The Week Ahead in Brazil #101

What is happening in Brazil?

1. Politics – On Sunday (24), the Minister of Defense, Paulo Sergio Nogueira de Oliveira, issued a statement rebutting statements by the minister of the Supreme Court (STF) that the Armed Forces would be working to discredit the electoral system in Brazil. On Wednesday (27), President Jair Bolsonaro (PL), suggested that the Armed Forces should do a sideline vote-counting and criticized the current electoral process. (Estadão)

Referring to the case of congressman Daniel Silveira (PTB-RJ), the presidents of the Senate and the House, Rodrigo Pacheco (PSD-MG) and Arthur Lira (PP-AL), said that it is up to the legislators to have the final word on cassations. The minister of the STF and rapporteur of the case, Alexandre de Moraes, declared that the effect of Silveira’s ineligibility remains valid. (Estadão)

The Senate approved, on Tuesday (26), the project that regulates operations with cryptocurrencies in Brazil. Among several aspects, the proposal establishes penalties for money laundering and concealment. The bill proposal was sent to the House of Representatives for analysis. (Valor)

Twenty-two of the 25 permanent committees of the lower house elected their chairmen on Wednesday (27). Deputy Arthur Oliveira Maia (União-BA) was elected chairman of the CCJ, the most important one. Three committees postponed the election: Urban Development, Transportation and Tourism. (House)

The FSB/BTG survey, released on Monday (25), interviewed 2,000 voters between April 22 and 24 by phone. The government’s performance section shows that 51% (-2pp) of those interviewed evaluate the government as “bad/worst” and 30% (+1pp) as “great/good”. The disapproval rate is 61% and the approval rate is 35%.

Source: FSB Pesquisa

On the electoral dispute, the survey shows former president Luiz Inácio Lula da Silva (PT) with 41% (-2 percentage points) of voting intentions and president Jair Bolsonaro (PL) with 32% (+3pp). The survey also brought an interesting survey about the importance of the vice president in the elections.

Source: FSB Pesquisa

The other electoral survey was from PoderData, which interviewed 3,000 voters, between April 24 and 26 by phone. The survey shows the disapproval rate at 54% and the approval at 38%. As for the electoral race, it shows Lula leading the electoral race with 41% (+1pp) of the voter’s preference, followed by Bolsonaro with 36% (+1pp). (Poder360)

Source: PoderData

Here is the compilation of the election polls and the monthly averages:

Source: developed by the author
Source: developed by the author

2. Economy – With an increase of 34% compared to the same month last year, Direct Investment in Brazil (DDI) totalled US$ 11.843 billion in February 2022. It is the highest value registered for the month since 1995. See the full report here. (CNN)

The Focus report, released this week by the Brazilian Central Bank, shows that the market increased its 2022 inflation forecast from 6.86% to 7.65%. (CNN)

The IGP-M inflation index hit 1.41% in April. The index is now at 6.98% in the accumulated of the year and at 14.66% in 12 months. The rise was below the market’s forecast. (Valor)

According to a report from the National Treasury, the government registered a primary deficit of R$ 6.3 billion in March. The government expects a surplus of R$ 49.6 billion for 2022. (Valor)

The lower house approved a provisional measure setting the new minimum value of the Auxílio Brasil social programme at R$ 400 a month. The bill proposal was sent to the Senate for voting. (Valor)

The federal tax collection recorded an increase of 6.92% in March, compared to the same month in 2021. It reached R$ 164 billion, a new record for the month in the historical series that began in 1995. In the quarter, it reached R$ 548 billion, a real increase of 11.08% compared to the same period in 2021. (Valor)

The government announced a new cut in the rates of IPI (Tax on Industrialized Products) from 25% to 35%. The measure will be effective immediately and, as it is a regulatory tax, it does not require compensation. The impact on tax collection will be of R$ 27.4 billion in 2023 and R$ 29.3 billion in 2024. (Folha)

The General Registry of Employed and Unemployed (Caged) recorded, in March, 136,189 new jobs with signed employment contracts. According to the IBGE (Brazilian Institute of Geography and Statistics), the unemployment rate in Brazil was 11.1% in the first quarter of the year. The market estimated the rate at 11.4%. (Valor)

The new directors of the Brazilian Central Bank took office on Tuesday (26). Diogo Abry Guillen takes over the economic policy directorate and Renato Dias de Brito Gomes will be in charge of the financial system organization and resolution directorate. (Valor)

