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Brazil Daily

Brazil’s controversial foreign minister to face chop if Biden wins

Today, how a Biden win in the U.S. could cost Brazil’s Foreign Minister his job.. The plans to vaccinate Brazilians against Covid-19 in January. And what you need to know about Brazil’s municipal races.

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Biden win could lead to cabinet reshuffle in Brazil

The U.S. presidential election will take place in 18 days — but more than 15 million Americans have already voted early. [restricted]And the odds suggest that former Vice President Joe Biden will unseat Donald Trump (per FiveThirtyEight’s model, Mr. Biden has an 87-percent chance to win the electoral college). And while a Biden win shouldn’t substantially alter the nature of Brazil-U.S.’ never-too-hot-never-too-cold relations, it could lead to changes in the Jair Bolsonaro cabinet.

  • According to Brasília correspondent Débora Álvares, the Brazilian president’s newfound allies — a group of ideology-free parties known as the “Big Center” — want to use the U.S. election as a pretext to bin Foreign Minister Ernesto Araújo, which they have reportedly been looking forward to for some time.
  • Mr. Araújo is known for his anti-globalist, Sinophobic views. He also wrote once that Donald Trump is the West’s hope for salvation against “Stalin’s or Mao’s or Pol Pot’s henchmen.” He has become a nuisance for the Brazilian political establishment, in particular those defending the interests of agribusiness — who see China as their best client, not an existential threat.
  • His latest controversy involved hosting U.S. Secretary of State Mike Pompeo on a visit to the Venezuelan border, just weeks before the U.S. election. The Foreign Minister was accused of jeopardizing future relations with a potential future Biden administration

Scapegoat. Mr. Araújo is accused by career diplomats of undermining centuries of diplomatic tradition in less than two years. But while he has become a lightning rod for criticism, the minister is following the tone set by the president himself — who has made countless displays of sycophancy towards Donald Trump and hostility towards China.

Why it matters. Ernesto Araújo is arguably the cabinet member who is the most loyal to the Bolsonaro family — and champions the president’s positions unapologetically.

  • Getting rid of Mr. Araújo would be yet another example of Mr. Bolsonaro breaking with Bolsonarism — in a movement towards moderation (at least in tone) to ensure stability to the administration. Those are calculated moves by a president who has proved to be much savvier than given credit for: while remaining firmly on the right wing, he is attempting to gain ground among less radical supporters, while knowing he remains the best (perhaps only) option for hardcore far-right voters.

You should listen: Explaining Brazil #117: Biden or Trump, what changes for Brazil?


Government announces Covid-19 vaccine plan for January

The Brazilian Health Ministry presented its 2021 National Immunizations Program on Thursday, which forecasts distributing a coronavirus vaccine as early as January 2021. The first phase of the plan is to make 15 million doses available, to be used on 7 percent of the population.

  • While four potential vaccines are being tested in Brazil, only one — being developed by the University of Oxford and British-Swedish pharmaceutical company AstraZeneca — made it onto the national vaccine calendar. The government believes trials of that vaccine will be complete by November.
  • The ministry’s decision not to include the potential vaccine being developed by Chinese company Sinovac Biotech in partnership with the São Paulo state government came across as puzzling. A council of state health officials asked, in a letter, for the government to reconsider.

Why it matters. The Health Ministry’s move reignites fears that President Jair Bolsonaro will turn the coronavirus vaccine into a new political war — as he aims to score points on São Paulo Governor João Doria, one of his fiercest political rivals.

Anti-vaxxer? Polls show Brazilians are eager to get a vaccine — and many want immunization to be mandatory. However, Mr. Bolsonaro has leaned in the opposite direction, even voicing some arguments used by anti-vaxxer movements, such as individual freedoms. In August, he said “nobody can force anybody to take a vaccine.” 

  • Moreover, experts fear the president’s supporters could become overly skeptical of what they call “the Chinese vaccine” and refuse immunization. A new poll conducted by Brazilian and Canadian universities show that only 54 percent of government supporters want to take a vaccine — versus 79 percent among detractors.

Election 2020 snapshot

Brazil’s municipal elections will take place in exactly 30 days’ time. This is what you need to know:

  • Ads. This week marked the beginning of political ads on television and radio — which, with millions of people still staying home, gained renewed importance in 2020. Candidates have the right to free airtime, but it is distributed between all political parties, in proportion with the number of seats the party holds in their respective state legislatures.
  • São Paulo. Incumbent Bruno Covas — who leads a six-party coalition — monopolizes 40 percent of airtime in São Paulo, and it has worked to his advantage. The latest poll showed him virtually tied with the frontrunner, Congressman Celso Russomano (22 and 25 percent of votes, respectively). More importantly, Mr. Covas lowered his rejection rates by 8 points — to 23 percent.
  • Leftist debacle. The Workers’ Party has won the race for São Paulo City Hall three times since Brazil’s return to democracy — no small feat, given the city’s more conservative leaning. However, the party continues its downfall, which started in 2016. Candidate Jilmar Tatto, a Lula loyalist, is unknown to most voters and polls at just 1 percent. Many in the party’s top brass have said he should drop out and endorse far-left candidate Guilherme Boulos, who is polling third with 10 percent.
  • Xenophobia as a platform. Two mayoral candidates in the Roraima state capital of Boa Vista, in Brazil’s North, are facing charges of inciting racism. Federal prosecutors acted after the candidates made discrimination against Venezuelan migrants the cornerstone of their campaigns. One used the slogan: “Venezuelans will not have privileges,” while the other promises to “limit Venezuelans’ access to healthcare and education.” Roraima has received an inflow of Venezuelan migrants in recent years, as they flee their country’s full-scale socioeconomic collapse.

What else you need to know today

  • Cabinet. Communications Minister Fábio Faria has tested positive for Covid-19, but has only shown mild symptoms and will continue to work remotely. Mr. Faria took office in June following a cabinet reshuffle, and has quickly become one of the president’s most influential advisors, helping to tame his demeanor and abandon the constant attacks against Congress and the Supreme Court.
  • Bounceback. The São Paulo state government is set to announce its economic recovery plan today, expected to rely heavily on privatizations — something Governor João Doria supported long before the pandemic. Another pillar of the plan will be an austerity package approved by the state legislature, which cuts back on tax breaks and creates a voluntary redundancy program to axe 5,000 civil servant positions.  
  • Top 5 worldwide. After confirming over 15,000 new coronavirus infections and 350 deaths, Argentina became the country with the fifth-highest number of cases in the world, while its death tally is 12th-largest. Argentina was one of the first Latin American countries to respond to the coronavirus pandemic, with the government placing the country under lockdown by March 20 — even before European countries such as Germany. Massive inequality and the prevalence of informal labor, however, made it impossible to fully enforce restrictive measures. 
  • Butt-gate. Senator Chico Rodrigues — caught stashing BRL 30,000 “between his buttocks,” according to the Federal Police — was relieved from his duties as the government’s deputy whip. Moreover, the Supreme Court ordered his 90-day suspension from the Senate, a decision that must be approved by his peers before being enforced. But Mr. Rodrigues seems to be safe from impeachment, at least for now, as the Senate’s Ethics Committee (of which the senator is a member, ironically) is not currently holding in-person sittings.
  • Spread. Only eight of Brazil’s 5,570 municipalities have not recorded a single Covid-19 case — and none of them have more than 7,000 inhabitants. So far, Brazil has registered 5.17 million infections and 152,460 deaths. There are at least 93 potential cases of reinfection being analyzed in the country.[/restricted]
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Brazil Daily

Moody’s threatens to downgrade Brazil

Today, we talk about how Jair Bolsonaro struggles to fit social policies within the federal budget — and Brazil could have its debt rating downgraded. Meat kings JBS add to their list of scandals. Bolsonaro ally caught short during Federal Police corruption operation.

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Bolsonaro torn between fiscal cap and need for social policies

Samar Maziad, a vice president and senior analyst for Brazil at ratings agency Moody’s, [restricted]said on Wednesday that Brazil’s sovereign debt could be downgraded further into junk territory unless the government managed to advance its agenda of reforms this year or, at the latest, early in 2021. “If the support for reforms dwindle, it will have a negative impact on our outlook [for the country],” said Ms. Maziad during an event.

  • Moody’s currently gives Brazil a Ba2 rating, two tiers below investment grade, with a “stable” outlook.

Why it matters. The path of austerity is by no means an obvious choice. With record-high unemployment rates and an uncertain recovery from the pandemic crisis — which no one knows how long will last — the government has been faced with the challenge of creating a new cash-transfer program that is bigger than Bolsa Família.

  • There is also the political element: the coronavirus emergency salary has pushed President Jair Bolsonaro’s approval ratings to their highest levels since his inauguration. Data published just hours ago by pollster PoderData shows the government’s approval ratings at 52 percent. 
  • “If Mr. Bolsonaro is able to combine his socially conservative agenda with a broad social protection network, his re-election bid shall become unbeatable in 2022,” said Pablo Ortellado, a public policy professor at the University of São Paulo, speaking to The Brazilian Report.

What is the plan? It is hard to know what the government has in store for taming the debt and preventing millions of people from dropping below the poverty line once the coronavirus aid ends in December. The latest plan being discussed within the Economy Minister would reduce the number of families benefited by the federal cash-transfer program to around 20 million. But with a divided cabinet, the administration has struggled to settle on a single plan.

  • Interestingly, it’s not only the federal government that is discussing cash transfers. In São Paulo, the two leading mayoral candidates — incumbent Bruno Covas and the Bolsonaro-backed Congressman Celso Russomano — have proposed emergency aid or basic income programs for São Paulo residents. 

State of the debt. According to the latest forecasts by the International Monetary Fund, Brazil’s debt-to-GDP ratio could top the 100-percent mark this year. Among emerging economies, only Angola would have a bigger deficit. The IMF also believes that Brazil is unlikely to record a primary surplus before 2025.

Bright-ish spot. The services sector — the backbone of the Brazilian economy — grew 2.9 percent in August when compared to July, recording a third consecutive month of growth. Even bars and restaurants are performing better than expected, with revenue at around 60 percent of pre-pandemic levels.


Meat kingpins under fire

On Wednesday, federal prosecutors indicted Mato Grosso do Sul Governor Reinaldo Azambuja and businessmen Joesley and Wesley Batista for corruption, money laundering, and criminal association. The Batista brothers — who control the world’s largest meatpacking company, JBS — are accused of paying BRL 67 million (USD 12 million) in kickbacks to the governor and his allies, in exchange for not paying state-level taxes. JBS allegedly gained BRL 209 million with the scheme.

  • On the same day, the Pilgrim’s Pride Corporation — a U.S.-based subsidiary of JBS — agreed to pay USD 110.5 million to settle federal charges that it fixed chicken prices for years, passing on higher costs to consumers, restaurants, and supermarkets.
  • Also on Wednesday, JBS’ parent company, holding firm J&F, pleaded guilty to U.S. foreign bribery charges, agreeing to pay USD 128 million in fines. The settlement refers to the company’s role in corruption scandals that nearly brought down the Michel Temer administration in 2017.

Rap sheet. Top executives of the J&F group admitted having bribed more than 1,900 politicians to advance their business interests — particularly regarding the expansion of JBS from a regional player to an international behemoth.

Stocks, stakes … Shares of JBS closed the day up 9.2 percent, following the news of the settlements — which investors hope will help turn a new leaf on JBS’ laundry list of scandals. The indictment, however, became known after market hours. 


A new meaning for the term “dirty money”

Just days after President Jair Bolsonaro stated that he had ended Operation Car Wash due to there being “no more corruption within the government,” his administration was rattled by an awkward — and frankly disgusting — scandal. Senator Chico Rodrigues of Roraima, the government’s deputy whip in the Senate, was targeted by a Federal Police investigation into the embezzlement of BRL 15 million earmarked for the fight against Covid-19 by members of Congress.

