The Week Ahead in Brazil #88 – The last of 2021!!!

What is happening in Brazil?

1. Politics – The lower house approved, on Wednesday (15), the appointment of Senator Antonio Anastasia (PSD-MG) for a minister of the Federal Court of Accounts (TCU), in the vacancy that falls to the Senate. There were 322 votes in favour, 18 against and 8 abstentions in a roll call and secret ballot. Earlier, Anastasia was approved by the Senate in Tuesday’s session (14) with 52 votes. He was competing with Senator Kátia Abreu (PP-TO) and Fernando Bezerra Coelho (MDB-PE), who had 19 and seven votes respectively. (Senate Agency)

The president of the National Congress, Senator Rodrigo Pacheco, promulgated on Thursday (16) the Constitutional Amendment 114 with the remaining portions (PEC 46/21) of the so-called “PEC dos Precatórios” (PEC 23/21). Together with another amendment (EC 113) promulgated last week, the text includes new rules in the Constitution for the payment of debts of the Union already definitively recognized by the Justice and opens budgetary space to fund the program Brazil Aid, which replaces the Bolsa Família and should pay a monthly benefit of R$ 400 to nearly 20 million families. (Agência Câmara)

The bill establishing the legal framework for railways was approved by the lower house on Tuesday (14). The presidential sanction is scheduled for December 22. The House also approved the project with new rules for navigation between Brazilian ports, known as “BR do Mar”.

The former Attorney General and Minister of Justice André Mendonça took office as Justice of the Supreme Court (STF) on Thursday (16). He takes the seat left by former minister Marco Aurélio Mello, who retired earlier this year at the age of 75. (CNN)

Two polls were released this week. The Ipec poll shows a slight deterioration, with the government being rated as bad or terrible by 55% (2 percentage points more than in September) and as excellent or good by 19% (2 pp less than in September). Disapproval ratings remained stable at 68% and approval ratings at 27%.

Regarding the presidential elections, Ipec shows Lula (PT) with 48% of voting intentions, followed by Bolsonaro (PL) with 21%. Sérgio Moro (Podemos) appears with 6%. The highest rejection appears for Bolsonaro (PL), with 55%, followed by Lula with 28% rejection.

The Datafolha survey reports that 53 per cent consider the government bad or terrible, and 22 per cent, great or good, showing stability in relation to the previous survey. In relation to the elections, Lula (PT) continues with 48% of voting intentions, against 22% for Bolsonaro (PL) and 9% for Sérgio Moro (Podemos). (Folha)

2. Economy – The Central Bank revised its projections for Brazil’s Gross Domestic Product (GDP) from 4.7% to 4.4% in 2021 and from 2.1% to 1% in 2022, according to the December Inflation Report (IR). Regarding the inflation projections, BCB expects inflation of 0.65% in December, 0.15% in January and 0.66% in February. For 2021, Bacen projects the IPCA at 10.2%.

The consolidated public sector should record a primary surplus of 0.3% of GDP (R$25 billion) in 2021. It will be the first positive result since 2013. Public debt is expected to end this year at 81% of GDP, up from 89% in 2020.

The Brazilian economic activity showed a drop for the fourth consecutive month in October. A report from the Central Bank informed that the Activity Index (IBC-Br) fell 0.40% in October, compared to September. The result is in line with market analysts’ expectations. (Estadão)

The December IPCA-15 will be released on Thursday (23). On Wednesday (22), the results of the current account and direct investments in Brazil will be released.

On Wednesday (15), Brazil received the release of beef exports to China. With this, the certification and shipment of animal protein to the Asian country will be normalized and could already be resumed. Shipments to China had been suspended since September 4, when Brazil identified and reported two atypical cases of Bovine Spongiform Encephalopathy (BSE), recorded in Nova Canaã do Norte (MT) and Belo Horizonte (MG).

The portfolio of 131 projects and auctions promoted by the Investment Partnership Program (PPI), between 2019 and 2021, ensured investments of R$822.3bn in the country for the coming years, in addition to the collection of grants and bonuses of R$148.3bn. For 2022, operations with 153 more assets are planned, generating another R$ 389.3 billion to be applied in new projects. The figures were presented by the Ministry of Economy on Thursday (16).

On Friday (17), an ordinance was published authorizing the importation of used sailing boats, watercraft and jet skis. The measure comes into force on January 3, 2022.

