The Week Ahead in Brazil #95

What is happening in Brazil?

1. Politics – The Brazilian Socialist Party (PSB) is expected to join the former governor Geraldo Alckmin (in party) on Wednesday (23), in Brasilia, in an event that should also seal the entry of other former Tucanos in the party. (Valor)

Vice-president Hamilton Mourão signed his membership form to the Republicanos, the party that will shelter him in the race for the Senate. The reserve general said he will remain loyal to President Jair Bolsonaro in his reelection project. (Valor)

Two electoral and government evaluation polls were released this week. Quaest’s electoral survey, conducted face-to-face with 2,000 respondents, shows that former president Luiz Inácio Lula da Silva (PT) leads voting intentions, with 44% against 26% of the current president. In comparison to the February survey, Lula is down 1 point and Bolsonaro rose 3 points, reducing the gat from 22 points in February to 18 points in March. Sérgio Moro and Ciro Gomes remain stable and tied with 7% each. PoderData’s poll was conducted with 3,000 people by telephone. It shows Lula with 40% and Bolsonaro with 30%. In the previous poll, the score was 40% to 32%, which shows a slight increase in the gap from 8 points to 10 points.

In relation to the Quaest’s evaluation of the government, 49% (-2pp) consider the government negatively, against 24% (+2pp) of those who consider the government as positive, and 25% as regular. The survey also brings an interesting fact: for 75% of respondents, Bolsonaro made the right decision by preferring to remain neutral concerning the war in Ukraine.

The PoderData survey shows the government’s approval ratings are down 2 percentage points (from 37% to 35%) and the disapproval rating is up 4 percentage points (from 53% to 57%). In two weeks’ time, the gap increased from 16 percentage points to 22.

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

2. Economy – The Brazilian Central Bank’s Monetary Policy Committee (Copom) decided to raise basic interest rates by one percentage point, from 10.75% per annum to 11.75%. This is the ninth consecutive increase and the highest level in five years. In April 2017, the Selic reached 11.25%. (Valor)

The Secretariat of Economic Policy (SPE) revised to 1.5% its estimate for Gross Domestic Product (GDP) growth in 2022, against 2.1% projected previously. The reduction is due to statistical factors and the issue of war in Ukraine. The expectation for the inflation rate (IPCA) of 2022 increased from 4.70% to 6.55%.

Here is some of the data presented:

Brazilian agribusiness exports reached $10.5 billion last month, 65.8% more than a year earlier, hitting a new record high for February. As a result, the share of agriculture in Brazil’s total exports grew again and reached 45.9%. (Valor)

The unemployment rate in Brazil stood at 11.2% in the quarter ended in January, the IBGE (Brazilian Institute of Geography and Statistics) reported on Friday (18). The figure is the lowest for the period since 2016 and is 0.9 percentage points below the rate recorded in the previous quarter, which ended in October. The market had expected the rate to stay at 11.4%. (CNN)

The volume of services provided in the country shrank 0.1% in January compared to the previous month. Despite the drop, the services sector is 7% higher than in February 2020, before the pandemic. (Estadão)

The Brazilian trade balance reached a surplus of US$ 7.53 billion in the year to date, until the second week of March, with a high of 18.4% by daily average, over the period from January to March 2021. The trade flow (sum of exports and imports) reached US$ 101.16 billion, with a growth of 24.5%. Exports in 2022 already total US$ 54.35 billion, up 24.1%, while imports rose 25.1% to US$ 46.81 billion. (Brazil)

Brazilian agribusiness exports reached US$ 10.5 billion last month, 65.8% more than a year earlier and a new record for February. With this result, agribusiness participation in Brazil’s total exports grew again and reached 45.9%. (Valor)

3. Public administration – The government issued two provisional measures on Tuesday (15). One sets the new framework for securitization. The MP created new financing instruments, such as the Insurance Risk Note (LRS) and the Receivables Certificate (CR), besides consolidating the entire securitization market in a single law. The second MP covers rural guarantees through Rural Product Certificates (CPR), a security issued by producers to finance production or agricultural projects. (Valor)

In addition to these two MP, the government has launched the Income and Opportunity Programme, which provides a series of measures to boost the recovery of employment and the economy in the country. One relates to the offer of credit line for entrepreneurs (MP 1107/22), another to the extraordinary withdrawal of part of the FGTS (MP 1105/22), and the last one to the anticipation of the 13th salary of retirees and pensioners of the INSS and release of payroll loans for those who receive welfare benefits, such as Brazil Aid (MP 1106/22).