  • The Feds found around BRL 30,000 in cash in the senator’s home, with part of the money being stashed — we kid you not — “between his buttocks,” as reported by online magazine Crusoé, and confirmed by newspaper Folha de S.Paulo. As many of our subscribers read this newsletter during breakfast, we will spare you the gory details.
corruption federal police
Illustration by Jika

Why it matters. Few times have Brazilians been faced with such a ridiculous and graphic scandal — which can certainly do no good for the government’s image, especially as Jair Bolsonaro clashes with his core supporters, who oppose his pandering to establishment politicians.

  • The case also continues to shed light on how corrupt officials are using the emergency situation created by Covid-19 to fill their pockets — and underwear, apparently — with public money.

What they are saying. “I am relaxed about what happened in my home. I trust the justice system and know I will be able to prove my innocence,” said Mr. Rodrigues, in a statement.

  • “Ah, Car Wash is over, folks? The Feds are in Roraima today,” said Mr. Bolsonaro, on Twitter.
  • “Money laundering will be key in this case,” joked Federal Prosecutor Vladimir Aras, brother of Prosecutor General Augusto Aras.

Off you go. Government officials agree that either Mr. Rodrigues resigns as deputy whip, or he will be demoted.


What else you need to know today

  • Deceleration. The Central Bank publishes the latest update to its Economic Activity Index (IBC-Br) today, considered to be a predictor of the official GDP rate. Analysts expect the index to show a 1.6-percent expansion of the Brazilian economy in August — which would mean a deceleration of the economic rebound after months of stricter social distancing. In June, the index was at +5.32 percent, and reached +2.15 percent in July.
  • Crisis. Ricardo Eletro, one of Brazil’s biggest retail groups, has filed for bankruptcy protection. In what will be the biggest court-supervised recovery plan in Brazilian history, the group is set to split its assets into multiple companies in order to divest and be able to pay its BRL 4-billion debt to 20,000 creditors. 
  • Environment. A federal court denied a request to suspend Environment Minister Ricardo Salles from office. In their lawsuit, federal prosecutors say Mr. Salles is deliberately depleting Brazil’s environmental controls — which could allow Amazon deforestation to reach a point of no return (after which the rainforest could, according to scientists, become a savannah-like biome) and bring “tragic effects on environmental protection frameworks.” A panel of judges will trial the case on October 27.
  • Supreme Court. Allegations of plagiarism might have tarnished Federal Judge Kássio Nunes Marques’ academic résumé, but they have not dented his chances to be confirmed as Brazil’s next Supreme Court justice. Senator Eduardo Braga, the rapporteur of his confirmation proceedings, has recommended that the Senate’s Constitution and Justice Committee approves the nomination, saying the inconsistencies on Mr. Nunes Marques’ CV do not qualify as “relevant facts” against the judge.
  • This time’s the charm? The government intends on presenting its plan to privatize Correios — the state-owned postal company — “at the beginning of next year,” according to the Communications Ministry. Privatizing Correios has been listed as a priority since President Jair Bolsonaro took office in January 2019 — but no progress has been made since.
  • Drug boss. The Supreme Court is set to end a trial today on whether or not to jail a leader of the São Paulo-based First Command of the Capital (PCC), arguably Brazil’s most powerful criminal organization. He was set loose by Justice Marco Aurélio Mello last weekend due to a technicality — and a majority of justices (6 out of 6) have voted to overturn his decision. But the outcome of the trial should matter little: the drug boss, called André do Rap, is already at large.
  • Science. The Health Ministry has launched a BRL 600-million (USD 107-million) program to create a national database with mapped genomes of 100,000 Brazilians. The initiative could help anticipate disease diagnostics. [/restricted]
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Brazil Daily

Lifting the lid on lobbying in Brazil

Today, we show you how lobbying works in Brazil. How banks’ woes in the stock market raise red flags about the economy. And coronavirus deaths at lowest since May.

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How lobbying operates in Brazil

The Brazilian Association of Institutional and Government Relations (Abrig) has published[restricted] a document offering a glimpse into the country’s lobbying sector. The activity is yet to be regulated in Brazil — and remains highly stigmatized in a nation so accustomed to corruption scandals.

  • Perhaps that’s why two-thirds of companies who use such services — whether by having its own lobbying sector or hiring outside counsel — are foreign.

Company profile. The top sectors for which lobbying professionals work are not surprising: health and pharma, food and beverages, as well as agro and tech. These are sectors with constantly shifting regulations — and firms want to have a grasp on the changes to come and influence them when possible. 

Startups. Between 2019 and 2020, however, the sector saw a big surge in startups who use such services — this type of company represented 6 percent of the lobbying sector’s clients last year, and has now risen to 9.4 percent. “They are acting preventively to avoid excessive regulation or to try and block new rules that are harmful to their activities,” said Carolina Venuto, chairperson at Abrig.

  • The sector is particularly sensitive to how the new general data protection law will be enforced in Brazil. So far, the government has yet to create a regulatory body to monitor the implementation of new rules on handling citizens’ personal information. Business associations warn that the lack of regulation will lead to unnecessary litigation and insecurity about how the new law will be interpreted.

Dirty word. Since the 1970s, the term “lobbying” has been used to qualify any attempt (usually illicit) to influence public officials, according to Andréa Cristina Oliveira Gozetto, a social scientist specializing in government relations and public policies at think tank Fundação Getulio Vargas. That’s why the sector prefers to call its work “government relations” instead.

Regulation, pero no mucho. Most lobbying professionals are in favor of their work being regulated, but with varying degrees of support. While 80 percent of consultancies and in-company government relations professionals support regulations, only 44 percent of law firms who work in the sector agree — perhaps out of fear that their field of operations may be narrowed.

  • Within the sector, there is also immense opposition to proposals in Congress that would establish a national database of lobbyists. Abrig claims it would limit the sector — saying that, “in a democracy, any citizen should be able to engage in government relations.”

Benchmark. Ms. Gozetto, the social scientist, argues that Brazil should use the Chilean model to regulate lobbying. Chile was the first Latin American country to adopt a regulation on the matter, back in 2014. Now, an online system logs meetings, donations, or any kind of contact between elected officials and lobbyists. Requesting a meeting with a senator or representative goes through this online public platform, shedding light on how interest groups operate.


Pandemic, competition slash banks’ share of stock market index

Between December 2019 and today, Brazil’s major banks have lost one-third of their weight on Ibovespa — the country’s benchmark stock index — according to 6minutos, the content division of C6 Bank. Late in 2019, banks made up 26.6 percent of the Ibovespa portfolio. Now, that share has fallen to just 19 percent.

  • The main reason for this change is that big banks lost a lot of market value during the pandemic. The index for financial companies (IFNC) is the second-worst performing in Brazil, down over 26 percent since the beginning of the year.

Why it matters. Investors’ skepticism about banks has raised some red flags around the Brazilian economy.

  • With the coronavirus crisis and a record-high unemployment rate, investors worry that banks will face massive default rates. The most recent data, from July, actually shows that fewer Brazilians are in default — but the numbers could be misleading, as many of these people were benefited by the coronavirus emergency salary. The impact is expected to be felt from December onward, once the benefit is over.
  • There is a similar concern when it comes to corporate debtors. The government put in place a series of measures to postpone debt payments — which investors fear might only delay the problem, in many cases.

Competition. There is also one positive reason for banks’ struggles in the stock market: increasing competition from fintechs and investment platforms. With lower (or zero) tariffs, these new players are rattling traditional banks and helping the inclusion of millions in the banking system — which could lower market concentration for financial services. This might be bad for shareholders but is certainly positive for the Brazilian economy.


Coronavirus daily deaths lowest since May

For the first time since May 7, Brazil’s 7-day rolling average of new daily Covid-19 deaths has fallen below 500 — showing a 28-percent decrease from two weeks ago. After 28 days of stability, the Brazilian death curve has seen a downturn over the past two days.

Why it matters. The data appears to indicate that the coronavirus spread — which has infected over 5.1 million Brazilians, killing 151,000 of them — could finally be slowing down.

Yes, but … Data collection has been sketchy in Brazil, and death reports tend to go down during the weekends and holidays (October 12 was a national holiday). So it’s hard to know if the reduction in deaths is an accurate depiction of how the virus is spreading. Back in September, Brazil observed a momentary decrease in deaths around the time of the September 7 Independence Day holiday. After that, the curve showed stability for nearly a month.

Vaccine. Mariângela Simão, the World Health Organization’s Assistant Director-General for Drug Access, Vaccines and Pharmaceuticals, said she is “positively sure” Brazil will not have enough vaccine doses in 2021 for a massive vaccination campaign. “The WHO advises Brazil to prioritize health workers and people over 65,” she told CNN Brasil.


What else you need to know today

  • Trade deal. In a push to show that the EU-Mercosur trade deal has support in Europe, the Agriculture Ministry released a statement saying Portugal backs the agreement. Last week, the European Parliament passed an amendment to the common EU commercial policy stating that the deal “cannot be ratified as it stands,” citing environmental concerns.
  • Military. Newspaper O Globo revealed today that, after the Brazilian government decided to make all Venezuelan diplomats personae non gratae in the country, the Army ran military tests in the Amazon, simulating war against a hypothetical “red country.” The operation involved 3,600 troops and happened between September 8 and 22 — on September 18, U.S. Secretary of State Mike Pompeo visited the Brazilian-Venezuelan border, lashing out at the country’s president, Nicolás Maduro.
  • Aid 1. Brazil’s National Development Bank announced it will extend the temporary suspension of debt collection on companies — one of the first measures taken by the government to mitigate the economic effects of the pandemic. The program was set to end in September — but will continue for another six months for specific sectors, including automakers, clothing industries, and hotels.
  • Aid 2. President Jair Bolsonaro signed a decree extending the possibility of companies suspending or cutting workers’ hours and wages for another two months. Back in September, Economy Minister Paulo Guedes let slip that the measure would remain in place, but the extension has only been formalized now. The program is considered to be successful in avoiding millions of layoffs, but has created doubts around how workers’ Christmas bonuses — established by law in Brazil and known as the “13th salary — will be paid, as they are calculated based on monthly wages.
  • Payments. As Brazil gets ready to launch the Central Bank’s instant payment tool PIX, Visa is also beginning to shift its business model in the country. The company is selling fraud prevention and transaction authentication services to PIX participants, in a bid to expand its business beyond credit and debit cards. Only a few days after Brazilians were allowed to sign up for PIX, cybersecurity companies found at least 60 fraudulent websites offering fake registration forms — aiming at getting people’s financial information.
  • Rio de Janeiro. A justice of the Superior Electoral Court issued an injunction suspending the ineligibility of Rio de Janeiro Mayor Marcelo Crivella — who has been convicted of electoral crimes. Wildly unpopular, Mr. Crivella is polling at 12 percent, 15 points below former Mayor Eduardo Paes, who tries to win a third stint in office, after serving as mayor between 2009 and 2016.
  • Supreme Court. With the retirement of Justice Celso de Mello from the Supreme Court yesterday, lawyers representing former Justice Minister Sergio Moro wasted no time in asking Chief Justice Luiz Fux to reassign the case in which President Jair Bolsonaro is investigated for alleged illegal meddling with the Federal Police. If no party in the case had made such a request — Mr. Moro was the one who accused the president — the case would automatically fall into the hands of Justice Mello’s soon-to-be replacement, Federal Judge Kássio Nunes Marques, who was handpicked by Mr. Bolsonaro.[/restricted]
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Brazil Weekly

Forget mayors, the House Speaker election is the race that counts

This week, we take a look at the behind-the-scenes moves leading up to February’s election for House Speaker. And the crisis sparked by a divided Supreme Court.

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The election that matters

Brazilians head to the polls on November 15 and 29 to select their new mayors and city councilors, [restricted]but President Jair Bolsonaro has his eyes on another election, which he sees as being much more consequential. In February 2021, members of Congress will vote to pick the new House Speaker and Senate President, and incumbents Rodrigo Maia (House) and Davi Alcolumbre (Senate) cannot run for another term — barring an amendment to the Constitution. Therefore, this clears the path for the government to put forward its own candidates.

The key election. Mr. Bolsonaro’s main interest lies in the House Speaker election, as the leader of the lower house holds all the power to initiate (or block) impeachment proceedings against the president.