3. Public administration – President Jair Bolsonaro said he changed the staff of the Institute of National Historical and Artistic Heritage (Iphan) after the interdiction of a work by businessman Luciano Hang, owner of Havan shops and one of his greatest supporters. The Federal Prosecution Service (MPF) filed a request ousting the current president of the body, Larissa Peixoto. (Valor)

The Brazilian Health Surveillance Agency (Anvisa) authorized, on Thursday (16), the application of the vaccine from Pfizer against Covid-19 in children aged 5 to 11 years. Similar authorizations have already been granted by the health regulatory agencies of the United States and the European Union. Opposing this decision, President Bolsonaro (PL) protested and said he had “unofficially” asked for the names of those responsible for the decision to release them. The statement was seen by Anvisa as an attempt to intimidate and it released a statement repudiating Bolsonaro. The association of servers of the agency also issued a note of protest.

How to read it?

1. The trend in politics remains positive. There was no change in the strength of the presidential coalition (strong), nor in the government’s approval ratings and popular support (weak). A slight change was detected in the level of conflict due to the episode involving Anvisa.

For most of the year, politics were positive for public policy-making. The government went through some difficulties, especially between August and September. After that, Bolsonaro adopted a more presidential posture, communicating in a more institutional and less bellicose manner. With this, the government managed to approve many important projects, evidenced by the solid parliamentary support, especially in the House. In the Senate, crucial issues were also overcome.

The emergence of Moro and Lula as possible presidential candidates for 2022 also contributed to the government building more robust political bridges. No wonder Bolsonaro joined the PL, the third-largest bench in the lower house. Together with the PSL and PP, they form an important political network for Bolsonaro.

The year ends with tax and administrative reforms pending, but they can move forward in 2022. There are still some thematic problems in the environment and human rights, but the economic agenda should continue to evolve positively. Election year is not the time to approve “bad things”, so the status quo tends to be more common than in previous years, except in cases where the political support to be added is positive.

Finally, I wanted to present the picture of the year in politics. The chart below is the result of the set of metrics that I have been honing since my master’s degree and that helps me understand and reflect on the Brazilian political scenario. Every week, I analyse a set of factors to conclude how the following week may behave. I think I managed to overcome the challenge of getting my analyses more right than wrong and I have been pleased with the results and feedback from several people and institutions that honour me with their weekly reading and feedback.

2. The trend in the economy remains positive. It is a fact that inflation is a problem far more persistent than anticipated, as well as the performance of the GDP and the exchange devaluation are matters of serious concern. These are factors that harm the vast majority of the population and, in particular, the poorest. In general, however, the monetary policy conducted by the BCB concludes the year more active and attentive. The fiscal policy also gave good signs, despite the controversy with the PEC of Precatórios and the electoral issues that could provide an edge to Bolsonaro in the elections.

Analysts agree that inflation should lose speed in 2022. In relation to GDP growth, however, there are divergent views: the most optimistic is the government’s, indicating 2% growth, while the market predominantly indicates less than 1%, or even a decrease, as pointed out by Itaú.

Regardless of what the economic actors manage to do next year to improve the economy, there are many uncertainties and variables that are beyond the government’s control. The Omicron variant, for example, if it is too strong, is likely to provoke new lockdowns, as has occurred in the Netherlands, Austria and perhaps the United Kingdom. Central banks in Europe and the US are raising interest rates. Production costs are expected to rise. I say this to point out that the Brazilian government will have a big challenge next year, but it may be relatively well prepared to face the turbulence (reserves, current transactions, trade balance and public debt).

The annual portrait of the economy is different from that of politics. There were no persistent valleys and for most of the year, it remained positive. Several readers asked me how this happened and I answer that my metrics do the talking as there are several factors, not only high inflation or fiscal risk alone. The economy continued working in Brazil, despite all the difficulties caused by the pandemic. Moreover, several legislative initiatives are unlocking investments (sanitation, railways, waterways, agro, gas, startups, pro-business environment). It is a fact that many companies have unfortunately gone bankrupt, but others have grown and made new investments.

3. Public management is trending negatively. The government is reluctant to implement adequate measures to fight the pandemic, whether in relation to the vaccination of children or the sanitary passport. This has caused negative variation, especially in leadership and public policy, although, under the metric “institutionality”, Anvisa has shown itself to be a positive counterpoint.

It is not by chance that public management is the one that presented the worst result throughout the year, in relation to the other two categories of analysis. On the one hand, important portfolios, such as Environment, Health and Education, presented unsatisfactory performance, despite possible progress and successes. There is no doubt, for example, that the current ministers are better than their predecessors, but there are still governance limitations that have not been overcome, resulting in poorly designed and implemented public policies with negative impacts both on the population and on Brazil’s image abroad. On the other hand, in the Economy, Agriculture and Infrastructure, the management was very well conducted, providing great advances in public policies.

I think there may be occasional changes in the first tier team, especially to accommodate new allies for the positions of ministers and secretaries who will run for office in the 2022 elections. They may also be changed to accommodate political allies, contributing to political consolidations. In general, these changes should not promote significant changes, or improvement if you will, in management.

I wish you all a Merry Christmas and a Happy New Year!!!! The reports will resume in 2022.

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