The Week Ahead in Brazil #93

What is happening in Brazil?

1. Politics – The period for legislators to change from their current political party to another, without sanctions, known as janela partidária, began on Thursday (3) and lasts until April 1st. The forecast is that PL, the party of president Jair Bolsonaro, will be the choice of preference for several lawmakers from Brazil’s lower house. (Valor)

The Federal Supreme Court (STF) decided that the 2022 electoral fund at a staggering R$4.9bn is valid and legal. The ruling was closed last Thursday (3). The distribution of funds follows proportional guidelines set in Federal Law 9,504/97, and two Electoral Superior Court (TSE) resolutions (23,605/19 and 23,664/21): all political parties will equally receive 2% of the total amount. A sum of 35% will be distributed amongst political parties with at least one federal lawmaker, according to the corresponding votes received in the 2018 elections. Political parties will receive 48% accordingly to their respective number of lawmakers at the lower house; lastly, 15% will be distributed proportionally to the political parties at the Federal Senate.

The President of the Federal Senate, Rodrigo Pacheco (PSD-MG), affirmed that two projects that deal with the drop in fuel prices will be put to a vote next week. PLP 11/2020 lowers a state tax (ICMS) and PL 1.472/2021 creates a fund to stabilise the fuel prices. Senator Pacheco said Congress must stay ahead of the curve in this issue, before the effects of the war increase the prices at the gas station.

The latest poll from PoderData shows former President Lula leading the electoral race with 40% against 32% of Bolsonaro. In relation to the previous poll, Bolsonaro is up 1 point. Eduardo Leite, with 3%, appears ahead of Dória, who has 2%, and Moro fell 3 percentage points, from 9% to 6%.

2. Economy – The Brazilian Gross Domestic Product (GDP) grew by 4.6% in 2021. The result released by the Brazilian Institute of Geography and Statistics (IBGE) shows that the 2021 GDP performance recovered the losses recorded in 2020, when there was a setback of 3.9%. The Informative Note of the Secretariat of Economic Policy shows interesting details, such as the growth of industry, on the supply side, and gross fixed capital formation (GFCF), on the demand side. (Valor)

The Minister of Economy, Paulo Guedes, plans to exempt foreign investors from paying Income Tax on Brazilian companies’ bonds, such as debentures. Currently, the federal tax is 15% on capital gains in this type of investment made by foreigners. The objective is to foster the participation of international private financing in Brazilian companies.

The invasion of Ukraine has caused price increases in several commodities. In ten days, the price of oil rose 22%; soybeans, 4.5%; corn, 11.9%; and wheat, 31.7%.

The Minister of Agriculture, Tereza Cristina, said that the value of food should rise due to the global increase in prices. She said, however, that Brazil has stocks of fertilisers until October and that it is looking for alternatives to supply an eventual shortage of inputs from Russia and Belarus, currently estimated at 43% of potassium and urea imports. The minister also announced that the National Fertiliser Plan will be sent by the end of the month by the government to Congress. The proposal aims to indicate ways for Brazil to reach self-sufficiency in fertilizer production. (Valor)

Petrobras has not yet adjusted the price of fuel. Analysts estimate that the difference in gasoline prices reaches 24%. The last readjustment was more than 50 days ago. (Estadão)

The Brazilian Stock Exchange (B3) accumulated a high of 2.7% since the beginning of the Russian invasion and the dollar retreated 1.53%. One of the explanations, besides the Selic rate at 10.75%, is that investors interested in emerging markets are diversifying their portfolios, leaving riskier markets and selling Russian assets. (Estadão)

Car sales in February were the lowest in 15 years for the month. There was a 24% drop from February 2021. Part of the decrease is due to a shortage of semiconductors. (CNN)

The trade balance closed in February with a surplus of $4bn. It is the best result since 2017 and represents an increase of 125% in relation to the same month of 2021. Sales reached $23bn in February (+32%). Purchases from abroad totalled $19bn (+23%). The result was boosted by grain exports.

3. Public administration – Brazil’s representative at the United Nations (UN), Ambassador Ronaldo Costa Filho, reiterated Brazil’s position for an immediate ceasefire in Ukraine and called on countries involved in the crisis to reassess decisions on supplying arms, resorting to cyber-attacks and applying sanctions that could affect the global economy. On 25 February, Brazil voted in the UN Security Council in favour of a resolution calling for an end to attacks and the withdrawal of Russian troops from Ukrainian territory, but the resolution was vetoed by Russia. Brazil also voted in favour of the resolution calling for the withdrawal of Russian troops from Ukraine, approved by the UN General Assembly on Wednesday (2). (Estadão)

A Brazilian Air Force (FAB) aircraft is expected to rescue Brazilians being evacuated from Ukraine next week. The operation, by determination of the Presidency of the Republic, will be coordinated by the Ministries of Defence and Foreign Affairs (MRE). Their return to Brazil is scheduled for Thursday morning (10/03). (Brazil)

The Minister of Economy, Paulo Guedes, made presentations to investors in the United States, where he also gave interviews to the American media. He conveyed information about the Brazilian economy and clarified points about Brazil’s position in the Ukraine war.