  • While the president will officially remain neutral during the election process, he is backing Congressman Arthur Lira, a high-ranking figure from the so-called “Big Center,” a loose coalition of conservative, for-rent parties that now makes up Mr. Bolsonaro’s congressional support base.

Yes, but … Brasília correspondent Débora Álvares reports that, despite enjoying a good relationship with the Big Center as of late, Mr. Bolsonaro still doesn’t trust the congressional establishment — and may pull a curveball in the Speaker’s race. He is considering endorsing Tereza Cristina, the current Agriculture Minister, for the position.

  • Senior government officials told The Brazilian Report that Mr. Bolsonaro believes (rightly so, we may add) that the Big Center’s support is only circumstantial — and a shift in the political mood could see him held hostage to this self-serving group. That’s why he wants one of “his own” in the Speaker’s chair.
  • A congresswoman, Ms. Cristina is the former leader of the Rural Caucus, one of Brasília’s most powerful lobbies. She claims she does not want to leave the cabinet and enter the Speaker election — but she would, if the president asked her to. 
  • Government sources say Ms. Cristina is frustrated with her cabinet colleagues Ernesto Araújo (Foreign Affairs) and Ricardo Salles (Environment), who have helped cause an image crisis for Brazil’s agribusiness — due to attacks on China and recent environmental disasters.

Why it matters. The move, if confirmed, could be seen as a betrayal of the Big Center, a group that has ensured some stability to the Bolsonaro administration. Our sources say that Jair Bolsonaro could compensate Big Center officials by offering them key cabinet positions.


A split Supreme Court

This afternoon, Brazil’s Supreme Court will lose one of its pillars: Justice Celso de Mello, who retires after 31 years on the most prestigious bench of the country. Furthermore, this change will take place as the court undergoes a moment of deep internal division. Two recent events have widened this split between justices:

  • Operation Car Wash. After President Jair Bolsonaro said he had “ended” the task force because “there is no more corruption in the government,” Chief Justice Luiz Fux moved to transfer all trials related to the operation from a five-justice panel — a mechanism to reduce the court’s backlog — to full-court decisions. One of the two panels in the Supreme Court has become known as the “Garden of Eden,” due to its propensity for ruling in favor of defendants, while the chief justice himself is a known supporter of Operation Car Wash. Members of the “garden” reacted badly to the decision, calling it “nonsensical.”
  • PCC gang leader. Over the long weekend, the Supreme Court granted a habeas corpus request to a high-ranking leader of the First Command of the Capital (PCC), the most powerful and widespread organized crime faction in Brazil. The decision, made by Justice Marco Aurélio Mello, was issued after prosecutors failed to renew the prisoner’s preventive detention request. The chief justice overturned the decision within less than 24 hours, by which time the gang leader was already at large. Justice Mello was left disgruntled by the turnaround, saying that “the chief justice is not [his] superior.”

Why it matters. A split Supreme Court can aggravate some of the body’s biggest flaws, notably its lack of consistency and respect for precedent.

  • There is a running joke in Brasília, according to which Brazil has not one Supreme Court, but rather 11 — as each justice plays by their own rules. Never has this seemed so apt. 

Dangers. Meanwhile, the court has been the victim of several attacks — including from radical far-right groups operating under the auspices of the First Family (who ask for the shutdown of the court altogether). With their erratic behavior, justices spare these groups from having to discredit them.


Markets

October will be a month for tech IPOs in Brazil. Suno Research recommends investors to take part in broadband provider Triple Play’s offering if prices are up to BRL 14 per share. Triple Play has 75 percent of its network in flagship fiber-to-the-home technology and a strong presence in small- and medium-sized cities, a segment where internet penetration is growing and competitors still rely on outdated network infrastructure.

Natália Scalzaretto


New study ties informal labor to Covid-19 deaths

On multiple occasions, we at The Brazilian Report have explained how Brazil’s (and Latin America’s) highly informal economy contributed to its harrowing coronavirus epidemic. Without minimizing the responsibility of government authorities and their failed response to the pandemic, the truth is that millions of people simply could not afford to socially isolate.

A new study by the Federal University of Rio de Janeiro took five Brazilian cities with different proportions of informal labor and compared their Covid-19 death rates, with the results corroborating the hypothesis that unregistered workers could not stay home. For every additional 10 points in cities’ informality rates, contagion rates rise 29 percent and death rates, 38 percent.


Looking ahead

  • War budget. The government still has no solution for its plan to roll out a new welfare program while simultaneously adhering to the federal spending cap, which prevents the administration from raising public spending without extra revenue. The government is considering extending the so-called “War Budget” until 2021, which was a solution pushed through by Congress to create a parallel budget for coronavirus-related spending, as a way to bypass the cap. Analysts, however, say that using that mechanism for current expenses would create a confidence crisis among markets.
  • Priority list. The November municipal election gives the government practically no time to push through broad reforms in 2020. Instead, the administration will focus on three priorities for Congress: passing the new regulatory framework for the gas sector, opening up the cabotage navigation market, and breaking the monopoly state-owned company Correios has over postal services, thus clearing a path for the firm’s privatization.
  • Infrastructure. Tarcísio de Freitas, Brazil’s Infrastructure Minister, has begun a tour in Congress to gather sponsors for selected projects the administration hopes to push through to completion in 2021. One-third of his ministry’s budget will come from parliamentary grants, by which individual officials request a share of the federal budget to go toward projects in their constituencies. 
  • Vaccine. President Jair Bolsonaro has said on multiple occasions that “nobody can force anybody” to take a Covid-19 vaccine, but Brazilians don’t seem to agree. Over 70 percent of people in four major urban centers (São Paulo, Rio, Belo Horizonte, and Recife) want a vaccine against the coronavirus to be mandatory, once it is available. However, enthusiasm for the vaccine is lower among wealthier classes.

In case you missed it

  • Supreme Court. Celso de Mello, the longest-tenured Supreme Court justice, retires today after 31 years in Brazil’s highest court. He distinguished himself as the court’s most fervent defender of individual liberties and his peers say he will leave big shoes to fill. For his replacement, President Jair Bolsonaro went for Federal Judge Kássio Nunes, who has been endorsed by traditional political parties in Congress. A confirmation hearing is scheduled for next week, and Mr. Nunes already has a majority in the Senate’s Constitution and Justice Committee.
  • Economy. Once heralded Brazil’s economic tsar, Economy Minister Paulo Guedes now seems to be losing prestige by the day. After publicly scolding him on multiple occasions, President Jair Bolsonaro is now considering splitting up Mr. Guedes’ fiefdom into multiple ministries — recreating the Labor Ministry, and possibly the Trade Ministry, as well. That would give the president more horse-trading power with Congress. 
  • Trade deal. In a 345-295 vote, the European Parliament passed an amendment to the common EU commercial policy which was seen as a rejection of the EU-Mercosur free trade agreement signed just last year. The amendment highlights the need for ensuring fair competition and compliance with European production standards — adding that, due to environmental concerns, “the EU-Mercosur agreement cannot be ratified as it stands.”
  • Financial inclusion. PIX, an instant payment platform created by the Brazilian Central Bank, officially opened registrations last week. The number of individual ‘keys’ issued reached roughly 24 million. The new payment system, which will allow for instant cash transfers, begins its operation on November 16. Besides allowing near-instant transfers and payments outside of commercial working hours, the system is free to use for sending and receiving money.[/restricted]
Categories
Brazil Daily

Brazil’s Economy Ministry faces split

Today, how Economy Minister Paulo Guedes continues to lose power. What is positive about Brazil’s recent job numbers. And a shift by Argentina that could rock Venezuela.

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The Paulo Guedes realm to be fragmented?

When Jair Bolsonaro won the 2018 presidential election, he unveiled his economic advisor Paulo Guedes as a “super minister.” [restricted]His Economy Ministry was the result of merging four existing cabinet ministries: Finance, Industry and Trade, Planning, and Labor. But as Mr. Guedes’ influence within the government wanes and Mr. Bolsonaro cozies up to traditional parties, rumors of a split in the Economy Ministry began circulating in Brasília corridors. 

What they are planning. A first step could be recreating the Labor Ministry, according to reports. But sources told Brasília correspondent Débora Álvares that the old Trade Ministry might also see a rebirth.

Why do it? From a political perspective, the move would give Jair Bolsonaro attractive assets to offer parties in exchange for support in Congress. 

  • But besides giving the president horse-trading tools, it could also make the administration more effective. The Economy Ministry encompasses areas that require several fields of expertise, and senior officials told The Brazilian Report that “the minister himself doesn’t grasp all the subjects under his responsibility.”

Why it matters. Even if Paulo Guedes has lost much of the power bestowed upon him in 2018, markets still see him as a bastion of libertarianism within the administration. Splitting up his realm would be a major downgrade for him — and could deepen the distance between the Economy Minister and the president.

  • Mr. Guedes has told aides he resents the recent public scoldings he has endured from Mr. Bolsonaro. Still, he has shown no interest in resigning.
  • The Economy Minister is also not popular among politicians. He and House Speaker Rodrigo Maia have traded barbs publicly since last year (the two celebrated a ‘truce‘ this week), and members of Congress say his political demeanor is “clumsy.”

Will the move happen? As with everything with the Bolsonaro administration, it is hard to predict how things will develop. The fact that the rumors are running rampant shows that the idea is very much on the radar, but Mr. Bolsonaro loves to float ideas to feel how his voter base — or in this case, the business community — would react to consequential moves.

  • On Twitter, Mr. Bolsonaro called reports on the issue “fake news.”

Fewer jobless claims now than in 2019

According to data from the Economy Ministry, there were 466,000 jobless claims in the country in September — slightly higher than in August, but 10.6 percent below September 2019 levels. Monthly tallies show a stabilization in the job market, as social isolation rules are lifted around the country. 

What the numbers tell us. Almost one-third of jobless claims were filed by people in their 30s. Most (59 percent) have only a high school diploma, confirming trends observed earlier in the pandemic, that the bulk of jobs lost due to the coronavirus crisis were those of less-skilled workers.

  • Almost half of the claims (42 percent) came from workers previously employed in the services sector, the backbone of the Brazilian economy. Agricultural workers, meanwhile, accounted for less than 5 percent of requests.

Timid recovery. A look at formal employment data shows that services, commerce, and industrial companies fired more people than they hired between January and August. But all sectors of the economy netted positive numbers in the July-August span.

  • That piece of data is certainly positive but doesn’t factor in informal jobs — an important part of the Brazilian economy. According to data published by the Senate, some 95 million Brazilians were not in paid work by September 18.

U-turn in Argentina’s foreign policy 

Argentina surprised South America after voting to support investigations of human rights violations by the Venezuelan government. Argentinian diplomacy went in favor of a report by the United Nations High Commissioner for Human Rights, Michelle Bachelet — which was presented to regional multilateral body the Lima Group — defending that Venezuelan President Nicolás Maduro steps down from power. 

  • Up until now, the left-leaning Alberto Fernández administration sided with Caracas — making Argentina one of the few countries to support the increasingly authoritarian government of Mr. Maduro. But Argentina’s reliance on foreign creditors may have forced the government into taking a more moderate stance.
  • But the U-turn did have its consequences within the Fernández administration, leading to the resignation of Alicia Castro, a diplomat linked to Vice President Cristina Fernández de Kirchner. 

Why it matters. The move makes the moribund Maduro administration even more isolated and seemingly incapable of dealing with the full-scale socioeconomic collapse the country has endured for several years.

End of the oil era? Buenos Aires turns its back to Venezuela when the Caribbean country faces perhaps its most dire moment. 

  • Highly dependent on oil, Venezuela has seen the industry collapse over the past couple of years, as most international oil companies have stopped drilling in the country or buying Venezuelan oil. 
  • A decade ago, Venezuela earned about USD 90 billion a year in oil exports. In 2020, that figure is expected to hover around USD 2.3 billion. “Venezuela’s days as a petrostate are gone,” Risa Grais-Targow, an analyst at consultancy Eurasia, told The New York Times.
  • Crippling fuel shortages — not to mention a lack of supplies for Venezuelans’ basic needs — have sparked a wave of protests. And abandoned oil-drilling equipment which continues to contaminate the environment serves as a creepy reminder of what were once major oil towns.