The Ministry of Justice and Public Safety (MJ) has ordered streaming platforms to suspend the screening of the Brazilian movie “How to become the worst student in school”. The decision came after Eduardo Bolsonaro, a congressman and second son of the president, shared a scene from the movie alleging that it makes an “apology to paedophilia”. Jurists have said the decision is illegal and at least two platforms have said they will not comply. (Estadão)

Canada plans to increase fertiliser exports to Brazil by 10%. The estimate was presented to the Minister of Agriculture, Tereza Cristina, during a visit to the country. (Estadão)

An analysis:

1. Politics remains with a positive trend for the next week. The baseline of the analysis did not bring institutional conflicts and there are no controversial agendas foreseen, neither in Congress nor in the Judiciary. The quasi-suspension of Telegram, already revoked today, Sunday, had the potential for some points of tension, but, still, it would not change our perspective. Bolsonaro has adopted, since the episodes of September 8, 2021, and with some occasional exceptions, a more institutional and moderate stance. Moreover, the president now has responsibility for a major party, the PL, and this also works as a moderation net for Bolsonaro’s discourse. It will not always be like this, but, for now, it is the new starting point.

The government’s parliamentary support base continues to grow, especially with the increase, so far, of parliamentarians from other parties who are migrating to the PL, PP and Republicans. In relation to popular support, there have also been no significant changes and the electoral polls show, on average, a slight continuous reduction in the gap between Lula and Bolsonaro.

When analysing the polls registered this year with the Superior Electoral Court (TSE), the averages of voting intentions show that Lula lost 2 percentage points and Bolsonaro rose 3pp. For politicians, this data is important because it signals the government’s resilience to move forward with the agenda. In the current scenario, politicians are afraid of withdrawing support from the government and losing access to offices and resources from parliamentary amendments. The most common thing is to seek a closer relationship with Bolsonaro.

One way to demonstrate this support, along with the desire to be re-elected, is the migration to the PL, which should becomethe largest bench in the House. Starting next month, the political environment is potentially more positive for the advancement of public policies, because there is greater convergence between the government agenda and parliamentary support. If it were the opposite, for example, with Lula growing and Bolsonaro falling, the public policies managed by the government would have less chance of being approved, because the support would move further away from the government towards the opposition.

Lastly, Queaest’s research brings relevant insights into politics. The first is about the Brazilian government’s position of neutrality regarding the war in Ukraine. Although the majority of Brazilians are in favour of Ukraine in the conflict, 75% of the population supports Brazil’s neutrality towards Russia. The other aspect is concerning the government’s measures to curb fuel prices, which also gained the support of the majority of respondents. These perceptions reverberate in politics because parliamentarians will have their arguments to criticize the stance of the government and President Bolsonaro himself watered-down on those issues.

2. The economy remains on a positive trend for the coming week. The conflict in Ukraine continues to increase uncertainties in the economy, especially in the disarticulation of productive chains and the increase in commodity prices. The direct effect, however, seems limited. International oil prices retreated from last week’s high, as did the dollar exchange rate.

The increase in the Selic rate to 11.75% was expected by the market. Although it is less effective because of the supply shock and global inflation, the Central Bank, according to the meeting’s report, is confident in the monetary policy. The Central Bank expects that at the end of the cycle, with the rate around 12.75% p.a., the current scenarios would guarantee the convergence of inflation to the target.

Despite these difficulties, the trend towards job recovery is good news, in addition to the flow of resources into the economy via provisional measures. The results of the trade balance and foreign investments also contribute to exchange rate appreciation.

3. The public management is back into a neutral trend for the next week. The government has issued several programs to improve the economic situation and this is positive. Both through the provisional measures and in the search for alternatives to increase the availability of fertilizers for Brazil, the management has demonstrated that it seeks solutions to public problems. That is the most recent positive aspect. The retreat from positive to neutral, however, occurred due to a deterioration in leadership and paradigm, as a consequence of MJ’s decision to suspend the film “How to become the worst student in school”.

It was evidenced that some processes react in defiance of the principle of impersonality, one of the principles of public administration. When it happens in a government’s office, it is a bad sign because it is likely to happen again and again. Apparently, the order to suspend the screening of the film occurred due to interference by Congressman Eduardo Bolsonaro, the president’s son.

In a more developed management framework, if the motivation to suspend the film had echoed in the government, the natural course would have been an open debate. Several stakeholders could join in, such as other government departments, politicians, the streaming companies and society. This would have given MJ more legitimacy to any of its decision, such as the eventual reclassification of the film, including whether or not it makes an apology for the crime of paedophilia, and if any measures should be taken to preserve the public interest.

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