The Week Ahead in Brazil #90

What is happening in Brazil?

1. Politics – President Jair Bolsonaro participated, on Monday (7), in a meeting with the ministers of the Supreme Court (STF) Edson Fachin and Alexandre de Moraes. The magistrates went to deliver an invitation to the inauguration of the new command of the Superior Electoral Court (TSE). The same invitation was also extended to the leaders of the House of Representatives and the Senate, Arthur Lira and Rodrigo Pacheco, respectively. (CNN)

At the request of party leaderships, the STF decided to extend to May 31 the deadline for parties to unite in party federations. In this new model, the legends that join together are obliged to act in a unified way for at least the four years following the elections, at the federal, state and municipal levels. Coalitions, which were the previous model, provided for unity only for the elections. (O Globo)

In the Senate, two bills aimed at tackling the rise in fuel prices may be on the agenda. One of the projects, PL 1.472/2021, of Senator Rogério Carvalho (PT-SE), proposes a “cushioning” mechanism to minimize the effects of the dollar variation in the value of these products. The PLP 11/2020 seeks to reduce the ICMS tax levied on fuels by changing the tax criteria. In another subject, PLP 4.392/2021, which creates a program to fund free urban public transportation for people over 65 years old, may also be included in the voting agenda. The Senate Committee on Economic Affairs (CAE) has postponed again the voting of two nominees for the Central Bank’s board of directors. (Senate Agency)

At the House of Representatives, there will be another leaders’ meeting on Wednesday (19), to discuss the distribution of the presidency of the standing committees. The Plenary may vote on the Guarantees Framework (PL 4.188/21), which changes the rules for guarantees on financial bills and ends the pawning monopoly rights of the Caixa Econômica Federal.

Federal deputy Sóstenes Cavalcante (DEM-RJ) is the new president of the Evangelical Parliamentary Front. He said that the bloc wants to increase its presence in Congress to 30% in the next elections. The caucus currently has 115 congressmen and 13 senators. (Folha)

Former President Luiz Inácio Lula da Silva and the national president of the PSD, Gilberto Kassab, had another meeting on Monday (7), at the PT headquarters. Kassab said that an alliance with the PT in the first round is “not impossible”. (Folha)

The most recent Quaest poll shows stability in the government’s evaluation: 51% (+1 pp in relation to January) disapprove, against 22% who approve of the government. For the election in the first round, the difference also remains stable, with a 22 pp difference: Lula has 46% against Bolsonaro’s 24%. For the second round, Lula leads with 54% against 30% for Bolsonaro.

2. Economy – January’s IPCA was 0.54%, lower than December’s 0.73% rate, but the highest for the month since 2016. The result was as predicted by the market. With this, the IPCA 12-month rate reached 10.38%. (Valor)

The Central Bank’s Economic Activity Index (IBC-Br) rose 0.33% in December, in the seasonally adjusted comparison with November, accumulating a high of 4.50% in the year, as released on Friday (11) by the monetary authority. (Valor)

Complementing the result of last week’s industrial production growth, the IBGE released the performance of the retail and services sector this week. Brazilian retail sales dropped 0.1% in December in relation to November. The market had expected a drop of 0.5%. In the year, they accumulated growth of 1.4%. In services, the monthly growth was 1.4%, also beating projections for 0.6%. In the year, the high was 10.9%. (Folha)

Bradesco recorded a net income of R$ 26.22 billion in 2021, an annual record in the bank’s history. Itaú Unibanco reached R$ 26.9 billion, an increase of R$ 45% in relation to 2020.

The dollar closed on Friday (11) at R$ 5.24, accumulating a fall of 5.98% against the real in 2022.

On Wednesday (9), Cade (Administrative Council for Economic Defense) approved the purchase of Oi’s mobile networks by operators TIM, Vivo and Claro for R$ 16.5 billion.

3. Public administration – The Minister of Infrastructure, Tarcísio de Freitas, announced on Thursday (10) that the bidding for Santos Dumont Airport will be held together with the Tom Jobim International Airport (Galeão), and should only take place in the second half of 2023. The idea is that both airports will have the same operator. (g1)

The Brazilian Agricultural Research Corporation (Embrapa), a state-owned company with a critical role in the development of Brazilian agribusiness, is preparing a restructuring that should change its face in the coming years. The project involves cutting costs and reducing personnel expenses. At the same time, a new model of partnership with the private sector will come into effect that intends to make the company self-sustainable. One of the pillars of the plan is a new business model: to associate with private companies that will place on the market the products developed in its research centres and, in this way, obtain the necessary resources for its operation. (Estadão)

A survey carried out in partnership with researchers from MapBiomas and the Climate Observatory reveals that only 1.3% of the 115,688 deforestation alerts in the Amazon were the target of some type of action that resulted in embargoes or infraction notices from the Brazilian Institute for the Environment and Renewable Natural Resources (Ibama). This represents 6.1% of the total deforested area detected. (Estadão)

President Jair Bolsonaro travels to Russia and Hungary this week.

How to read it?

1. The trend for the week remains positive. There were no institutional tensions, especially between the Executive and the Judiciary, popular support remains stable, but the parliamentary base of support, although favourable to the government, may suffer changes in the coming months.

Besides the natural political movement in an election year, two issues must be closely monitored. The first is the approximation of the PT with the PSD. If this happens, as seems likely, the government will lose important parliamentary support of the fifth largest bench in the Chamber and the second largest in the Senate and the same party of Rodrigo Pacheco, the Senate’s president. This move could bring great difficulties to the government. The second, with less disruptive potential, is the slight discontent of the evangelical caucus with Bolsonaro. They seek more space in the government, which converges with the goal of the new president of the caucus. They won’t be able to get everything they want, but they should be able to get a greater release of funds and even the command of some additional portfolio in the ministerial change.

2. The week in the economy also brings positive prospects. The economic activity index came in positive, the flow of dollars has been increasing and contributing to the appreciation of the Real, and the fiscal policy has a good horizon of predictability. Nevertheless, inflation persists, albeit on a declining path.

The appreciation of the Real against the dollar can generate a relevant impact to reduce the price of fuel, and contribute to a fall in inflation in February and March. Mário Henrique Simonsen, a Brazilian economist, used to say: “inflation kills, exchange rate kills”. Celso Ming points out that the increased flow of dollars to Brazil has at least three more visible explanations: investments in fixed income, internalization of dollars from exporters to settle domestic loans and injection into the still cheap Brazilian stock market.

3. Public management is trending neutral. The government continues to do well in areas such as infrastructure and agriculture, but environmental issues remain negative.

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