The Week Ahead in Brazil #130


1. Politics – President-elect Luiz Inácio Lula da Silva (PT) spent the week in Egypt, participating in the UN Climate Conference (COP-27). Lula was criticised for going to Egypt in a Gulfstream jet owned by businessman José Seripieri Filho. Lula justified his choice for security reasons, as the Egyptian government and governors who invited him would not bear the transport costs. He returned to Brazil on Saturday (19). (UOL)

The Federal Highway Police said there was an increase in the number of roadblocks and interdictions in protest of the presidential election result. The roadblocks restarted on Friday (18). (Poder360)

The president of the PL, Valdemar da Costa Neto, said he would ask for the invalidation of votes in ballot boxes manufactured by 2020. In a video, Costa Neto said it is unfeasible to inspect such ballot boxes and that he will take the issue to the Superior Electoral Court (TSE). (Estadão)

2. Economy – The Central Bank’s Economic Activity Index (IBC-Br), considered a preliminary to the GDP, rose 0.05% in September. In August, it had retreated 1.13%. In the third quarter of the year, the economy registered an increase of 1.36%. (CNN)

The transition government presented the Transition Constitution Amendment Proposal (PEC) draft to Congress on Wednesday (16). According to the text, the government could spend R$200 billion above the spending limit. The main exception to the ceiling spending is the cost of the Family Grant, estimated at R $ 175 billion. (g1)

The Ibovespa fell 3.01% this week. One of the main reasons was the uncertainties generated by Lula’s statements regarding fiscal policy. The elected vice-president, Geraldo Alckmin, informed that there is no possibility of fiscal irresponsibility and that Lula has already proved in his previous mandates that he respects fiscal balance. (O Globo)

After criticism, Guido Mantega, former Finance Minister and member of the transition government’s planning, budget and management group, asked to leave the team. (g1)

3. Public Administration – The Federal Police suspended the issuance of passports due to a lack of funds. Scheduling continues to function normally. (g1)

President Jair Bolsonaro (PL) and several ministers have reduced the number of official appointments. A report in Estadão shows, for example, that the Minister of Justice, Anderson Torres, recorded only four official commitments this month, compared to 21 in the same period in 2021.

On Friday (18), Gilson Machado, former Minister of Tourism and defeated candidate for the Senate, was appointed as president of Embratur (Brazilian Agency for International Tourism Promotion) for four years. He is a close ally of the Bolsonaro family. Even with that mandate, the legislation allows Lula, upon taking office, to dismiss Machado from the presidency of Embratur. (UOL)

An analysis:

1.  The political trend remains neutral. Both the resurgence of protests in front of the barracks and on the highways and the statements of Valdemar da Costa Neto or the silence of Jair Bolsonaro cause, again, institutional tensions. The government’s parliamentary support base continues to change, seeking negotiation points with the transition team. Lula’s recent controversial statements add political unpredictability to a period that is already unstable by the elements pointed out last week.

The political negotiations in Brasilia revolve around the Transition PEC, linked to the election of the House and Senate leadership positions and the new government’s administrative composition. Regarding the PEC, analysts have a consensus that members of Congress should modify its scope and validity to prevent giving too much power to the new government. There is concern about limiting the period in which the spending cap should remain without including the Bolsa Família benefit. The idea is that the government will need to renegotiate the budgetary bases in 12 or 24 months. The forecast for the week is that negotiations around the PEC continue.

Despite these concerns, senators do not intend to deter the progress of the PEC. Quite the contrary. It is the initial materialisation of a political negotiation to enable the beginning of the new administration. The lawmakers seek, in exchange, to secure political commitments for the election of formal positions in both Houses and the composition of the government. Once the House and Senate executive boards are elected, the party leaders indicate the composition and election of the standing committees. These positions are fundamental for political control of the voting agendas and can help or hinder the governing agenda.

Another aspect that deserves to be observed is Lula’s discourse. After being imprisoned and almost politically liquidated, the president-elect was confirmed at the polls under unfavourable or unusual conditions. This type of victory tends to confer a high degree of self-confidence on the elected, something that has already happened, in different forms and circumstances, with Collor and Bolsonaro. The verbal slips that Lula committed during the campaign (I briefly listed them in Perspective #102) are likely to continue during this transition period. It remains to be seen whether he will continue in that mode during the government.  

In the House, there are plans to vote on the regulation of lobbying in Brazil and crypto-activities. In the Senate, there should be a concentrated effort to approve the designation of several ambassadors.

2. The economic trend remains positive, but fiscal uncertainty has increased. Lula’s statements and the lack of indications about the composition of the economic team bring economic instability. These events materialise, in the short term, in the Ibovespa, in the dollar exchange rate and in the interest rates of public bonds. The effects are felt in the real world. Also, the roadblocks and interruptions cause losses to small producers and traders, who begin to show signs of difficulties in their cash flow.

Despite these adversities, production bases continue to be well structured, and there is a contracted flow of investments. Another positive factor is the arrival of the Christmas period, which should be marked by the injection of resources through the 13th salary and the increase in temporary hiring.

3. After resisting for a few months with a neutral trend, the public administration presents a negative trajectory for the coming weeks. If, on the eve of the elections, the public machine functioned cohesively and efficiently, with the discontinuity of the current administration, this trend has been initially transformed from positive to neutral, and now to negative.

Many members of the Bolsonaro administration began to seek replacements in state governments, in the private sector or preparing to take office as governors, senators and federal deputies. Most have already “turned the key” or “abandoned ship”, as I have heard from senior officers throughout the government, a situation corroborated by the low intensity of official commitments of members in the highest positions. This movement opens room for growth for other members of the government. This does not necessarily represent a backward step, but the machine is less committed to new and temporary leaders. There is also the risk of arbitrary and possibly harmful decisions.

If Lula follows the timeline of the announcement of his ministers from the 2002 election, the new ministers should start to be known by mid-December. Only after the appointment of the new ministers and their assistants in 2023 should the trend be reversed. The signals that feed the trend metrics will continue to be duly observed.

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