The Week Ahead in Brazil #102

What is happening in Brazil?

1. Politics – The Wednesday (4) edition of Time magazine published an interview with former President Luiz Inácio Lula da Silva (PT) on its cover. Under the title “Lula’s Second Act” and with his photo on the cover of the publication, the interview had negative repercussions for its campaign. In the midst of polemic statements in recent months, Lula equated the president of Ukraine with the president of Russia. (Correio Braziliense)

The president of União Brasil, Luciano Bivar, confirmed that the party has withdrawn from the so-called third-way project. Bivar announced a pure-blood slate, with a vice-presidential candidate from the same party. (Folha)

Reuters revealed that the director of the Central Intelligence Agency (CIA) told top Brazilian officials last year that President Jair Bolsonaro should stop casting doubt on the Brazilian voting system. (Reuters)

The Armed Forces have sent 88 questions to the Superior Electoral Court (TSE) in the past eight months about alleged risks and weaknesses in the electoral process. Bolsonaro said his party will hire private auditing of the elections. (Estadão)

Two million 16 to 18-year-olds registered to vote in the 2020 elections between January and April of this year. (Estadão)

President Jair Bolsonaro fully vetoed a law to foster culture, known as the New Aldir Blanc Law, on Thursday (5). He claimed that the project is “unconstitutional and contrary to the public interest”. The proposal provided R$ 3 billion per year for culture. (Estadão)

On Tuesday (3), deputies approved the urgency request for the Legislative Decree Project (PDL) 94/22. The PDL suspends the effects of the resolution of the National Electricity Agency (Aneel) that authorized readjustments in energy tariffs. The project may be voted in the next plenary sessions (Agência Câmara de Notícias)

Members also approved on Wednesday (4) the project that establishes a national floor for nurses without indicating a specific source to fund the expense. The text was criticized by the economic team and by states and municipalities for fear of the impact of this change on their finances. (Folha)

The National Congress enacted on Thursday (5) the Constitutional Amendment 120, which guarantees a national wage floor of two minimum wages (R$ 2,424.00/month in 2022), for community health agents and agents to combat endemic diseases. (Agência Câmara de Notícias)

An Ipespe survey conducted from May 2 to 4, 2022, with 1,000 voters, by telephone, showed former President Luiz Inácio Lula da Silva (PT) with 44% (-1 percentage point) of voting intentions in the first round, and President Jair Bolsonaro (PL) with 31% (stable).

The survey also shows that the government is considered “great/good” by 31% (+1pp) of those interviewed, and 52% (stable) consider the government as “bad/worst”. Approval ratings stood at 35% (+1pp) and disapproval ratings at 62% (stable).

Here is the compilation of the election polls:

Fonte: elaboração própria

2. Economy – The Economic Policy Committee (Copom) of the Central Bank raised the basic interest rate (Selic) by one percentage point yesterday, to 12.75% per annum, as expected, and, given the deterioration of the scenario, indicated that the high cycle will be extended to the next meeting. (Valor)

IBGE informed that the Brazilian industrial production advanced by 0.3% in March. In the first quarter of 2022, the sector accumulates a fall of 4.5% compared to the same period in 2021. (O Globo)

The Brazilian trade balance had a surplus of US$ 8.1 billion in April. Compared to the same month in 2021, the drop is 13.9%. In the first four months of the year, however, the Brazilian balance accumulates a positive balance of US$ 19.947 billion, an increase of 10.5% over the same period of 2021. (Valor)

3. Public management – Companies and individuals have negotiated with the Union, since 2020, the value of R$ 263 billion in agreements for the payment of tax debts. Taxpayers have used the so-called “tax transaction” to negotiate debts with the Attorney General’s Office of the National Treasury (PGFN), which may grant discounts to the debts. (Valor)

The areas with deforestation alerts in the Amazon reached an absolute record in the recent history of Inpe (National Institute for Space Research), for April. A total of 1,012.5 km² of forest was cut. (Folha)

An analysis:

1. The political outlook for the week remains positive, with all metrics practically stable. The level of tension between the Executive and the Legislative remains high, mainly due to the electronic ballot box issue, but lower than last week. Parliamentary support for the government remains high, but there are signs of attrition. The numbers supporting the government remain stable. This week’s election poll did not bring any surprises either.

It is a political maxim: “evil is done at the beginning and all at once; goodness, little by little and close to the elections”. As already foreseen, in every election year, the members of the Brazilian parliament and the government approve several measures to increase public spending. They are as if they were the necessary fuel for re-election. It is in this context that one must understand the limitations of the federal government in restraining Congress members from approving “mini fiscal bombs”. Neither the Executive nor the Legislative branches want to be responsible for preventing these benefits, and this is the limit of parliamentary support for the government. In other words, the government continues to have ample political support in Congress, but cannot control certain issues without wearing down its allied base or a certain segment.

Besides the construction of the coalition over the past year and the probable election of a majority centre-right Congress, the broad political support for the government should also continue due to the gaffes committed by former President Lula. One of Brazil’s greatest political communicators, Lula’s recent statements may take votes away from the PT and transfer them to Bolsonaro. There have been at least six controversial statements in recent months: support for the decriminalization of abortion, removal of the military from commissioned positions in the government, encouraging protests in the homes of parliamentarians, that Bolsonaro “doesn’t like people, he likes policemen”, that the middle class boasts and that Zelensky would be as guilty as Putin over the war in Ukraine.

Bolsonaro also provokes unnecessary controversy, but he has the weight of the presidency on his back and political alliances holding him back, and the polls don’t seem to show much of a backlash. Lula’s speeches, on the other hand, provoke a different effect, because they do not attract undecided voters to a candidacy apparently stagnant in the first round. Lula was unable so far to make sound proposals on health or the economy, issues that are most dear to these voters. The parliamentary base perceives this difference. If we add to this the fact that Bolsonaro dominates communication on social media, and Lula does not, this picture becomes even clearer. In this way, it is plausible to say that Lula has been wrong in his statements, both in theme and form, failing to improve his numbers in the polls and pushing undecided voters towards Bolsonaro. Lula seems to have effectively made slip-ups, and not implemented a strategy.

For next week, Senate President Rodrigo Pacheco has called for a concentrated effort between May 10 and 12 to vote on the nomination of officials.

2. On the economic front, the positive trend for the week remains. In line with expectations, the monetary policy adjusted the Selic rate to increase the effectiveness of the fight against inflation. In a more uncertain scenario, a large part of inflation has a global origin (lockdown in China and war in Ukraine) and in the increase of the basic rate in developed countries, but part also stems from possible problems on the fiscal side. The logic continues at the pace of politics, arousing some additional concern with the approval of measures that increase public spending.

Despite this challenging and uncertain scenario, structurally, the Brazilian economy continues to be relatively well-positioned in terms of fundamentals. The trade surplus remains historically high, with exports maintaining a strong pace.

3. The trend in public administration remains neutral for the next week without major changes

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