What else you need to know today

  • Election 1. In absolute numbers, no other Brazilian city has registered more Covid-19 cases or deaths than São Paulo. And while curves are trending downward, experts say the effects of the pandemic on the municipal health network will be felt for the entire year of 2021. However, only five of the city’s 14 mayoral candidates have any proposal related to the coronavirus. Incumbent Bruno Covas and former São Paulo Governor Márcio França, two of the main contenders, mention the importance of preventing Covid-19 infections — but offer no detail whatsoever to do so.
  • Election 2. According to pollster Datafolha, voters in São Paulo are more likely to go out and vote on November 15 than to stay at home for health reasons. Some 28 percent of voters still believe that in-person voting is “not safe at all,” down 6 points from September 22.
  • Election 3. Supreme Court Justice Luís Roberto Barroso — who presides over the Superior Electoral Court — signed an agreement to allow the Organization of American States to observe the 2020 municipal elections in Brazil. 
  • Butting heads. The Superior Electoral Court has allowed Google to provide users with search results for candidates who paid for ads even when the user searches for one of their competitors. The decision, however, goes against a precedent set by the Superior Court of Justice — Brazil’s second-highest judicial body — and could force the Supreme Court to step in.
  • Supreme Court. Despite accusations that Federal Judge Kássio Nunes, recently picked by President Jair Bolsonaro for a seat on the Supreme Court, doctored his résumé and plagiarized parts of his Ph.D. thesis, there is reportedly a majority in the Senate’s Constitution and Justice Committee willing to confirm his appointment. According to newspaper O Estado de S.Paulo, at least 14 of 27 members said they will vote in favor of Mr. Nunes on October 21, when his confirmation hearing is scheduled to take place.[/restricted]
Categories
Brazil Daily

EU Parliament slams Mercosur trade deal “as it stands”

Today, we talk about the EU Parliament’s decision to counter Jair Bolsonaro. A new airline is about to open in Brazil, despite a dramatic outlook for the aviation sector. The president says the Car Wash Operation is over. And Brazil reaches 5 million coronavirus cases.

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EU-Mercosur deal not dead yet, but on life support

In a 345-295 vote, the European Parliament has passed[restricted] an amendment to the common EU commercial policy which has been described as a rejection of the EU-Mercosur free trade agreement signed just last year. The amendment highlights the need for ensuring fair competition and compliance with European production standards — adding that, due to environmental concerns, “the EU-Mercosur agreement cannot be ratified as it stands.”

  • The vote doesn’t mean the trade deal has been rejected, but it paves the way for that. Especially as the deal lost its biggest backer on the other side of the Atlantic, after Ireland’s Phil Hogan resigned as European Union trade commissioner.

Why it matters. The original amendment proposal mentioned President Jair Bolsonaro by name, singling him out as the reason why the EU has cold feet about the deal. 

  • “[The EU] is extremely concerned about Jair Bolsonaro’s environmental policy, which goes against the commitments made in the Paris Agreement, particularly with regard to combating global warming and protecting biodiversity,” wrote a group of EU lawmakers headed by Marie-Pierre Vedrenne, from France.

Beneath the surface. The deal between the EU and Mercosur has always been met with fierce opposition from European agricultural lobbies — who now rejoice at the hard stance against Mercosur. These lobbies fear that highly competitive South American agricultural products may disrupt their revenue — and Brazil’s nonchalance towards recent environmental calamities hands them, on a silver platter, the perfect argument to oppose the deal.

  • In the wake of a particularly destructive 2019 fire season, year-to-date fire alerts for 2020 have already surpassed those of last year by 14 percent in the Amazon and over 200 percent in the Pantanal as of September 30, according to think tank Chain Reaction Research.

What they are saying. Representatives of European agro celebrated the amendment, while the Brazilian government remains in denial.

  • “It would be deeply hypocritical of the EU Commission to pursue a trade deal that so clearly conflicts with its own policy,” said Brendan Golden, livestock chair of the Irish Farmers’ Association.
  • “Jair Bolsonaro is the dream Brazilian president for EU agro lobbyists who oppose the deal. He is playing into their hands,” said Rubens Ricupero, a former Brazilian ambassador to the U.S.
  • “There is a lot of noise in all this, it’s all part of a diplomatic effort that must be done, let’s take it easy,” said Brazilian Vice President Hamilton Mourão — who believes the decision can be “reverted” in the future.

Opening an airline during a pandemic

Giant coach group Itapemirim will launch a selection process tomorrow to hire 600 people for their soon-to-be-launched airline, Ita. The company will recruit pilots, technicians, and flight attendants in a push to begin operations as soon as March 2021. According to CEO Rodrigo Vilaça, Itapemirim wagers that the coronavirus crisis will be over by then, if vaccine promises for the end of this year are fulfilled.

Why it matters. Ita is coming to life in one of the direst moments the airline industry has ever faced.

  • Multiple Latin American carriers — such as Latam, Avianca, and AeroMexico — have filed for Chapter 11 bankruptcy protection in the U.S., and a stimulus package from the Brazilian National Development Bank (BNDES) has never materialized.
  • On October 6, the International Air Transport Association (IATA) warned reporters that carriers were on course to burn through another USD 77 billion in cash in H2 2020 — calling on governments to renew expiring support programs.
  • Moreover, airport administrators in Brazil fear a total collapse of their businesses. The aviation sector’s supply chain could eliminate as many as 299,700 jobs before this crisis is over.

I believe I can fly. Ita has leased ten Airbus 320 planes, three of which will be delivered in 2020 — each of them will require 67 professionals. “As more jets arrive, we will hire more people, in a gradual process,” said Mr. Vilaça.

  • The Espírito Santo-based company plans to operate in 16 airports, with the bulk of its flights in São Paulo, Rio, Brasília, and an undetermined city in the Northeast. But Ita hasn’t yet received clearance to fly from the National Civil Aviation Agency (Anac).

An old dream. Since Itapemirim’s bus firm was placed under court-supervised financial recovery in 2016, the group has tried to migrate from asphalt to the sky. In 2017, they attempted to buy medium-range airline Passaredo, but the deal fell through after Itapemirim didn’t meet the conditions established in the contract.

— with Renato Alves


Bolsonaro ditches anti-corruption operation

President Jair Bolsonaro seems determined to break with the coalition he championed during the 2018 election — and embrace what he once disparaged as “old politics.” On Wednesday, he dismissed Operation Car Wash, the biggest anti-corruption effort in Brazilian history. “I’m proud to say that I don’t want to end the Car Wash Operation. I have already ended Car Wash, because there is no more corruption in the government.”

Why it matters. As Renato Alves wrote on The Brazilian Report, breaking with his core supporters is a savvy move by Mr. Bolsonaro to consolidate himself in power.

  • “His defense of far-right causes still makes him the best — and perhaps the only — option for the extreme right in 2022. Meanwhile, his recent implementation of welfare policies and alliance with moderately conservative forces may help him attract a voter base that seemed unreachable just months ago.”

Bolsonaro and Car Wash. No other politician benefited more from the Car Wash Operation than Mr. Bolsonaro. A backbencher for his entire political career, he could never get close to the upper-echelon politicians who were caught with their hands in the cookie jar by prosecutors. And, as droves of elected officials were tainted by the investigations, an anti-establishment sentiment paved the way for his election.

  • In office, Jair Bolsonaro never fully supported the operation — nor proposed correcting its (many) excesses and prosecutorial mistakes. Instead, the president and his clan only tried to attach themselves to the operation when it suited them.

5 million coronavirus cases

Brazil became only the third country in the world to top the mark of 5 million confirmed coronavirus infections — while simultaneously approaching the unwelcome milestone of 150,000 deaths. Data suggests that the outbreak might be slowing down in Brazil — but caution is advised, for a few reasons:

  • Testing in Brazil remains very limited, and epidemiologists say that the total tallies are much bigger than what has been confirmed.
  • According to the Imperial College London, the country has been able to sustain coronavirus transmission rates of below 1 for two full weeks. But the rate jumped from 0.95 to 0.99 over the past seven days — suggesting that going back to normal too soon could spark a second peak in case and death curves.
  • The pandemic has not progressed evenly across Brazil. While most of the country has seen new daily deaths decrease over the past two weeks, some Amazonian regions (the first to collapse back in March) are witnessing an uptick in casualties.  

What else you need to know today

  • Supreme Court. The Brazilian Supreme Court will decide whether President Jair Bolsonaro will be allowed to provide written testimony to investigators who are looking into his alleged illegal interference with the Federal Police. Justice Celso de Mello (who retires next week) says the president should give an in-person statement — like any other Brazilian citizen “under investigation.” But other justices argue that the benefit of written testimony was given to other sitting presidents in the past, and should be extended to Mr. Bolsonaro in fairness. 
  • Welfare. For the past few weeks, political observers have waited for the government to present its proposal for a new welfare program to boost cash-transfer initiative Bolsa Família, once the coronavirus emergency salary ends in December. But, off the record, officials within the Economy Ministry say nothing concrete will come before the end of the 2020 municipal elections (November 15 and 29).
  • Accountability. The Federal Accounts Court — a sort of audit tribunal that monitors public spending — will have a vacancy opening up on January 1 with the retirement of judge José Múcio Monteiro. President Jair Bolsonaro has already indicated that he plans on nominating his Secretary-General Jorge Oliveira for the seat. The Bolsonaro family has a personal bond with Mr. Oliveira, who has worked with them for two decades. 
  • You learned it here first. A new study by the Federal Council of Medicine shows that healthcare spending by Brazil’s states and municipalities reaches a combined daily amount of BRL 3.83 (USD 0.68) per citizen. The Brazilian Report had already shown on July 1 that health spending in some states is as small as USD 0.20 a day.
  • IDB. After endorsing the U.S. decision to break with tradition and appoint an American to the Inter-American Development Bank, Brazil was granted the right to name a head to IDB Invest, the bank’s private-sector branch. Carlos da Costa, a senior official at the Economy Minister, will be chosen for the position.
  • To debate or not to debate. CNN Brasil is the latest major network to choose not to hold mayoral debates in the country’s biggest cities, citing fears of coronavirus infections. São Paulo has 14 candidates for mayor, and parties have been unable to agree on a debate format that only includes frontrunners — making the logistics of a debate more challenging. Besides CNN, the three biggest free-to-air TV channels Globo, Record, and SBT have declared they won’t hold debates before the runoff stage.[/restricted]
Categories
Brazil Daily

Pandemic brought millions into Brazil’s banking system

Today, we talk about Brazil’s massive financial inclusion project. What the recent heatwave tells us about environmental changes. And what you should know in the 2020 election.

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Covid-19 sped up massive financial inclusion project in Brazil

The Brazilian Central Bank has authorized Brazilians to sign up for PIX, [restricted]an upcoming instant payment system set to be rolled out on November 16. Within two days, over 10.1 million individual “keys” (IDs on the system) were created.

Why it matters. PIX is part of the Central Bank’s efforts to digitize the Brazilian economy — a process that has been magnified by the pandemic. Back in March, when the coronavirus emergency salary was approved in Congress, the government was met with a major challenge: it had to pay out aid to massive amounts of informal workers and the unemployed, and over 45 million Brazilians didn’t have a bank account.

  • State-owned bank Caixa created 97 million digital savings accounts. According to Caixa CEO Pedro Guimarães, between one-third and 40 percent of all beneficiaries of the aid program did not have any access to banking services before that.

Projections. Brazil’s instant payments system is tipped to reach 20 million users in its first year and could pave the way for one of the biggest financial inclusion processes the world has ever seen.

  • And, according to the Central Bank’s Financial System Director João Manoel Pinho de Mello, the idea is to expand PIX to other countries in 2022 or 2023.

Upside. “The payments market in Brazil ten years ago was extremely concentrated, with elevated tariffs, little competition, and therefore, very high prices, which led even to underutilization of some financial tools such as credit cards,” says Paulo Furquim de Azevedo, coordinator at the Center for Regulation and Democracy at the São Paulo-based Insper business school.