An analysis:

1. The trend for the coming week is positive. The main factor for the change was the reduction in the level of institutional conflicts. As predicted, the tendency was for the week to be conflict-free, especially with the Judiciary. The presidential coalition remains stable, and it is possible that the party window will give more strength to the PL, improving the indicators. Electoral polls are showing a slight growth for Bolsonaro.

The political negotiations around the janela partidária should agitate the parties. The PL should receive a good number of members of parliament. In the current situation, the five largest shares of the fund would go to União Brasil, PT, MDB, PP and PSD. With the change, the PL should join the club.

It is still necessary to wait for these movements to assess how is the support of the evangelical bench. Of the points raised last week, the one that will generate the quickest reaction will be determined by the number of congressmen who switch from the Republicans and the PSC to the PL. If too much, there will be some form of retaliation. Also, Bolsonaro’s performance shows that his campaign performance may be better than expected so far, retaining a little further their support.

The gap between Lula and Bolsonaro is narrowing. This year, Lula has oscillated between 45% and 40%. In the Ipespe polls, for example, he decreased from 44% to 43%; in the PoderData polls, from 42% to 40%; and remained stable in the Quaest polls. Bolsonaro, on the other hand, varied positively from 23% to 32%. In Ipespe, the former president went from 24% to 26%; in PoderData, he went from 28% to 32%; and also maintained stability in the Quaest. Regardless of the variation between the polls, they seem to point to a growth in the intention to vote for Bolsonaro, in contrast to the intentions to vote for Lula.

While it is not possible to say whether this decline will be enough to reverse the trend, the economic effects of the war in Ukraine may bring political consequences and alter these dynamics. Support for Bolsonaro may decrease if food and fuel inflation is too high and too fast, or there is a shortage of fertiliser for agricultural producers, an important base of political support. Lula is likely to suffer further erosion when the election begins for real. If this occurs, a space, nonexistent today, could be created for a competitive third way, with some other candidate with 15-20% in the final stretch of the election who is neither Lula nor Bolsonaro. For now, however, the situation does not seem to be developing in this direction.

2. The economy remains on a positive trend for the coming week. The 0.5% increase in fourth-quarter GDP, versus 0.1% expected, offers more credibility to the government’s economic policy. Monetary policy may be well-positioned to face this instability, what the fiscal policy shows no prospect of negative changes, and the trade balance continues with a strong surplus.

The exchange rate is surprisingly positive. In his US tour, Mr Guedes said that private investments secured so far are equivalent to “two Marshall plans”. If his mission has been successful, the exchange rate may continue its trajectory of appreciation and, thus, mitigate the inflationary risk for 2022.

The dimension of the risk brought about by the increase in commodity prices and global inflation is still uncertain. Fuel prices may increase, given the combination of exchange rates, oil prices and the time elapsed in which Petrobras does not pass on these increases. As for food, these increases may occur earlier. In any case, the government seems to be attentive in seeking ways to mitigate these effects.

3. Public management is trending positively for next week. The main factor for improvement came from the slight change in the conduct of foreign policy. Bolsonaro seems to have decided to listen to Itamaraty (MRE) and professional diplomats in conducting it, which is important.

It was a possibility that the government would be able to unify internal understanding on the war in Ukraine and this seems to have occurred in the week of Carnival. Although there has been criticism of Bolsonaro’s conduct, specifically that he should strongly condemn the aggression, the president has maintained a cautious stance. In some analyses, it has even been cogitated that Bolsonaro’s silence would be a veiled support to Russia due to the issue of fertilisers. Former Foreign Minister Ernesto Araújo, for example, released a video to this effect, arguing that Brazil was acting in support of the Russian position.

Officially, however, Bolsonaro seems to have given instructions that diverge from these analyses. The positions at the UN, the granting of visas for Ukrainians, the sending of aircraft to remove Brazilians from Ukraine and the sending of humanitarian aid are indicators that the Brazilian government and Bolsonaro are not supporting Russia or maintaining neutrality on the issue. What exists is an appeal to diplomatic channels to forward a solution to the problem. As the Brazilian government does not have the excesses of military, economic or political power to demote Russia from its aggression, Brazil seems to be aligned with the group of Western countries that are pushing for an end to the conflict.

From the point of view of public management, an advance has occurred, because Bolsonaro seems to have valued the technical solutions proposed by diplomats. That is rare.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s