3. Public management – A study presented by the National Confederation of Municipalities (CNM) informs that there are almost 7,000 construction sites financed with public resources stopped since 2012. The main reasons are the federal intricate law framework and the lack of technical expertise of the municipal staff. (O Globo)

The Federal Supreme Court (STF) overturned the government decree that excluded civil society members from the deliberative council of the National Environmental Fund (FNMA). The STF determined the return of civil society in FNMA and decreed the unconstitutionality of two measures related to the environment: one that removed governors from the National Council of the Legal Amazon, and another that extinguished the Organizing Committee of the Amazon Fund. (EBC)

The government has concluded the fifth part of its review of normative acts that are less than a decree. During the so-called “Revisaço”, 42% of all acts already edited and reviewed were revoked. The percentage refers to the stage completed on March 31, 2022. (Brasil)

An analysis:

1. The week’s political outlook remains positive. There was a worsening in the institutional conflict metric. Parliamentary support for the government, however, remains high, and there were no major changes in the levels of public support for the Executive.

The issue of the ballot box and the episode with Daniel Silveira (PTB-RJ) continue to generate tensions, but may be cooling off. Bolsonaro knows he needs to captivate moderate voters, still disillusioned with the PT. It is in this sense that Bolsonaro’s slight restraint in recent days should be seen.

The average of the electoral polls in April showed Bolsonaro’s growth. From January to April. Bolsonaro grew 6 percentage points and Lula lost 1 point. It would be premature to affirm that the movement will continue at the same pace, but it is possible to observe how the pre-candidates will try to increase their electoral shares and continue crushing the space for the third way.

There might be an explanatory factor for that. The economy will likely continue to politically favour Bolsonaro (see below). While it is true that inflation has reduced the purchasing power of families, the economic recovery and well as the guarantee of continuity of the “Auxílio Brasil” are two key economic elements that contribute to strengthening the government. This scenario, should it keep going on, should positively influence Bolsonaro’s performance in the electoral polls.

2. On the economic front, the positive trend returns for the week. After a period without data, weeks without data, the inflation numbers came in high, but below the market’s expectations. April’s inflation should still come in high, but forecasts point to a gradual decrease from May onwards. The inflationary question should continue to be dealt with next week during the meeting of the Central Bank’s Monetary Policy Committee (Copom), the first with the participation of the new directors. The market forecast is that the Selic rate will be raised by 1 percentage point to 12.75% per annum.

From a fiscal standpoint, the news of the deficit was expected and is not a sign of concern for the time being. The tax collection numbers were positive, as was the preservation of spending on the Auxílio Brasil at the lower house, within the government’s goal. In the Senate, the expectation is the same.

The employment data is not yet spectacular, but it shows a tendency towards steady recovery. There was growth in job creation, especially in the services sector, and the balance continues to grow in the year. The number of formal jobs has already surpassed the pre-pandemic level and the average salary continues to recover. It is a high level of unemployment, but from a pessimistic point of view it is not abnormal, and from an optimistic point of view it is already much better than expected. Finally, the inflow of resources for investments in the country is also positive. If we consider this conjuncture, even more with the investments contracted in the concessions that should generate more jobs and increase the average wage, this is an extremely favourable combination for the government.

3. The trend in public management remains neutral for the next week without great changes. The paralysis of public-funded construction sites throughout Brazil is a serious issue, but it involves a history of bureaucracy and lack of training with effects until today. It is in this sense that the “Revogaço” should be understood: as a way to increase State speed, preserving the legal acts, to the extent that government actors manage to “deliver” public policies – in the form of infrastructure, budget allocation, laws, regulations and so many others – that effectively generate a positive impact on society.

The environment continues to be a negative keynote in government. Although not as bad as in the Ricardo Salles administration, the government, as a whole, continues not to give due attention to the issue. Many consider that the decision of the STF was an interference in the Executive, but I tend not to agree with this statement for two reasons. The first is because the Brazilian Public Administration is composed of the three branches (Executive, Legislative and Judiciary), and public policymaking is carried out throughout the Public Administration as a whole, not just the more visible ones. The other is because the Brazilian institutional framework is confusing and complex. Both because of the country’s culture and history, the three Powers do not always work in harmony. In this way, it is possible to understand that the STF’s act of broadening social participation in the debate on public policy is part of this process.

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