The Week Ahead in Brazil #132 – 05/12/2022


What is happening in Brazil?

1. Politics – Senator Marcelo Castro (MDB-PI) presented the Transition Constitution Amendment Proposal (PEC) on Monday (28). The initial text limits the budgetary exemption up to 2026. The proposal is expected to pass in the Senate until Wednesday (7). The report on the PEC should be in charge of Senator Davi Alcolumbre (União-AP).

The president-elect, Luiz Inácio Lula da Silva (PT), spent the week in Brasilia. Besides dealing with the approval of the Transition PEC, Lula met with political leaders of the MDB, PSD and União Brasil to accelerate the formation of the parliamentary base to support the government.

President Jair Bolsonaro (PL) suspended payments of parliamentary amendments from the so-called “secret budget”. The decision came after the formalization of support from PT and PSB to the re-election of Arthur Lira (PP-AL) to the presidency of the lower house.

2. Economy – The government announced that federal tax collection in October hit R$ 205.4 billion, a record for the month since 1995 when the series began. The accumulated in 2022 reached R$ 1.85 trillion, 9.3% above that recorded in the same period in 2021 and also a historical record.

The Ministry of Economy informed the net creation of 159,454 new formal jobs in October.

The unemployment rate in Brazil fell 8.3% in the quarter through October. It is the lowest level for this interval since 2014.

3. Public Administration – The vice-president-elect, Geraldo Alckmin (PSB), met with vice-president Hamilton Mourão (Republicans). The conversation was about the administrative structure of the vice presidency.

The TSE (Superior Electoral Court) has scheduled the graduation of Luiz Inácio Lula da Silva (PT) and Geraldo Alckmin (PSB), president and vice-president-elect, for December 12.

Inpe (National Institute for Space Research) reported that the rate of deforestation in the Amazon fell by 11% from August 2021 to July 2022 compared to the previous 12 months.

Esteves Colnago, special secretary of Treasury and Budget, resigned on Thursday (1) and left the Ministry of Economy. He must serve six months of quarantine before moving to the private sector.

An analysis:

1. The political trend remains undefined. The level of institutional conflict should remain low, mainly due to Bolsonaro’s silence and the decrease in politically sensitive decisions by the TSE and STF. Tensions, such as the contestation of the reliability of electronic ballot boxes or the legitimacy of Lula’s inauguration and issues related to pro-Bolsonaro demonstrations, practically submerged in the press and social networks.

Last week, Lula’s presence in Brasilia unlocked several issues: the Transition PEC moved forward, MDB, União and PSD are getting closer to becoming part of the parliamentary base, and the formation of ministries may bring revelations later this week. Lula has made efforts to announce his ministry only after TSE’s legal procedure, but some names are becoming more evident. The president-elect arrives in Brasilia again on Monday to closely follow the PEC’s progress and advance in political negotiations. Although the agenda of the Constitution and Justice Committee (CCJ) in the Senate has not yet been disclosed, the report of Senator Davi Alcolumbre (União-AP) on the PEC may be voted on Wednesday.

In the lower house, the Minister of Economy, Paulo Guedes, Wagner Rosario, Minister of the Comptroller General of the Union and Augusto Heleno, of the Institutional Security Cabinet, should be heard in public hearings.

2. The economic trend remains positive. With the debate and possible vote on the Transition PEC, the fiscal uncertainties should be softened in the coming week. The market was relieved by the initial limitations of the text. They still hope that members of Congress will manage to place other restrictions on spending, thus reducing the fiscal risk.

Copom’s (Monetary Policy Committee) meeting is scheduled to decide on maintaining the Selic rate, currently at 13.75%. Analysts report that the slowdown in the economy is due to high-interest rates. Observing the connection between fiscal policy and its effects on monetary policy is necessary. Nevertheless, December should still bring favourable news for the economy, with an injection of resources into the economy and a drop in the unemployment rate.

On Friday (9), the IBGE will release the November inflation result measured by the IPCA.

3. The Public Administration continues on a negative trajectory. Several ministries report a lack of resources, while many civil servants resign to secure other professional opportunities. Important decisions are also being suspended, awaiting guidance from the new government.

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