The Week Ahead in Brazil #91

What is happening in Brazil?

1. Politics – Justice Edson Fachin, who will become the new president of the Superior Electoral Court (TSE) next Tuesday, granted an interview in which he warns about cybercrimes, cites Russia as the origin of most of this offensive and says that ‘institutions will have their greatest test’. (Estadão)

On Wednesday (16), the TSE released both the questions asked by the Army and the electoral court’s answers about the electronic voting system. The material reinforces what the electoral court has been sustaining in recent months that the electronic ballot boxes are safe to rebut talk from President Jair Bolsonaro (PL) about the supposed vulnerability of the equipment. (Folha)

Justice Gilmar Mendes is pressing for the resignation of the president of the Palmares Foundation, Sérgio Camargo. The reason was a publication of Mr Camargo on social networks, in which he treats as a “tramp” the Congolese Moïse Kabagambe, beaten to death in the kiosk where he worked in Rio de Janeiro, a case of great repercussion.

On Thursday (17), Justice Mendes directed a public civil action against Sergio Camargo, related to moral harassment against servers, from the Labor Justice and sent to Federal Justice. Mr Mendes kept, however, the injunction that removed Mr Camargo from the management of human resources of the foundation. Justice Mendes said that the gravity of the facts that led to the granting of the injunction justifies the maintenance of the measure and that “recent public statements of the president of the Palmares Foundation reinforce his inclination to practice discriminatory acts motivated by persecution, racism and social stigmatization.” (Folha)

In the House of Representatives, the vote on the urgency request for Bill 2,630/20, which criminalizes the dissemination of false or incomplete information on the internet, the so-called fake news, was postponed until next week. (House)

The Attorney General of the Republic, Augusto Aras, disagreed with the Federal Police and understood that Jair Bolsonaro (PL) did not commit a crime when he leaked information from an investigation opened to investigate a hacker invasion of Electoral Justice systems in 2018. Mr Aras requested the dismissal of the investigation to the STF (Supreme Court) on Thursday (17). Justice Alexandre de Moraes, the rapporteur of the case, will decide on the continuity or not of the investigation. (Folha)

A PoderData survey shows that 57% of those interviewed disapprove of the federal administration, compared to 59% of the previous survey, while 34% approve, compared to 33%. The numbers show a slight drop in the disapproval trajectory. In relation to Bolsonaro’s work, 28% consider the President’s work as great/good (+1 pp) and 56% consider it bad/worst (+3 pp). (Poder360)

For the presidential election, the survey shows that former president Lula continues to lead in voting intentions, but the difference between Lula and Bolsonaro has decreased, both in the first round and in the second round simulations.

2. Economy – Despite an adverse scenario in the international market and the proximity of the elections, Brazilian assets entered a bullish trajectory at the beginning of this year. Since January, the Ibovespa index has advanced 9.5%, while the dollar fell 7.45%, from R$ 5.58 to R$ 5.18. (Estadão)

Banco do Brasil’s adjusted net income totalled R$21.021 billion in 2021 and represented a 51% growth compared to 2020 (R$13.884 billion). (g1)

The Central Bank (BC) recorded a positive result of R$ 85.9 billion in 2021. Of the result obtained in the year, R$ 14.2 billion refer to foreign exchange operations. The balance of non-exchange transactions stood at R$ 71.7 billion, an amount that should be transferred to the National Treasury by March 7. (Exame)

The Minister of Economy, Paulo Guedes, told entrepreneurs of the commerce and services sector that the government will launch a credit package of around R$ 100 billion in the coming weeks. Companies with revenues of up to R$ 300 million per year should benefit from it. (Poder360)

Agribusiness exports reached US$ 8.82 billion, a record amount for January, which meant an increase of 57.5% in relation to the US$ 5.60 billion exported in January of last year. Agribusiness participation in Brazilian exports grew from 37.5% (January/2021) to 44.9% (January/2022).

3. Public administration – On Monday (14), President Jair Bolsonaro (PL) issued a decree that grants power to the Chief of Staff (Casa Civil) to give the final word in divergences of ministries on normative acts. The unit is led by Minister Ciro Nogueira (PP). (Folha)

The Federal Audit Court (TCU) approved the first stage of the privatisation of Eletrobras, Brazil’s largest electric energy company The government expects the TCU to conclude the last stage by the end of March or the beginning of April, to enable privatisation in May. (Valor)

The Superior Electoral Court (TSE) signed, on Tuesday (15), agreements with eight digital platforms to combat “fake news” in the 2022 elections. The partnerships were signed with Twitter, TikTok, Facebook, WhatsApp, Google, Instagram, YouTube and Kwai. Telegram was invited, but did not participate and did not respond to invitations sent by TSE. (Valor)

The former Minister of Defence and Army Reserve General Fernando Azevedo e Silva has quit from assuming the position of director-general of the Superior Electoral Court (TSE). The general claimed family and health reasons, but there are rumours that he has complained to people close to him that President Jair Bolsonaro had returned to manipulating the military and attacking the electoral system, throwing the Armed Forces into narratives to discredit the ballot box. (Estadão)

President Jair Bolsonaro made a visit to Russia and Hungary, where he met with President Vladimir Putin and Prime Minister Viktor Orban respectively.


