the 2022 Budget, which will be used, in part, to finance the Auxílio Brasil programme. However, sections referring to judicial debts were not enacted. As they were subject to many changes in the Senate, these sections should return to the House of Representatives for further analysis, expected to occur on Tuesday (14). (Agência Senado)

Senators have approved the extension (PL 2.541/2021), for two years, of the payroll exemption mechanism for 17 sectors of the economy, created by Law 12.546, of 2011. The proposal allows companies to replace the 20% social security contribution on employees’ wages by a rate of 1% to 4.5% on gross revenue. The text will be sent to the sanction of President Jair Bolsonaro. (Agência Senado)

Data from OLB (Brazilian Legislative Observatory) shows that Bolsonaro is the president with the worst performance in the approval of projects sent by the Executive to the Legislative since the re-democratization. (UOL)

The new Quaest survey shows that the evaluation of the government has improved compared to last month. Those who evaluate the government as negative decreased from 56% to 50%, and those who evaluate the government positively rose from 19% to 21% (page 6). Nevertheless, in the electoral scenarios, Bolsonaro loses in the first round to Lula (page 28), and the second round to Lula, Ciro and Sérgio Moro (page 30).

2. Economy – After more than 100 years, Brazil will have private railways again. The federal government signed the first contracts that authorize companies to initiate projects from scratch in a new private model, with an estimated R$ 50 billion in investments. There are nine railway stretches, crossing ten States in 3,500 kilometres of track, authorized for Bracell, Ferroeste, Grão Pará, Macro Desenvolvimento, Petrocity and Planalto Piauí Participações. The plans are based on the rules of the new Legal Framework of Railroads, originated from a provisional measure. The lower house is expected to vote on Monday (13) the definitive project of the Legal Framework of Railroads, already approved in the Senate, instead of appreciating the government’s Provisional Measure in force. (Estadão)

According to IBGE, November’s IPCA rose 0.95%, the largest increase since 2015 for the same month. Still, it came below market expectations, accumulating a high of 10.74% in 12 months. There is a possibility that inflation in 2021 will be below two digits. (Estadão)

As expected, the Central Bank raised the Selic rate by 1.50% percentage point, reaching 9.25% p.a.. The minutes of the meeting will be released on Tuesday (14).

3. Public administration – The government had decided not to require proof of vaccination for foreigners entering Brazil, but oblige them to comply with a quarantine of five days and submit a negative test. However, after the decision by Justice Luis Roberto Barroso, of the Federal Supreme Court (STF), to determine, at the request of the Solidariedade political party, that proof of vaccination is mandatory, the government will issue an ordinance regulating the decision. (Valor and Estadão)

President Jair Bolsonaro signed yesterday the bill that intends to regulate the lobbying activity in the country. After the signing – which took place during a ceremony alluding to the International Anti-Corruption Day – the matter was sent to the National Congress for evaluation. (Valor)

How to read it

1. The trend in politics remains positive. There have been no significant changes in the level of institutional conflict or the strength of the presidential coalition. The Quaest survey, led by Felipe Nunes, shows improvement in popular support for President Jair Bolsonaro.

The government’s crucial projects have been positively appreciated by Congress: the viability of Auxílio Brasil, the solution with the PEC of Precatórios, the payroll tax relief and others of less relevance. It is a simple observation that Congress has been working “with the government”, not “for the government”. Various forms of resistance in the Senate have surprisingly eased in recent weeks. While this means that parliamentarians have not given a blank cheque to the Executive, which is corroborated by the OLB study, the government was far more successful in the approval of crucial propositions. Despite this, the reforms, both administrative and tax, and some privatisations remain undefined. In the penultimate week before the start of the parliamentary recess, the government managed to reach the end of the year in a better situation than last year.

2. The trend remains positive. Some analysts have emphasized the issue of a technical recession, but I continue to observe the real economy and the data made available by the SPE and conversations with economists and businessmen. My assessment is that this last quarter and the month of December should be positive, both in the productive and financial sectors. Moreover, the Quaest survey also reinforces my perception: people are relatively less worried about the economy.

3. Public management is on the rise. After the initial refusal to require the vaccine passport, the federal government should implement the measure next week, abiding by the STF’s ruling. In addition, the submission of the project to regulate lobbying in Brazil is particularly important. This advance is in line with OECD recommendations and the practices of developed economies.

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