The Week Ahead in Brazil #129

What is happening in Brazil?

1. Politics – The president of the PL, Valdemar Costa Neto, announced that the party will oppose the government of President-elect Luiz Inácio Lula da Silva (PT) and that Jair Bolsonaro (PL) was invited to be PL’s president of honour. (Estadão)

Lula (PT) met with the president of the Chamber of Deputies, Arthur Lira (PP-AL), in Brasilia, on Tuesday (9). Then he met Rodrigo Pacheco (PSD-MG), Senate president, and Supreme Court ministers (STF). Lula said he would not interfere in the dispute for the presidency of the lower house and called for the normalisation of the relationship between the powers. (Estadão)

Vice-president-elect Geraldo Alckmin (PSB) made official 44 members of the transition government. There are positions of sectorial coordination and composition of technical groups. (Poder360)

Senator-elect Wellington Dias (PT-PI), who is part of the Transition Political Council, informed on Friday (11) that the so-called Transition PEC, an amendment in the Constitution to allow social spending, should only be presented on Wednesday (16), after the Republic Proclamation holiday. (Senate)

Protests against the inauguration of President-elect Luiz Inácio Lula da Silva (PT) continue in several cities. The demonstrations are likely to increase on Tuesday (15), the holiday of the Proclamation of the Republic, in Brasilia, in front of the Army HQ.

2. Economy – The proportion of Brazilians living in extreme poverty (less than US$ 2.15 per day) fell from 5.39% in 2019 to 1.95% in 2020. It was the lowest rate recorded in the World Bank’s historical series, which began in 1981. The report points to emergency aid as the main factor for the result. (Folha)

The volume of services in Brazil grew by 0.9% in September compared to August. It is the fifth consecutive positive result, with accumulated gains of 4.9% between May and September. The sector is 11.8% above the level of February 2020, pre-crisis health Covid-19, and has reached the highest level of the historical series. (Brazil)

The financial market reacted severely to President-elect Luiz Inácio Lula da Silva’s (PT) statement on putting social spending ahead of fiscal responsibility. The stock market fell 3.35%, the dollar rose 4.14%, and trading in Treasury bonds was suspended. Lula spoke about social spending to parliamentarians at the Centro Cultural Banco do Brasil (CCBB) on Thursday (10).

After three months of deflation, the IPCA (National Wide Consumer Price Index) registered an increase of 0.59% for October. Year-to-date inflation reached 4.7%, and in 12 months, 6.47%. (g1)

Agribusiness exports in October were a monthly record, reaching US$ 14.25 billion. The figure was 61.3% higher compared to what was sold abroad in October 2021. (Brazil)

3. Public Administration – The Federal Police opened an enquiry to investigate the actions of the director general of the Federal Highway Police (PRF), Silvinei Vasques, before and after the second round of presidential elections. (g1)

The Ministry of Defense released its report on the elections on Wednesday (9) and found that it did not identify any irregularity in the election in relation to electronic ballot boxes. Nevertheless, they pointed out risks and some restrictions and suggested improvements. The Superior Electoral Court (TSE) released a note celebrating the conclusions. (TSE)

The deforested area in the Amazon in October was 903 km2. The number is the highest recorded by Inpe (National Institute for Space Research) since 2015. (Folha)

Lula (PT) embarked on Monday (14) from São Paulo on a trip to Egypt, where he will attend COP 27, the United Nations (UN) Climate Conference. (g1)

An analysis:

1. The political trend remains neutral. Institutional conflicts are in decline, and Bolsonaro’s parliamentary base is diminishing its solidity, migrating partially to Lula and the new government. The levels of popular support for Bolsonaro remain stable.

An increase in political instability in Brasilia during this transition period is inherent. We can observe at least three elements that contribute to this volatility. The first element relates to Bolsonaro himself. As a political actor, he offers resistance to the transition period through his capacity for popular mobilisation. The demonstrations tomorrow (15), on the Republic holiday, may give a better dimension if the situation may worsen or cool down for good. In addition, Bolsonaro adds natural pressure through the control of administrative structures. Bolsonaro has appointed the occupants of several relevant positions, and although many will migrate to the new government, some will remain loyal to Bolsonaro.

The second factor is Lula’s coalition government. Supported by a broad party composition, members of the PT are demanding more space in the transition and more public policies further to the left. Alckmin has been a skilful and valuable ally in contemporising the various political currents orbiting the CCBB, but Lula has the last word. The Lula 3.0 administration may be more pragmatic and move towards the centre in its decisions, but occasional decisions may raise economic problems. This is a problematic element to operationalise on a day-to-day basis and deserves to be observed. In addition, the appointment of the ministers, especially that of the Economy or Finance, is the other critical aspect that adds tension to the transition process.

Finally, the third component is the Legislative branch succession. Electing formal positions in the Senate and Chamber of Deputies is fundamental for governability. Party leaders will appoint the presidents of the permanent committees. These parliamentarians will be the formal leaders of administrative and political structures with enormous power to set agendas and to decide whether or not to put matters of interest to the government on the agenda. The point is that PL has won the largest number of seats in the National Congress, with 99 deputies and 14 senators, and has already established itself as the opposition to the government. The PL is articulating the re-election of Arthur Lira (PP-AL) to the presidency of the Chamber of Deputies in exchange for the support of a PL senator to become the next president of the Federal Senate. PT says it will not interfere in the elections for the two houses’ presidency, but Rodrigo Pacheco’s re-election is in the plans of Gilberto Kassab, president of the PSD and who should be part of the parliamentary base of the new government.

From now until February 2, 2023, these are the primary domestic elements that will influence the political world in Brasilia.

2. The economic trend remains positive. Monetary policy continues to be properly managed by the Central Bank. Nevertheless, uncertainties persist regarding fiscal policy. There is great expectation regarding the appointment of the names of the economic team, as well as the presentation of the Transition PEC. These factors will be indicative of the fiscal framework for 2023. The information that there was a drop in extreme poverty levels is something to be celebrated. The unemployment rate remains stable.

3. Public administration continues in a neutral trend without significant changes. Lula’s participation in COP27 can raise the international profile of Brazil on issues related to the environment. Meetings are planned with heads of government and heads of state of other countries.


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