The Week Ahead in Brazil #94

What is happening in Brazil?

1. Politics – Geraldo Alckmin decided to join PSB, a left-wing party, but now he is looking at PV. The formal announcement is set for next week. Former president Luiz Inácio Lula da Silva and PT’s presidential candidate is likely to pick Mr Alckmin as his running mate in the 2022 presidential election. (Valor)

Senator Rodrigo Pacheco, the president of the Senate, announced his decision of not running as PSD’s presidential pre-candidate in the 2022 elections. Gilberto Kassab, PSD’s president, invited Governor Eduardo Leite (PSDB) to become the party’s new pre-candidate. Mr Leite should decide next week about Mr Kassab’s invite and change PSBD for PSD. (Valor)

On Thursday (10), the Senate approved two bills to curb fuel price hikes. One lowers a state tax on fuel (PLP 11/2020) and the other (PL 1.472/2021) creates a fund to stabilise the fuel prices. Later on the same night, the lower house also approved PLP 11/2020, which is likely to be enacted by President Jair Bolsonaro. (Estadão)

The coordinator of the National Governors Forum, Wellington Dias (PT-PI), announced he will fight against the change in the ICMS tax on fuel approved by Congress. Governor Dias plans to submit the case to the Federal Supreme Court (STF). (Poder360)

The Senate unanimously approved a bill creating the National Education System (SNE). The proposal aims to systematise the educational system, establishing responsibilities between the Federal government, States and cities. The bill was sent to the lower house. (Estadão)

Two new electoral polls were released this week. The first was Paraná Pesquisas, in which 39% of voters would vote for former President Luiz Inácio Lula da Silva, against 31.1% of voting intentions for President Jair Bolsonaro (PL). The results show a slight variation from the February survey when Lula had 40.1% and Bolsonaro, 29.1%.

The second poll is the Ipespe poll. Lula leads the polls with 43% of voting intentions, against 28% for Jair Bolsonaro. Lula was stable in relation to the survey at the beginning of February, and Bolsonaro rose 3 points. Regarding the evaluation of the government, 52% consider it bad/worst (-2pp) and 27% evaluate the government as excellent/good (+3pp). The government’s approval rating (32%) increased by 1pp and the disapproval rating remained stable (63%).

The following is a compilation of the main registered election polls:

2. Economy – Petrobras announced a rise in fuel prices effective on Friday (11). After 57 days without any price adjustment, there will be a rise of 18.7% in gasoline prices and a 24.9% jump in diesel prices. (Valor)

Inflation has hit 1.01% in February. According to the Brazilian Institute of Geography and Statistics (IBGE), it is the highest level for the same month since 2015. Rises in education and food represented 57% of the result. (Estadão)

The Brazilian Central Bank (BC) extended on Friday (11) the prudential requirements for payment institutions (PIs) according to size and complexity. The regulation maintained simplified rules for conglomerates led by IPs and not integrated by financial institutions. (Valor)

On Thursday (10), the government released new employment numbers, which showed a positive balance in the number of jobs with signed employment contracts. There were 155,178 new jobs registered in January. The figure represents an increase of 3.8% compared with the same period last year. (Brazil)

3. Public administration – Vice President Hamilton Mourão travelled to Chile on Wednesday (9) to attend the inauguration of Chile’s new president, Gabriel Boric. (Poder360)

On Friday (11), the government launched the National Fertilizer Plan (PNF) to reduce foreign participation from 85% to 60% over the next 30 years. The plan started to be elaborated last year, before the Ukrainian war. (Poder360).

The Minister of Agriculture, Tereza Cristina, will travel to Canada on Saturday (12). The objective of the mission is to expand and secure potassium supply to Brazil. (Valor)

The Ministry of Mines and Energy published an ordinance creating the Sectorial Committee to Monitor the National Supply of Fuels and Biofuels due to the impacts of the war in Ukraine. (Poder360)

The Brazilian Air Force (FAB) used two aircraft to rescue a group of Brazilians and foreigners who were in Ukraine and managed to get to Poland. The group is composed of 43 Brazilians, 12 of whom are minors, 19 Ukrainians with Brazilian family members, 3 of whom are minors, 5 Argentines, one of whom is a minor, and a Colombian. Also on the flight were 10 pets. (Brazil)

The Federal Police (PF) is serving search and seizure warrants today at addresses linked to federal deputies of the PL, the party of President Jair Bolsonaro, for suspected embezzlement of funds from parliamentary amendments. The case is being held in secret from Justice. (UOL)

An analysis:

1. The political trajectory for the incoming week remains positive. The level of institutional conflict remains low, the presidential coalition continues to show signs of vigour, popular support remains stable, at levels of 12 months ago, and electoral polls show a slight gap reduction between Bolsonaro and Lula.

The parliamentary coalition supporting the government is working well. The approval of the project PLP 11/2020 by the House is an example of this, and the government does not support the other bill, the one with the idea of the stabilization fund. In other words, the agendas of interest to the government are advancing. Beyond the merit of the proposal, there is a political dimension of the approval of PLP 11/2020: by reducing the tax collection of the states, the federal government limits the capacity of salary increases for state employees. We must remember that the states have their coffers full. In São Paulo, for example, the government has granted increases of between 10 and 20% to civil servants.

The PL and Bolsonaro would benefit most from this logic. PL has only one governor, that of Rio de Janeiro, while PT, for example, governs four states (RN, PI, CE, BA), PSB also governs another four (PE, PB, MA, ES) as well as three o PSDB (SP, RS and MS). União, the party from which many parliamentarians will join the PL, governs four states.

But not everything is calm. For now, it’s pure speculation, but there is a rumour that Bolsonaro plans to control larger chunks of the PL and redistribute the massive campaign budget as he sees fit. Some politicians see the beginning of this movement in the Federal Police operation against PL politicians, while others think Waldemar da Costa Neto, PL’s mighty President, would have the tools and ability to maintain control of the party. This is something to be monitored because it could disrupt the political support base in Congress before the elections.

Finally, the government’s approval ratings remain stable in the latest polls, having oscillated by 1 or 2pp in 2022. Election polls show that Bolsonaro has been able to shorten the gap, but it remains unclear whether this will continuously occur. The war in Ukraine and the resulting global price inflation bring a lot of political uncertainty and could hinder this growth.

2. The economy remains on a positive trend for next week. The government seems to believe that the rise in international oil prices does not reflect objective supply and demand numbers, but a speculative movement on the outcome of the conflict. The international effect would last a few more months, but would not be something structural, that is, permanent. It may be that this is the most likely path. In any case, the increase in fuel prices is bad news and should pressure inflation in March, but it has not yet altered most projections for 2022.

In a classic supply shock like the one now occurring in Brazil, the monetary policy, as it is known, loses effectiveness to control prices. The Central Bank should raise the Selic rate at the next Copom meeting, scheduled to take place next week (15 and 16 March).

Concerning public accounts, only 22% of Treasury bonds mature in 2022, amounting to R$ 1.2 trillion, a figure already available. In other words, it is unlikely that the government will issue new bonds to extend the debt.

With regard to fiscal policy, revenues continue to grow, both due to inflation and to lower government spending.

3. Public management continues in a positive trend for the next week, without major changes. The government has responded relatively promptly to issues related to Ukraine, as in the search for solutions to the fertilizer issue, the repatriation of Brazilians in Ukraine was successful and the creation of the committee to monitor fuels.

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