The Week Ahead in Brazil #92

What is happening in Brazil?

1. Politics – Justice Edson Fachin was sworn in on Tuesday (22) as president of the TSE (Superior Electoral Court), expected to stay in office until August 16. President Jair Bolsonaro (PL) did not attend the ceremony because of scheduling issues. (Folha)

President Jair Bolsonaro (PL) participated, on Wednesday (23), in the CEO Conference 2022, an event promoted by BTG Pactual. Bolsonaro criticized the judiciary and listed measures that former president Lula would do if he won the elections. The BTG Pactual event lasted two days and was attended by various political, business and financial players. (Folha and Valor)

In the Senate, the voting of two projects that deal with the drop in fuel prices (PLP 11/2020 and PL 1.472/2021) and another that creates the National Education System (PLP 235/2019) was postponed to March 8 and 9. The Tax Reform report was read in the Constitution and Justice Committee (CCJ), but the vote was also left for after Carnival.

The bill to legalise gambling in Brazil, including casinos, bingos and sports betting (PL 442/91) was approved by the House of Representatives. The project is now being considered by the Senate. Bolsonaro has stated that he will veto the project.

Ipespe’s latest survey shows that 53% (-1pp) of the population consider the government as bad or terrible and 25% (+1pp) thinks the government is good or excellent. The disapproval rating is at 63% (-1pp) and there is a 31% approval rating. As for the 2022 presidential elections, former president Lula continues to lead the race with 43% against Bolsonaro’s 26%.

2. Economy – The Minister of Economy, Paulo Guedes, announced the 25% cut in the rate of the Tax on Industrialized Products (IPI). The impact of the cut is estimated at R$ 20 billion per year, with half the cost for the Union and the other half for states and municipalities. The objective is to promote industrialisation. As the IPI is a regulatory tax, the change can be made by presidential decree and does not need to go through Congress. (Estadão)

The government is considering authorising people to use their FGTS, a severance payment fund, to pay debts. The decision should be part of the economic measures expected to be announced after Carnival, together with the IPI reduction, credit package of R$ 100 billion, renegotiation of debts of the Student Financing Fund (Fies). (Valor)

The government estimates at R$ 78 billion the volume of investments to be made in 2022 through the concessions already auctioned by the Investment Partnership Program (PPI) in areas such as airports, highways, oil and gas exploration, electric power, sanitation. (Value)

Federal tax collection reached R$ 235.3 billion in January. It was the highest volume ever recorded for the month since 1995. The result represents real growth of 18.3% over January 2021. (Valor)

The government reported a primary surplus of R$ 76 billion in January, the highest in the historical series that began in 1997. The result reflects a surplus of R$ 92.613 billion from the National Treasury, a R$ 16.010 billion shortfall in Social Security and a negative result of R$ 64 million from the Central Bank. (Valor)

According to IBGE (Brazilian Institute of Geography and Statistics), the unemployment rate fell to 11.1% in the fourth quarter of 2021. In 2020, the index was 14.2%. The indicator reached the same level of the fourth quarter of 2019, before the pandemic. On the annual average, the unemployment rate also showed a slight improvement, from 13.8% in 2020 to 13.2% in 2021. Despite this, the average income retreated by 10.7% in relation to 2020. (Folha)

3. Public administration – The government has created a single identity card number for the entire country. The number used for national registration will be the same as the CPF, a number most people already have. The look of the document will also be unique for the entire country. (Brazil)

The government announced the Brazil Agenda for All, a set of digital tools to improve the Human Rights system in the country. The National Integrated Human Rights System is an initiative of the Ministry of Women, Family and Human Rights, the Civil Society Organizations Portal and the Federative School will be managed by the Secretariat of Government of the Presidency of the Republic. (Brazil)

On Thursday (24), Vice President Hamilton Mourão said that Brazil is not neutral and does not agree with Russia’s invasion of Ukraine. Later, President Jair Bolsonaro (PL) disavowed Mourão’s statements. (Estadão)

An analysis:

1. The trend for the coming week is uncertain. Although the presidential coalition in Congress remains favourable to the government, some cracks are beginning to appear. Institutional conflicts also increased this week and should continue on a negative trajectory. The only stable indicator was popular support.

In the Lower House, at least four points are driving the evangelical parliamentary group away from the government: the first is the lack of more space in the government; the second was the approval of gambling in the Chamber, with some kind of endorsement from the government (Economy and Tourism are in favour), from Bolsonaro himself and championed by Arthur Lira (PP-AL), the mighty speaker of the Lower House; third is the PL’s strategy to bring in more candidates for federal deputies in the 2022 elections, including many from the Republican Pary and the PSC; fourth and last point is Bolsonaro’s poor performance in the polls. Although the heyday of the relationship between evangelicals and the government is now past behind, it is unlikely that this estrangement will increase to the point of a breakup or create serious problems for Bolsonaro.

These political adjustments are common in an election year. Everyone is more inclined to defend their electoral assets. Even so, the government still has a parliamentary majority on several issues. The most recent demonstration was the postponement of the fuel bill in the Senate, where the government has more difficulty. Senator Carlos Viana (MDB-MG) acted as government leader in the episode.

As for the Judiciary, conflicts are increasing. Bolsonaro manages to keep his most loyal base of supporters united with his criticism of the STF and TSE, especially in relation to Justice Alexandre de Morais. There is no prediction that this escalation will abate.

Finally, there seems to have been no significant changes in the government’s approval ratings. It is even likely that it will improve in the coming weeks with the decline of the Covid-19 cases and the advance of vaccination. With this, Bolsonaro starts to antagonize with less frequently actions to combat the disease. He may regain some support among women and young people, the base that least supports him. Besides that, a viable third way does not look like a probable scenario.

2. The economy remains on a positive trend for the coming week. The conflict in Russia should certainly generate negative impacts on the Brazilian economy in the short term, especially regarding inflation. The help that the falling dollar was providing to tackle inflation so far is on hold. Monetary policy may decrease its effectiveness in fighting inflation. Fiscal results continue to improve, and private investment prospects remain high. The decline in the unemployment rate is positive news, but one must keep an eye on the issue of falling average income.

3. Public management remains in neutral mode, without significant changes. The main government’s announcements this week do not generate a positive short-term impact, and the government seems to be doing poor management regarding the Ukrainian issue. With the week to come shorter due to Carnival, the government may be able to unify the understanding on the issue.

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