  • The PIX system arrives as Brazil prepares to implement “open banking,” a concept built upon the use of open application programming interfaces (APIs) containing customers’ banking data, which can then be used by third-party developers to create platforms to help manage finances or carry out specific services.
  • To ensure PIX will catch on, the Central Bank has forced financial institutions with over 500,000 clients to adopt it as an additional mode of transaction. That rule encompasses all major banks — responsible for 90 percent of transactions in Brazil.

Challenges. Brazil’s economy remains highly informal — and many transactions are still in cash and occur outside of the financial system. To retain these new users, banks will have to build solutions that specifically cater to their needs. 


Brazil’s latest heatwave could be deadly

With a severe heatwave hitting the country, the Brazilian National Meteorology Institute issued an alert for the risk of death by hyperthermia in parts of Brazil’s Center-West and Southeast regions, as well as a small portion of the North.

Unusual. From 1998-2017, more than 166,000 people died due to heatwaves around the world — but these types of deaths are absolutely not common in Brazil. As we show in the chart below, the average high temperature in Brazilian state capitals jumped from 29.5oC to 31.4oC between 1962 and 2019.

Why it matters. The alert is yet another piece of evidence of the effects of climate change on Brazil. Alterations in rainfall have had an impact on crops and the number of extreme climate events has skyrocketed in recent years.

  • In the Southeast region alone, there have been over 1,300 records of extreme rainfall since 2015.

Wildfires. Deforestation plays a central role in that process. A study published this week in the journal Nature Communications shows that as much as 40 percent of the Amazon is inching closer to the tipping point of switching from rainforest to savannah.


2020 election snapshot

Brazil’s 2020 municipal elections will take place in 39 days. Here are the main topics you should know about: 

Social media. While the pandemic has disrupted traditional campaigning methods, some aspects of the race make 2020 seem like 2018. Despite being denounced and banned, the strategy of massive messaging services continues to run wild. Newspaper Folha de S.Paulo found at least five companies that sell phone number databases to political parties for as little as BRL 1,800 (USD 321) for 20,000 numbers.

  • WhatsApp has accused one online marketing agency — under investigation for spreading false information to millions of voters in 2018 — of operating the same system by way of a dummy corporation.
  • These services represent an evolved stage of Facebook’s micro-targeted ads. They sort people’s numbers by neighborhood, and allow the untraceable forwarding of messages to specific groups of voters.
  • Tech giants have stood firm in their position that they must not arbitrate on which pieces of content should be blocked or deleted, handing that burden over to the Superior Electoral Court instead.

Lack of competition. In 117 mostly small municipalities, mayoral races will have only one candidate. Per Brazil’s electoral rules, one vote is enough to elect them, as they will have 100 percent of valid votes, regardless. In another 2,000 cities — almost 40 percent of the country — races will be decided between only two politicians.

  • In contrast, the mayoral dispute in the city of São Paulo will include a total of 14 candidates.

Fraud. Almost 1,000 female candidates who didn’t receive a single vote in 2016 (not even their own) will run again in 2020. That is a major red flag for dummy candidacies, as parties pick uncompetitive female candidates — often without their knowledge — simply to fill gender-based quotas established by law.

Copyright. Called “Miss Piggy” by the Bolsonaro family, Congresswoman Joice Hasselmann (who is running for mayor in São Paulo) decided to reclaim the insult and began using the character in her electoral ads. But Disney has declared it has not authorized her to use Miss Piggy’s image — and could sue.


What else you need to know today

  • Disinformation. In a deposition to the Federal Police, Congressman Alexandre Frota reportedly presented several IP addresses linking fellow Congressman Eduardo Bolsonaro — the president’s third-eldest son — to illegal networks that spread disinformation for political purposes. Mr. Frota says the information was obtained by the so-called Fake News Hearings Committee, a parliamentary investigation body that has stalled as of recently. 
  • Probe. Economy Minister Paulo Guedes enjoyed a major legal victory as a court of appeals closed an investigation into his suspected participation in a scheme to defraud pension funds. Mr. Guedes was a stakeholder in an asset managing firm accused of not meeting its fiduciary obligations towards investors. His defense attorneys claim all of his actions were “within the rules of the market and the highest ethical standards.”
  • Emergency aid. A new study by think tank Fundação Getulio Vargas shows that 38 million Brazilians will be left without aid once the coronavirus emergency salary ends in December. These individuals are not eligible for receiving funds through the existing cash-transfer program Bolsa Família and have a monthly income of up to USD 224. To avoid a social crisis in 2021, the government has vented the idea of extending the emergency aid until March but has yet to propose how much it could pay out. The benefit began life as a BRL 600 monthly stipend and has now been reduced to BRL 300.
  • Savings. For the seventh-straight month, Brazilians have saved more money than they spent. The trend is explained by the economic uncertainties raised by the pandemic — which encourages people to put funds away for emergencies. Between September 2019 and September 2020, the amount of money in savings increased BRL 163.7 billion — over 2 percent of the country’s GDP.
  • CV. Newspaper O Estado de S.Paulo published an article raising suspicions about the résumé of federal judge Kássio Nunes, whom President Jair Bolsonaro has chosen to fill a vacancy on the Supreme Court. Mr. Nunes claimed that a four-day course he completed in La Coruña, Spain, was a specialization degree, and he mentioned two post-doctoral research projects — despite having finished his Ph.D. just two weeks ago. In recent years, numerous high-profile officials were caught lying on their résumés, throwing in nonexistent Ph.D., and master’s degrees.[/restricted]
Categories
Brazil Daily

IMF warns of Brazil’s high risks, yet praises emergency aid

Today, we discuss the risks facing Brazil — according to the IMF. The recovery of the country’s electronics sector. And exclusive data on data protection-related quarrels.

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IMF: Brazil faces “exceptionally high” risks, but not all is bad

In a statement following an official visit to Brazil, the International Monetary Fund said the country[restricted] faces “exceptionally high and multifaceted” risk as it continues to struggle against the Covid-19 pandemic and its economic fallouts.

  • The IMF warns about Brazil’s high debt levels, which are “projected to jump to around 100 percent of GDP in 2020 and remain high over the medium-term.” Back in May, we at The Brazilian Report had warned that high indebtment would prevent Brazil from having a rapid, V-shaped recovery.
  • The commitment to fiscal responsibility and reforms that provide medium-term stability will be key to earning markets’ trust, says the IMF. In an attempt to create a welfare program that prevents a major social crisis in 2021 — when the coronavirus emergency salary is set to end — the administration has flirted with the idea of creating exceptions to the federal spending cap, which has scared off investors.
  • Some of the risks, however, are outside of the country’s control. It remains uncertain how the pandemic will evolve — or when an effective and safe vaccine against the coronavirus will be available.

Yes, but … The IMF report also pointed out some positive aspects of Brazil’s current moment. Notably, the fund praised the emergency salary program — which “lifted the income of an estimated 23 million individuals (10 percent of the total population) above the extreme poverty line” — and employment retention schemes, which “helped protect formal jobs.”

  • These measures allowed the economic crash to be less dramatic than expected — with current GDP growth projections at -5.8 percent. Earlier in the year, the forecast was at -9.1 percent. In 2021, the IMF projects a “partial recovery” of 2.8-percent growth.
  • The record-low benchmark interest rate, combined with shortenings in average debt maturities “have allowed the government to reduce its borrowing costs to historically low levels (5 percent relative to a high of close to 15 percent in late 2016).”
  • “Sizable international reserves, a resilient banking system, and a low share of public FX debt are important strengths. International reserves are about 150 percent of the IMF benchmark (ARA) metric and 250 percent of external debt, providing a comfortable cushion against external shocks,” writes the fund.

Reforms. With congressmen focusing on the municipal election, there is no time to pass structural reforms before the end of 2020. Still, Monday saw an important move towards some short-term political stability in Brasília: a truce between House Speaker Rodrigo Maia and Economy Minister Paulo Guedes. After a dinner meeting, they pledged their utmost support for the federal spending cap — while also promising to find welfare solutions that don’t blow up the deficit.


EXCLUSIVE: Financial sector gets most data protection complaints in Brazil 

Just two weeks after Brazil’s General Data Protection Law (LGPD) came into effect, financial companies are already feeling the heat from disgruntled customers. 

Consumer rights. Data from consumer protection institute Reclame Aqui — shared exclusively with The Brazilian Report — shows a total of 233 complaints related to data protection between September 18 and 30. Those with the most complaints are the usual suspects: banks and financial companies (20.6 percent), credit recovery agencies (10.3 percent), and telephony services (7.3 percent).

  • Frequent calls, improper billings, and SMS spamming were the most-common issues reported.

Tradition. For years, banks and telecom companies have received the highest number of complaints in Brazil’s customer protection services. Companies’ self-regulation has done little to lower disgruntlement among customers.

Why it matters. Despite the data protection law being effective, the government has yet to set up a national watchdog. Without a proper regulator, courts will fill that role — which could lead to “unnecessary litigation,” according to data protection advocates. 

  • At least two companies have already been sued for mishandling consumer data, as we explained in our October 2 Tech Roundup.

Brazil’s electronics sector almost at pre-pandemic levels

The Brazilian electronics sector has netted 6,400 new jobs in August — the third-straight month of job expansion. With the recent rally, the sector now employs 293,100 people and has all but recovered its pre-pandemic workforce of 239,300 people.

Why it matters. According to Abinee, an entity that represents companies in the electronics sector, all economic indicators suggest that the worst is behind them.

  • A survey carried out by Abinee shows that 82 percent of the sector’s firms improved their projections for the Brazilian economy in the short term and are more likely to invest and hire.
  • Many sector players, however, believe this hiring “spree” will be halted if Congress does not strike down a presidential veto to keep payroll tax cuts for them.

No supply crisis. Earlier this year, the sector suffered with supply shortages as China nearly halted its economy to contain the coronavirus. The IT and electronics sector imports over USD 8.7 billion per year from the Asian giant, more than any other segment. Now, supply has normalized for nearly all companies.

  • Despite the hiccup, 69 percent of companies which faced shortages have not launched plans to decentralize their supply chains, citing how complex it is to find new partners.

What else you need to know today

  • Bolsonaro. Supreme Court Chief Justice Luiz Fux scheduled a trial for Thursday in which the court will decide whether President Jair Bolsonaro will be allowed to give written testimony as part of an investigation into his alleged illegal interference with the Federal Police. The case’s rapporteur, Justice Celso de Mello, wants the president to give testimony in person, “as any other suspect would.”
  • Supreme Court. During a service at the Assembly of God neo-charismatic Evangelical church in São Paulo, President Jair Bolsonaro promised that he will nominate an Evangelical pastor to fill the next vacancy on the Supreme Court, which will open up next year. He asked those in attendance to “imagine Supreme Court sessions starting with prayer,” even though Brazil is, by law, a secular state. Mr. Bolsonaro picked a Catholic federal judge to a seat that will become vacant next week.
  • Election. In that same event, the president broke with his vow of not endorsing mayoral candidates before the runoff stage, saying he is ready to support Congressman Celso Russomano in the race for São Paulo City Hall. Mr. Bolsonaro has a particular interest in that election, as he wants to weaken São Paulo Governor João Doria — who is eyeing his own presidential run in 2022. Currently polling first with 26 percent, Mr. Russomano hopes to avoid repeating his performance in his last two runs for mayor, when he started strong, but failed to qualify for the runoff stage on both occasions. Incumbent Bruno Covas — who is backed by Mr. Doria — is polling second at 21 percent.
  • LGBTQ 1. For the first time in Brazilian history, transgender candidates will be allowed to use their assumed names when running for office. Until the 2018 race, only people who had undergone a full gender transition process were allowed to run with a new identification. For trans women, that is an important way to secure funding for their campaigns — as parties must have at least 30 percent of female candidates, who get 30 percent of their electoral funds.
  • LGBTQ 2. Brazil’s National Justice Council also granted LGBTQ people the right to special conditions when serving prison sentences — potentially in separate wings from the rest of the inmate population, as a way to preserve their physical integrity. The decision should benefit trans women, who are usually incarcerated in male prisons with no separation whatsoever.[/restricted]
Categories
Brazil Weekly

Investors on alert as government tries to reshuffle debts

This week, we talk about how the once pro-Bolsonaro market investors now frown upon the government. And the privatization of a key energy distributor.

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Government sparks trust crisis among investors

The Bolsonaro administration rattled investors last week [restricted]after it was suggested that a new welfare program would be paid for with money from a fund to finance basic education and by postponing the payment of precatórios, a sort of government IOU bond. The stock market crashed, as did the Brazilian currency — already the worst-performing in the world — as the government flirts with the idea of essentially breaching its own federal spending cap, by creating exceptions for welfare programs.

Why it matters. In 2016, a constitutional amendment prevented the government from raising spending unless it is matched by an increase in revenue. If that is not the case, the budget will only rise in accordance with the previous year’s inflation — and increasing spending in one area must come at the cost of reshuffling public funds from another field.

How do precatórios work? These bonds are issued after the government loses legal battles. As opposed to paying these debts promptly during the corresponding tax years, the Brazilian government often issues IOUs. Reducing the budget available for these payments would increase debt levels in the following years — not to mention the fact that the government would have to cherry-pick which creditors would be paid first.

  • Investors fear that, after defaulting on IOUs, the administration could also default on government bonds or the public debt.

Short-term debt. Recent data by the Treasury Department shows that public debt expiring within 12 months will reach 18.2 percent of GDP in 2020 — the highest rate in 12 years. As a result, the average expiring maturity of Brazil’s public debt fell to the 3.5-to-3.8-year range. 

  • That happened as investors sought more liquidity — but the Treasury Department reckoned that having a shorter time to pay its dues “increases the risks of refinancing.”

Scared investors. Brazil’s bond market has become rather bumpy due to fears of government overspending. In September, bonds pegged to inflation (Tesouro IPCA) had major losses, especially for long-term contracts. Tesouro IPCA 2045 dropped 12.4 percent, for instance.

  • Even Tesouro Selic 2023, a bond for conservative investors, has dropped for the first time since 2002. This bond is pegged to the Selic benchmark interest rate and is not expected to fall unless there is an interest rate cut.

Outlook. Analysts project a volatile month of October for Brazil. There is a clear division within the administration between Economy Minister Paulo Guedes — who preaches austerity — and the rest of the administration. While there is no evidence whatsoever that Mr. Guedes could resign, he is losing credibility with markets and members of Congress.

  • On July 6, Mr. Guedes said the government would announce four major privatizations within the space of three months. That deadline expires tomorrow, with no such projects presented so far.
  • Meanwhile, in a desperate attempt to fund the president’s future welfare program, allies of the government seem to be throwing proposals at the wall to see what sticks — and change course depending on the market’s reactions.

— with Natália Scalzaretto


The privatization of Brasília’s energy company

One week from now, shareholders of the Brasília Energy Company (CEB) will meet to pass a motion that would privatize the company. Controlled by the government of Brazil’s Federal District, CEB is buried under over BRL 1 billion (USD 176 million) in debt and would need BRL 400 million in investment just to keep its rights to supply energy to the Brazilian capital. On September 26, CEB informed that the minimum bid is BRL 1.42 billion.

  • As part of the privatization process, CEB has launched a voluntary redundancy program to cut 120 of its 900 employees. The company will also transfer another 100 staffers to a new public lighting firm, separated from CEB.

Suitors. At least three groups are interested in a deal — Equatorial Energia, Energisa, and Enel. These companies see CEB’s assets as strategic, allowing for an expansion of their footprint in Brazil’s Center-West region (in the cases of Energisa and Enel), or the entry in the region (in Equatorial’s case).

  • Equatorial and Energisa have been successful in recent privatization auctions. The former snatched energy distributors in Piauí and Alagoas (in Brazil’s Northeast), while the latter bought energy companies in Acre and Rondônia (North).

Challenges for investors. Among CEB’s major money drains are illegal energy connections. The company estimates there are around 62,000 of them in the capital — which causes yearly losses of BRL 90 million.

Opposition. Unions and consumer defense institutions have been skeptical of the privatization. They mention recent cases in the states of Goiás, Acre, and Pará, where tariffs went up by as much as 40 percent while the quality of energy supply services remained subpar, with these areas facing “constant power outages.”


Markets

Brazil’s weak currency, matched with a recovery in iron ore prices and a growing production of the mineral commodity, has made analysts at investment bank BTG Pactual single out mining firms as the Brazilian stocks to watch in Q4 2020. They mention Vale and CSN as having the biggest upsides, based on predictions that “iron ore prices shall remain above USD 100/ton for some time.”


Religion on the ballot

Data from Brazil’s Superior Electoral Court shows that the number of candidates in the 2020 municipal elections who are overtly associated with churches is up 34 percent from 2016. However, they account for just 1 percent of the total number of candidates to be present on ballots. The list, however, only considers candidates whose nom de guerre includes a religious moniker, such as “Father,” or “Pastor.” Therefore, the number of religious candidates is certainly larger — as politicians who don’t use titles but are connected to churches, such as Rio de Janeiro Mayor Marcelo Crivella, are not factored in.


Looking ahead

  • Public spending. The government is facing heat after it was revealed to have transferred BRL 7.5 million (USD 1.3 million), originally earmarked for buying Covid-19 tests, to a program headed by First Lady Michelle Bolsonaro with no relation to the pandemic. The money had been donated by beef producer Marfrig in March, but the government said it changed its purpose as the Health Ministry “no longer needed Covid-19 tests.” 
  • Inflation. On Friday, the official inflation rate for the month of September will be released. The mid-month prediction suggested that September might see the biggest increase for the month since 2012 — driven mainly by rising food and fuel prices.
  • Accountability. President Jair Bolsonaro has reportedly zeroed in on Jorge Oliveira, a close aide of his, as his pick for a seat on the Federal Accounts Court (TCU), a sort of audit tribunal that monitors public spending. A seat will soon be vacant, as one of the court’s members privately told the president he will retire at the end of the year. Mr. Oliveira has worked for the Bolsonaros for over 20 years, and has a personal bond with the president’s sons.

In case you missed it

  • Supreme Court. President Jair Bolsonaro intends to choose Federal Judge Kássio Nunes for a spot on Brazil’s Supreme Court. A seat will become vacant on October 13, when Justice Celso de Mello — the longest-tenured member in the court’s history — will retire. Mr. Nunes’ name came completely out of the blue, yet pleased the legal community due to his reputation as a diligent judge. Still, Chief Justice Luiz Fux was disgruntled for not being consulted by the president, and reportedly said that a Supreme Court nominee should have a “thicker résumé.”
  • Bolsonaro. A new survey by pollster PoderData shows that 37 percent of Brazilians believe their lives have improved since Jair Bolsonaro came to power. Meanwhile, 28 percent say things have gotten worse. The data reinforces the perception that Mr. Bolsonaro’s popularity hinges on the coronavirus emergency salary — but sustaining welfare programs will be a challenge for the cash-strapped government.
  • Oil and gas. The Supreme Court granted Petrobras the right to slice up its assets among subsidiaries in order to speed up privatizations. Congress had complained that the move was a way to circumvent the Legislative branch’s powers to block privatizations of parent companies owned by the government. As part of its divestments program, Petrobras wants to sell eight of its 13 oil refineries by 2021, hoping to raise around USD 8 billion in the process.
  • Anti-science. A new survey published by the Pew Research Center shows Brazil is the country in which the lowest percentage of people trust that scientists do what is best for society, among 20 surveyed nations. While in most countries skepticism toward science runs along political lines — with the right wing tending to be less trusting of scientists — there is no such ideological cleavage in Brazil: only 22 percent of Brazilian right-wingers trust scientists ‘a lot’, the exact same rate among left-leaning individuals.
  • Unemployment. Brazil posted record-setting unemployment levels, with 13.8 million people out of work. As we previously reported, unemployment only accounts for those actively seeking jobs, meaning the rate is likely to rise even further as more and more Brazilians leave self-confinement and attempt to return to work.[/restricted]
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Brazil Daily

How the coronavirus infected Brazil’s currency

Today, we talk about how the coronavirus infected Brazil’s currency. A sizable portion of the country says their life improved under Bolsonaro. And tax collection finally goes up in Brazil.

Failed coronavirus response caused Brazilian currency crash

The U.S. Dollar is approaching its lowest level in 27 months, [restricted]with many in Wall Street swarming with bearish forecasts for the greenback. But not even that has helped the Brazilian Real to gain any ground. As a matter of fact, the Brazilian currency is the worst-performing in the world this year, having lost around 40 percent against the USD since January.

Why the currency is melting down. According to Edward Moya, a market analyst at foreign exchange company Oanda, a failed coronavirus response is one of the main reasons for the continued weakening of the Brazilian currency. “The economic crisis that followed the sanitary emergency forced the Central Bank to keep interest rates at all-time lows — leading foreign investors to pull their assets from the country,” he told The Brazilian Report’s Lucas Berti.

  • So far, Brazil has confirmed 4.8 million coronavirus infections (third-highest in the world), and 144,680 deaths (second-highest).

Also this. The government’s flirtation with breaking fiscal responsibility rules has also shaken markets. President Jair Bolsonaro seems determined to create a new welfare program, but how he plans to finance such an initiative remains uncertain. 

  • On Monday, the administration played with the idea of not paying precatórios — a form of government IOUs — in order to free up money for welfare. Since then, foreign funds are dropping purchase orders of these papers in the secondary market. One market analyst summed up the feeling among investors: “if the administration is willing to propose defaulting on its IOUs, what would keep it from defaulting on government bonds or the public debt?”

Remembering. Earlier this year, Economy Minister Paulo Guedes said the foreign exchange rate would only exceed the level of USD 1 : BRL 5 if the government “screwed up a lot.” On Thursday, the rate closed at USD 1 : BRL 5.64.

  • According to consultancy Tendências, unless the government makes an undisputed commitment to austerity, the currency exchange rate will creep closer to BRL 6 by the end of the year.

4 in 10 Brazilians say life improved under Bolsonaro

A new survey by pollster PoderData shows that 37 percent of Brazilians believe their lives have improved since Jair Bolsonaro came to power. Meanwhile, 28 percent say things have gotten worse.

  • The poll reinforces the perception that Mr. Bolsonaro’s popularity hinges on the coronavirus emergency salary. The rate of people saying their situation improved is higher among those with no stable income (58 percent) and inhabitants of Brazil’s poorest areas (58 percent in the North; 50 percent in the Northeast).

Why it matters. Elections in Brazil are usually defined by people’s immediate economic situation. If the government manages to maintain the current feeling among the population, Mr. Bolsonaro will be a head-and-shoulders favorite for re-election in 2020.

Yes, but … It will be hard to sustain welfare policies for two more years. Brazil’s debt-to-GDP ratio is at all-time high (88 percent) and the government was already forced to half the emergency aid to just BRL 300 (USD 88) a month until the end of the year. This explains the administration’s desperation to come up with a new welfare plan.


Tax revenue up for the first time in six months

The Brazilian federal government raised BRL 124.5 billion in taxes over the month of August. When discounted for inflation, the amount represents a 1.33-percent increase when compared to the same period of last year — the first time that happened since the beginning of the pandemic. According to the Federal Revenue Service, three factors explain the trend:

  • A recovery of economic activity. Experts believe that the fall in the Brazilian GDP this year will be less steep than initially expected — the Institute for Applied Economic Research (Ipea) raised GDP growth expectations from -6 to -5 percent;
  • A cut in taxes on credit operations;
  • Collection on taxes that had been suspended as a stimulus policy to offset the economic effects of the coronavirus crisis on companies.

Exemptions. Tax breaks amounted to BRL 10.6 billion in August, up 30 percent from August 2019. Half of that is due to payroll tax cuts — a measure also enacted due to the pandemic. The benefit is set to last until 2020, but Congress is deciding whether to extend it until December 2021. 


What else you need to know today

  • Biden. President Jair Bolsonaro launched another jab at U.S. presidential candidate Joe Biden — who had said during a debate that he would lead an effort to pressure Brazil into taking action against Amazon deforestation. After talking about Brazil’s “sovereignty,” Mr. Bolsonaro talked about protecting the country from “foreign interest” through “prepared Armed Forces.”
  • Supreme Court. During a live Facebook broadcast, President Jair Bolsonaro confirmed that Federal Judge Kássio Nunes is his pick to fill the upcoming Supreme Court vacancy. But the judge’s political connections infuriated the president’s online support base and many allies have urged him to change his nomination — influential televangelist Silas Malafaia called the pick “shamefully absurd.” Many in the president’s entourage say a change of heart could happen if the pressure continues.
  • Oil and gas. The Supreme Court granted Petrobras the right to slice up its assets among subsidiaries in order to speed up privatizations. Congress had complained that the move was a way to circumvent the Legislative branch’s powers to block privatizations of parent companies owned by the government. As part of its divestments program, Petrobras wants to sell eight of its 13 oil refineries by 2021, hoping to raise around USD 8 billion in the process.
  • Jobs. The government plans on extending the possibility of companies suspending employment contracts or reducing staffers’ hours and pay for another two months. With the decision, the program will have a total duration of eight months. The government compensates workers with part of the income they lose via suspensions or cuts — but the Economy Ministry says the aid should not be prolonged into 2021.
  • Elections. The Supreme Court is expected to end its trial on whether or not political parties will have to adopt a quota system to fund the campaigns of black candidates, in accordance with their proportion. For instance, if 20 percent of a given party’s candidates are black, they must receive 20 percent of campaign financing. A majority of justices agree that the quotas should be enforced immediately, in next month’s municipal elections.[/restricted]
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Brazil Daily

Brazil’s next Supreme Court Justice?

Jair Bolsonaro’s Supreme Court dark horse. Brazil’s job market situation is a Rorschach test. And Brazil picking a fight with Joe Biden.

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Bolsonaro zeroes in on Supreme Court pick

The government has leaked information that President Jair Bolsonaro intends to choose Federal Judge[restricted] Kássio Nunes, from the northeastern state of Piauí, for a spot on the Supreme Court. A seat will become vacant on October 13, when Justice Celso de Mello — the longest-tenured member in the court’s history — will retire. Mr. Nunes’ name was completely off the radar, with reports suggesting he was not even considering campaigning for the job. Regardless, the potential pick sends some important signals:

  • Mr. Bolsonaro reportedly zeroed in on Kássio Nunes after a meeting with Supreme Court Justices Dias Toffoli and Gilmar Mendes, brokered by Senate President Davi Alcolumbre. By choosing someone who is well regarded in the field of law — and has political connections — the president appears to be extending an olive branch to Congress and the court, which has not pulled many punches in decisions affecting the government.

What the president wants. There are two probes underway in the Supreme Court that could hurt the Bolsonaro family: an investigation into the organization of anti-democratic demonstrations, and the so-called Fake News probe. As Brasília correspondent Débora Álvares reports, the government has tried to negotiate some sort of deal with the court to spare members of the First Family from potential indictment.  

  • Figures close to the president have approached Supreme Court justices with a proposal to hand over the people responsible for coordinating the government’s so-called “Office of Hate” — consisting of a group of aides who firehose falsehoods on social media and incite protests against democratic institutions, in an orchestrated effort operating within the president’s office. In exchange, two of the president’s sons who may face heat (Eduardo and Carlos Bolsonaro) would be spared. The president is also keen on shielding his eldest son, Senator Flávio Bolsonaro, recently accused of money laundering, embezzlement, and criminal association.
  • Mr. Bolsonaro’s aides were told that there is no deal on the table. And the president is apparently trying a less barefaced move to lower tensions with the Supreme Court.

Yes, but … This administration has flip-flopped on multiple occasions, and senior officials left the door open for a U-turn, if necessary, saying the ink is not yet dry on Mr. Nunes’ nomination.

On the outs. Chief Justice Luiz Fux was not happy about being left out of the meeting with the president, and reportedly said that a Supreme Court nominee should have a “thicker résumé.”

Legacy. Kássio Nunes is 47 and thus could stay in the court until 2047, when he would turn 75 and hit the age of mandatory retirement.


Job market remains fragile in Brazil

The Economy Ministry announced on Wednesday that Brazil enjoyed an overall increase of 249,388 new formal jobs in August. This was the second straight month of positive results and the best result for August since 2010. More importantly, it was the first time since the pandemic started that services companies — the backbone of the Brazilian economy, accounting for 70 percent of Brazilian jobs — hired more people than they fired.

Yes, but … On the same day, the Brazilian Institute of Geography and Statistics showed a record-setting unemployment rate: 13.8 million people. As we previously reported, unemployment only accounts for those actively seeking work, meaning the rate is likely to rise as Brazilians leave self-confinement and start to look for jobs once more. 

  • The number of people of working age outside of the workforce has consistently grown since March — and reached an all-time record of 23-percent growth in July.

Recovery. Despite the fragility of the job market, the Brazilian economy is recovering faster than expected. S&P revised its GDP growth projection for the country, from -7 to -5.8 percent in the year. The ratings agency cites three main factors for the swift bounceback: strong financial stimuli, relaxed social isolation rules, and a solid demand for basic products from China.

  • A few points deserve monitoring, however. The coronavirus emergency salary is set to end after December (and the government is struggling to come up with a substitute welfare plan), and the Bolsonaro administration has adopted an aggressive stance against China.

“What a shame, Mr. Biden”

Polls suggest former U.S. Vice President Joe Biden is favored to win against Donald Trump in the U.S. presidential election. Still, Jair Bolsonaro seems determined not to waste an opportunity to get into a feud with the Democratic nominee. The latest such case came after Tuesday’s presidential debate, when Mr. Biden said the U.S. should put pressure on Brazil to take action against deforestation — suggesting to offer USD 20 billion as compensation and impose “severe economic consequences” if Brazil refused.

  • In response, Mr. Bolsonaro ranted on social media, in a message his team translated into English: “Today, [Brazil’s] president no longer takes bribes or baseless threats. OUR SOVEREIGNTY IS NOT NEGOTIABLE (…) What a shame, Mr. John [sic] Biden! What a shame!” 
  • Environment Minister Ricardo Salles issued a sarcastic retort to Mr. Biden’s idea to offer Brazil USD 20 billion to end deforestation. 

Why it matters. Under Mr. Bolsonaro, Brazil has been less of an ally of the U.S., and more strictly speaking an ally of President Donald Trump. If polls are correct and Mr. Trump is unseated, the Brazilian president’s demeanor could harm Brazil’s relations with its second-biggest trading partner — and most powerful nation in the world.

Remember this. Last year, our Explaining Brazil podcast interviewed Harvard professor Stephen M. Walt, who believes that it is only a matter of time until major powers try to stop Amazon deforestation “by any means necessary.” That could include, in a not-so-distant future, economic sanctions or even military operations.


What else you need to know today

  • Stock market. The Ibovespa stock market index slipped nearly 5 percent in September, due to international turmoil and uncertainties around President Jair Bolsonaro’s commitment to the federal spending cap. Real estate firms, financial institutions, and small caps posted the biggest losses during the month. Only two indexes rounded off September in the black: basic materials and real estate funds.
  • Coronavirus. Brazil posted more than 1,000 Covid-19 deaths in a single day for the first time in two weeks — bringing the total death toll up to 144,000. 
  • Human rights. According to a report by the Indigenous Missionary Council, violence against indigenous groups in Brazil more than doubled since Jair Bolsonaro rose to power. In 2019, there were 276 cases of violence against members of native communities — against 110 in the year before. The report claims “the violence is based on a government project that aims to make indigenous lands available for agriculture, mining, and logging.”
  • Banking. State-controlled bank Banco do Brasil has reached a deal with Swiss bank UBS to join forces and create a new investment bank and brokerage firm. This novel institution will be controlled by UBS — which will hold 50.01 percent of voting stock — and operate in Brazil, Argentina, Chile, Paraguay, Peru, and Uruguay, according to a financial statement issued to Brazil’s Securities Commission. UBS was one of the banks exposed by the recent FinCen Files scandal, a transnational journalistic investigation revealing the role of global banks in industrial-scale money laundering schemes.
  • Fintech. Nubank is launching operations in Colombia, after expanding to Argentina in 2019 and Mexico earlier this year. Initially, Nubank will only offer credit card services — which accounts for over 20 percent of all payments in Colombia — but it will eventually roll out its digital bank. With its no-fee model, Nubank hopes to gain popularity in a market where the top 5 banks control over 80 percent of total assets.
  • Business. Coca-Cola is moving its Latin American headquarters from Argentina to Brazil. The beverage company is the latest major corporation to leave the southern country, which has been in recession since 2018. According to new data, 11.6 million people in Argentina are below the poverty line — that is, 41 percent of the total population.[/restricted]
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Brazil Daily

New agreement to improve Brazilian trade with U.S.

Today, Brazil and the U.S. try to improve trade relations. Brazilians’ distrust for science. Senate tries to uphold company payroll cuts. And a Supreme Court trial that will affect Petrobras.

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BREAKING

On Tuesday, the Federal Police launched an operation against two state secretaries in Pará, accused of embezzling money earmarked for healthcare. Now, the police are carrying out a similar operation targeting Santa Catarina Governor Carlos Moisés. He is suspected of siphoning money from the purchases of ventilators for Covid-19 patients.


Brazil-U.S. trade could get a boost

Brazil and the U.S. have reportedly concluded [restricted]negotiations over a plan to facilitate trade between the two countries — which should be signed within the next few days. The idea is to reduce costs with bilateral exchange (USD 29.8 billion between January and August) by 15 percent. 

What is on the table. The agreement is predicated upon three pillars: trade facilitation, regulatory practices, as well as anti-corruption efforts. That would help eliminate red tape and facilitate customs control.

  • Brazil already has similar trade deals with Chile, the European Union, and Mercosur.

Global Entry as a trade booster. Another move to boost exchanges between the U.S. and Brazil is Washington’s decision to launch the second phase of the Global Entry program, which allows fast-tracked clearance at airports for pre-approved, low-risk travelers. Today, 20 executives from the Brazil-U.S. Business Forum, a group aimed at improving trade ties, benefit from the program — which is now set to be extended to a total of 100 executives.


Brazilians skeptical about scientists

A new survey published by the Pew Research Center shows Brazil as the country in which fewer people trust that scientists do what is best for society, among 20 surveyed nations. While in most of the countries skepticism towards science runs along political lines — with the right wing tending to be less trusting of scientists — there is no such ideological cleavage in Brazil: only 22 percent of Brazilian right-wingers trust scientists ‘a lot’, the exact same rate among left-leaning individuals.

Why it matters. The findings suggest Brazil is fertile ground for anti-scientific discourse. During the pandemic, a disregard for scientists’ recommendations — often coming from the far-right government — has been an obstacle in controlling the spread of the coronavirus.

Mistrust and disgust. Brazilians distrust institutions in general. The country has some of the lowest trust rates for government (9%), news media (12%), or business leaders (just 4%). There is also a significant self-image problem, as three in four Brazilians say they are unsatisfied with how things are going in their country — the third-highest rate out of 20 surveyed nations. As part of that general sentiment of frustration, positive perceptions about the country’s scientific achievements are disproportionately low when compared to other countries — usually in the single digits.

  • The result is a country in which just 41 percent of people believe decisions should be made by experts. Most Brazilians say “practical experience” is a bigger asset for decision-making.

Brain drain. The biggest problem for Brazilian science, however, is not a lack of high-quality scientists — but rather a scarcity of funds and structure. Funding for scientific research in public universities has been cut to the bone over the past decade, and many of the country’s top-notch scientists have left to work at foreign institutions. And the Education Ministry has already announced that it will make further cuts to the budget for federal research institutes and universities.

  • The Maglev-Cobra project, a superconducting magnetic levitation train prototype developed by the Federal University of Rio de Janeiro, reached a technology readiness level of 7 (out of 9) and had transported over 20,000 people on an experimental capacity — but was halted due to a lack of funding.

Lawmakers could strike down veto on payroll tax cuts

Senate President Davi Alcolumbre scheduled a vote for today on President Jair Bolsonaro’s veto of the extension of payroll tax cuts to companies in 17 sectors until the end of next year. The government tried to negotiate in favor of upholding the veto, and will try to stall the vote by convincing allies not to show up for the sitting, trying to prevent a minimum quorum from being reached.

  • Mr. Bolsonaro had vetoed a piece of legislation allowing companies to pay taxes based on their revenue, instead of a 20-percent rate on their payroll.

Why it matters. The standoff has lasted for three months, and it is already affecting businesses’ economic planning for 2021.

What they are saying. The government is trying to avoid any loss in revenue as it scrambles to come up with welfare programs for next year, when the coronavirus emergency salary will end. However, companies are lobbying hard for the tax cuts, saying that upholding the veto would force them to lay off staffers and prevent up to 6 million new jobs from being created.

  • The possible overturning of the veto has also been used by Mr. Alcolumbre as a bargaining chip. He wants to change the Constitution in order to get another term ahead of the Senate — and could comply with the government’s wishes in exchange for support for his strategy.

Supreme Court to rule on Petrobras privatizations

The Supreme Court will hold a trial today on whether state-controlled oil company Petrobras has the right to slice its assets into multiple subsidiaries in order to fast-track their privatization.

  • The court has previously ruled that parent companies controlled by the government need congressional approval to sell off assets — but that they would have autonomy over subsidiaries. In light of this, Petrobras decided to transfer the control of oil refineries to their subsidiary companies as a push for divestments. Congress, however, has called foul play.

On the line. Petrobras is attempting to sell eight of its oil refineries through subsidiaries.

Why it matters. The decision is pivotal for Petrobras’ strategy to reduce debts and focus its efforts on pre-salt deepwater reserves. The company has boosted this plan during the pandemic, as the coronavirus crisis slashed oil prices worldwide.

The trial. So far, three justices have voted — all three in favor of an injunction to suspend the privatizations.


What else you need to know today

  • Economy. According to think tank Fundação Getulio Vargas, confidence levels among industry and commerce business owners has reached levels that exceed those of the immediate pre-pandemic period. In the case of industry, optimism got to its highest since January 2013 — that is, before the 2014-2016 recession. However, optimism in this case is purely short-term — when it comes to looking six months ahead, business owners already become less enthusiastic about Brazil’s economic outlook.
  • Environment. A federal court in Rio de Janeiro issued an injunction to suspend decisions made by the National Environmental Council (Conama), lifting protections on coastal areas, citing “clear risks of irreparable damage.” The Solicitor General’s Office can appeal the ruling, but has refused to comment.
  • Trump-Biden debate. When trying to make a point about U.S. President Donald Trump’s leadership, former Vice President Joe Biden used Brazil as an argument. “The rainforests in Brazil are being ripped down […] I would be gathering up and making sure we had the countries of the world coming up with USD 20 billion and saying: ‘Here’s USD 20 billion. Stop tearing down the forest. And if you don’t you are going to have significant economic consequences.'”
  • Emergency aid. According to the Citizenship Ministry, roughly 5.7 million people will no longer receive the coronavirus emergency salary. Over the next four months, the government will make payments of BRL 300, and has raised the bar for people to qualify for the aid. One official said the move was the result of lessons the government has learned about the policy.
  • Justice. The Supreme Court will begin a trial today on whether or not the “right to be forgotten” should exist in Brazilian law. While the right to privacy constitutes protecting information that is not publicly available, the right to be forgotten involves removing information that was publicly known at a certain time and not allowing third parties to access the information. This right does not technically exist in Brazil, though it is frequently used as an argument in cases brought before lower courts. Legal scholars struggle to agree on the issue, claiming that this right could increase internet censorship and allows for the rewriting of history.[/restricted]
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Brazil Daily

Herd immunity claim challenged in the Amazon

Today, we cover the rising number of coronavirus cases in the Amazon. The disenchantment of markets with Jair Bolsonaro. The president’s son called a corrupt “ringleader.” And the possible end of Brazil’s IPO frenzy.

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Amazon coronavirus herd immunity hopes at risk as cases rise

Last week, a yet-to-be-peer-reviewed study published on medical platform MedRxiv suggested that the Brazilian city of Manaus[restricted] — the biggest in the Amazon, and Brazil’s first to experience a full-scale healthcare collapse in the country — had reached the level of so-called “herd immunity” against Covid-19. University of São Paulo researchers reached that conclusion by combining data of decreasing deaths with an analysis of locals’ blood samples — estimating that up to 66 percent of residents had developed coronavirus antibodies.

  • Now, however, cases are rising once more, challenging the researchers’ conclusion. Infectious disease experts have identified a surge in cases among younger, wealthier populations.

Coronavirus in the Amazon. Manaus, the biggest city in the Amazon, is a textbook example of what happens when the coronavirus is allowed to spread unchecked. The city never imposed lockdowns, and most people and businesses simply ignored social-distancing rules. At one point, the city was left without any available hospital beds, nor enough coffins to bury the dead. 

Why it matters. The case of herd immunity in the Amazon is yet another example of how little we know about Covid-19 and the SARS-CoV-2 virus.

1 million deaths. The world has reached the somber milestone of 1 million confirmed Covid-19 deaths, with a worrisome finding: while it took six months to reach 500,000 deaths, that amount doubled in half the time, showing that the pandemic is not slowing down.

  • Fourteen percent of all Covid-19 deaths worldwide occurred in Brazil. However, we will never know the full human toll, due to underreporting and undertesting.
  • Of the 10 countries with the highest number of coronavirus deaths per capita, five are South American nations. The list is topped by Peru, a country that took the pandemic seriously and enforced lockdown even before many European countries did so. But massive inequality and an informal economy hindered any effort to hold people in confinement in order to lower the curves.

Bolsonaro’s “creative accounting” spooks markets

On Monday, the government announced the creation of Renda Cidadã (Citizen Income), a welfare initiative slated to replace world-renowned cash-transfer program Bolsa Família. But the administration’s plan to finance the scheme came across as odd to most observers: the money would be taken from a fund to finance basic education, as well as from the postponement of so-called “precatório” payments, or government IOUs.

Why it matters. The move was poorly received in Congress, with many lawmakers considering the solution a way to doctor the budget — for which former President Dilma Rousseff was impeached in 2016.

Markets. On Monday, the Ibovespa stock market index dropped 2.41 percent due to investors’ fears of fiscal imbalance. Since August, the index has fallen 10.3 percent. The Brazilian stock exchange has lost BRL 437 billion (USD 77.2 billion) over the last two months, as President Jair Bolsonaro hints toward a laxer fiscal policy to cater to his own electoral goals.

Meanwhile … The government was unable to reach a consensus with congressional leaders around the tax reform, and is expected to delay its proposals until after municipal elections in November. That essentially buries any hope of advancing this agenda before 2021.


President’s son to be charged with embezzlement, money laundering

Rio de Janeiro prosecutors have concluded their investigation into money-laundering schemes operated from within the state’s legislature and are soon expected to present charges against Senator Flávio Bolsonaro, the president’s eldest son. He served as a state lawmaker between 2003 and 2018.

  • Mr. Bolsonaro will be charged with embezzlement, money laundering, and criminal association. He is accused of forcing staffers to surrender part of their salaries — which were allegedly collected by his former aide, family friend and ex-military policeman Fabrício Queiroz, who will also be charged.

Why it matters. Jair Bolsonaro ran for office in 2018 on an anti-corruption platform. Now, prosecutors are about to declare his eldest son the “ringleader” of a corrupt ploy.

Cash. The senator is believed to have pocketed at least BRL 2.7 million in cash from the scheme.


Brazil’s IPO frenzy cooling off

The Brazilian market for initial public offerings was booming this year — despite the pandemic. In July, as many as 50 companies were preparing to go public. By August, companies had raised more money through IPOs than in the entirety of 2019. However, the winds seem to have changed, and many big groups are giving up on their plans to sell stock. 

  • On Monday, energy conglomerate Cosan announced it was pulling the plug on the IPO of gas unit Compass after demand appeared to be underwhelming. Last week, state-owned bank Caixa called off the long-awaited IPO of Caixa Seguridade, its insurance subsidiary, while investment bank BR Partners postponed its offering.
  • Other firms, such as home builder Cury, reduced share prices in order to appeal to investors.

What they are saying. Companies cite “unfavorable market conditions” when justifying their decisions to postpone IPOs.

Why it matters. Financial markets around the world appeared to be largely unaffected by the sanitary and economic conditions created during the Covid-19 pandemic, but fears of a second wave in multiple countries has, once again, made investors jittery.

Competition. Marco Harbich, a strategist at Terra Investimentos and a columnist for The Brazilian Report, also points out that with so many companies going public, investors are getting pickier about where they put their money.

  • As Brazil’s benchmark interest rates are at their lowest ever, appetite for riskier investments has grown. Seventeen Brazilian companies have made their debuts on the stock market so far this year, with another 17 holding follow-on offerings. Still, there are another 31 IPOs being analyzed by the Brazilian Securities Commission (CVM).

What else you need to know today

  • Environment. After promising to “run the cattle herd” through Brazil’s Amazon — as well as over environmental regulations —, Environment Minister Ricardo Salles approved the extinction of two resolutions protecting mangroves and sandbanks near Brazil’s coast. These areas will now be opened up for real estate and other commercial ventures.
  • Startups. VTEX, a systems supplier for e-commerce, is now valued over USD 1 billion, making it Brazil’s latest unicorn. The company’s last investment round raised USD 225 million, pushing VTEX’s valuation up to USD 1.7 billion. VTEX’s surge happened as retail companies push to digitize their sales systems amid the Covid-19 pandemic. Its client list includes giants such as AB Inbev, Nestlé, and Walmart.
  • Election. After Brazil’s leading media group Globo said it would only hold mayoral debates in cities where parties agree to a limited number of participants — citing fears of coronavirus infections — another major media company will also pass on showing televised debates. Network SBT said it wouldn’t host any first-round debates due to the sheer number of candidates (in São Paulo alone, there are 14 contestants). SBT, however, will go ahead with plans for a November 21 debate during the runoff stage.  
  • Oil and gas. State-controlled oil firm Petrobras informed in a securities filing that it has reached a deal with Total to take over the French company’s operations in deepwater oil reserves 120 kilometers from the coast of Amapá, in the North of Brazil. The reserves were being operated by a consortium made up of Petrobras (30 percent), Total (40 percent), and BP (30 percent). Now, Petrobras’ stake could reach 70 percent if BP shows no interest in raising its involvement.
  • Election. Prosecutor General Augusto Aras asked the Supreme Court to investigate Congresswoman Joice Hasselmann — a mayoral candidate in São Paulo — for allegedly creating fake social media accounts in order to attack political adversaries. In April, an audio message in which Ms. Hasselmann instructed an aide to “create several profiles and go in ‘studs up’ on Twitter and Instagram” was leaked. The congresswoman has been one of the most outspoken critics of what she calls the Bolsonaro family’s “social media militia.”[/restricted]
Categories
Brazil Weekly

Bolsonaro to make first Supreme Court pick

This week, the frontrunners for a Supreme Court vacancy. The government’s proposal for a new tax. Brazil’s over-reliance on trucks persists.

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Who will Jair Bolsonaro appoint to the Supreme Court?

On Friday, Supreme Court Justice Celso de Mello announced he will retire on October 13, [restricted]ending what is the longest tenure by anyone in Brazil’s highest court, after taking the seat in August 1989. Justice Mello was already set to retire on November 1 — when he reaches the mandatory retirement age of 75 — and his decision to bring his retirement forward 19 days was not trivial, as Brasília correspondent Débora Álvares reports.

  • Justice Mello presides over an investigation into President Jair Bolsonaro, and upon retirement, all his cases would normally be handed over to his replacement … who will be appointed by President Jair Bolsonaro. According to sources within the Supreme Court, Justice Mello’s early retirement put pressure on Chief Justice Luiz Fux to draw lots to determine who will take over the investigation.
  • Regardless, government officials have celebrated the retirement announcement, as Celso de Mello has been among the members of the Supreme Court who has most opposed the Bolsonaro administration. Earlier this year, Justice Mello compared Brazil’s current political situation to the crumbling of the Weimar Republic in Germany, as Adolf Hitler became chancellor.

Why it matters. Justice Mello’s retirement will hand Mr. