The Week Ahead in Brazil #110

1. Politics – On Tuesday (28), Senators filed a petition with 31 signatures for establishing a parliamentary inquiry committee (CPI) to investigate the Ministry of Education. (Folha)

The Superior Electoral Court (TSE) has set the spending cap for the presidential campaign at R$ 88.3 million for the first round, and an additional R$ 44.1 million for candidates in the second round. (Folha)

The Senate approved the proposed amendment to the Constitution (PEC 1/2022) that institutes a state of emergency in Brazil until the end of the year to expand the granting of social benefits by up to R$ 41.25 billion. The bill follows for consideration by the Chamber of Deputies. (Senate)

Earlier this week, President Jair Bolsonaro (PL) selected General Braga Netto to be his running mate as vice-president. Braga Netto was exonerated to articulate and coordinate the presidential campaign. The slate will be officialized at a party convention on July 23 (Poder360)

The FSB/BTG survey, released this week, interviewed 2,000 voters by telephone from 24 to 25 June. The survey shows Lula with 43% (-1 percentage point) and Bolsonaro with 33% (+1pp) of voting intentions in the first round. The government is considered “bad/worst” by 50% of those interviewed and “great/good” by 29%.

Below is the compilation of the poll selection and the monthly average:

2. Economy – Brazil created 277,018 formal jobs in May. The result was the second-best for the month in 12 years, second only to 2021 when 278,705 jobs were created. The unemployment rate, measured by IBGE, fell to 9.8% in the quarter ended in May. The result is 1.4 percentage points lower than the previous quarter and is the lowest level since 2015. (Folha)

 The federal public accounts registered a deficit of R$39.4 billion in May. The result is 68.1% higher compared to the same month in 2021. In the year-to-date, public accounts recorded a surplus of R$ 41.83 billion, the best result since 2013. (Valor)

The Central Bank announced a surplus projection of US$ 4 billion in Current Transactions for 2022. It will be the first positive annual balance since 2007. (Estadão)

In May, Brazilian agribusiness exports totalled US$ 15.11 billion, an increase of 14.2% compared to the same month last year. The value was a record in May. (Brasil)

São Paulo, Goiás and Minas Gerais reduced ICMS on fuel and other essential services. Some states are expected to continue applying the reduction voluntarily, but others will await the Federal Supreme Court’s (STF) decision.

The government announced that it will not increase the value of food remuneration for public employees in 2022. (Poder360)

State-owned companies controlled by the federal government had net profits of R$ 188 billion in 2021, a historical record and three times the amount verified in 2020. (Valor)

The government held an auction of 5.4 thousand km of power transmission lines. The investment forecast is R$ 15.3 billion and generates more than 30 thousand direct jobs. (Brazil)

3. Public management – The government has launched the 2022/2023 “Plano Safra”. The amount of R$ 340.8 billion available in rural credit is 36% higher than last year.

Caio Paes de Andrade took office as the new president of Petrobras on Tuesday (28). He was elected by 7 votes in favour and 3 against from the board of directors. (Poder360)

The president of Caixa Econômica Federal, Pedro Guimarães, resigned after accusations of sexual harassment. Daniela Marques, who held the position of Special Secretary of Productivity and Competitiveness, was appointed as the institution’s new president.

1. Executive continues to feel the effects of the two negative episodes of last week. Although the Petrobras CPI was aborted, the request for the opening of the MEC CPI was effectively filed. As if these difficulties were not enough, the government was directly affected by the issue involving the former president of Caixa, Pedro Guimarães. Although the damage was quickly contained by the government, with Guimarães’ departure and the appointment of a woman to the command of the institution, Bolsonaro may have made a mistake in the way he conducted it. Upon noting the gravity and volume of the charges, the President could have diminished resistance in the female electorate by declaring that the government does not tolerate this type of conduct and fired Pedro Guimarães right away. He opted, however, for silence and dismissal “on request”. The three episodes will be exploited by the opposition during the presidential campaign.

These difficulties, however, did not hinder the approval of PEC 1/2022 by the Senate, not only evidence of the government’s legislative support, but a sign that the bill can effectively mitigate the economic difficulties suffered by the poorest population. Distributive public policies, as is the case of this bill, are easier to be approved and raise a low level of conflict. Because of this and the electoral moment, the opposition was unable to react and block its progression. The case should repeat itself in the House and allow deputies and senators to reap the fruits in their electoral strongholds. The big question, however, is: to what extent does it help Bolsonaro in time for a recovery in the polls? Political analysts do not reach a consensus on this. It seems plausible, however, that Bolsonaro could benefit from these measures, especially if we consider the set of benefits, including the reduction of ICMS (the state tax) on gasoline and other essential goods and services.

Finally, the level of institutional conflict remained low this week and support indexes did not change significantly. It is worth noting that the average of the June polls had a 1pp increase for both Bolsonaro and Lula. For next week, attention will be focused on Senate President Rodrigo Pacheco’s decision on the installation of the MEC parliamentary investigation committee.

2. The economy continues on a positive trajectory. The economic scenario still brings fiscal uncertainties and inflationary pressures, but it is unequivocal that the economic picture presented during the week was largely positive. If, on the one hand, government spending on the “package of goodies” has increased (it should cost the government around R$ 40 billion), on the other, inflation in July could retreat with the tax waivers. Besides, the government is directing subsidies to those who need them most, and not diluting the resources through society as a whole. In this way, the government’s plan makes sense and is something that many analysts have been recommending as a way out. The argument that these are electioneering measures, however, is not unreasonable, of course, but that should not diminish the value of the technical component of the measures, so much so that PEC 1/2022 was approved in the Senate with only one vote against it.

Another positive aspect of the week came with the unemployment rate falling, evidencing a heated labour market, and allowing the expansion of the real wage mass. With this, an increase is expected in the participation of spending in the GDP in the second half of the year. The results of the current transactions, the increase in exports of agro products and the surplus of state-owned companies also contributed to a more positive economic baseline for the beginning of July.

3. Public management continues in a neutral trend, with no major changes. Although the changes in the command of Caixa Econômica Federal and Petrobras have been solved by the Executive, there is a learning curve for the new presidents. It may still take a while for them to be able to produce positive results in their organizations. 

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