An analysis:

1. The trend for the coming week remains positive. There was a slight negative change in the levels of institutional conflict, but popular support remains stable, and there were no relevant changes in parliamentary support for the government.

The trajectory of Bolsonaro’s relationship with the Judiciary, however, is expected to worsen. TSE’s ministers granted interviews, made pronouncements criticising Bolsonaro and the group that casts doubt on the reliability of electronic ballot boxes, and released the questions and answers to the Army’s inquiries about the electoral process. Justice Fachin assumes the presidency of the TSE on Tuesday (22), and Justice Alexandre de Moraes, who handles the investigation into the leak of secret documents within the STF, will be his successor from August 2022. On another front, the criticisms of Justice Gilmar Mendes to the president of the Palmares Foundation, Sergio Camargo, are harsh and will not cease. Everything points to an escalation in institutional tension.

In Congress – despite the good political support in the House –, after the resignation of Senator Fernando Bezerra from the leadership of the government in the Senate, the appointment of a new leader of the government in the Senate is much felt. Senator Eduardo Gomes, the government’s leader in Congress, has been acting informally in the role, along with Senator Flávio Bolsonaro and the Chief of Staff, Senator Ciro Nogueira. Without a seasoned leader, it becomes more difficult to conduct the government’s list of priorities in the Senate.

Finally, despite the decrease in the difference between Lula and Bolsonaro for the 2022 elections, there is no indication of a significant change. It may be that this has some relation to the improvement in the government’s evaluation, although Bolsonaro’s personal evaluation has worsened.

2. The outlook in the economy continues with good prospects. The fiscal policy continues with no negative surprises, monetary policy seems to be starting to generate positive effects and the trade balance has brought positive results, especially in agribusiness.

The exchange rate appreciation, which continues to show signs of continuity, may affect the drop in inflation. The point of attention, at this moment, is concerning the offer of credit in 2022. Commercial banks will be more cautious in granting credit in 2022 for several reasons, including political ones. Businessmen, industrialists and farmers will have shorter terms for loans, and the amount available will be smaller. Credit will be more expensive in 2022, both because of the higher interest rates and the rising insolvency among borrowers. It means that the productive sector will have fewer resources available to finance production, costs will rise and unemployment may increase. At the end of the day, the consumer will buy less. All this with great electoral repercussions for the government, which is looking for ways to overcome this problem. It is in this context that the R$ 100 billion credit package and the incentive to private investment arising from the concessions made in 2020 and 2021 should be understood.

3. Public management brought an important change that deserves to be commented on. It is the changes that occurred in the Chief of Staff (Casa Civil) structure in the last two months that officially expanded its power of decision across government in three acts. Despite this, we still keep the analysis and trend neutral, because it remains unclear if the new format will bring benefits.

The first was through Decree 10,907/2021, published in December last year, which reorganised the administrative structure and established the attributions of each unit. The second was Decree 10.937/2022, in January, which officially delegated to the Chief of Staff the power to approve or reject budget reallocations made by the Ministry of Economy. The third and most recent act was Decree 10,967/2022, published this week, which gives Casa Civil the power to resolve impasses between other ministries.

In practice, the three decrees together put on paper a power that the Casa Civil could exercise over other ministries, previously already higher than the other ministerial units located at the heart of the government’s headquarters, the Planalto Palace.

Now its level was legally and officially upgraded. Casa Civil’s influence becomes part of its attributions and it becomes a general veto player. Before the decrees, Casa Civil was already powerful, but now it has claws and teeth to interfere in all public policies of the government, including in budgetary terms, harmonizing political and administrative issues.

Overall, the media has reported the last two acts as mostly bad, addressing a higher political interference from the Centrão bloc. I think this is not as simple as it seems. On the one hand, “turbocharged Casa Civil 2.0” may be better because, in principle, it reduces decision-making fragmentation, creating a smoother fit between government pieces, as a consequence of a more consolidated political component to the decision-making process. On the other hand, it may bring delays in the analysis of the merit of public policies and in budget reallocation, in addition to the increase of a layer of political analysis in all government decisions. To businesses, having access to Casa Civil becomes more relevant than ever before, becoming a “high-influence” stakeholder to most matters. If nothing else, it is an important institutional change, deserving closer examination.


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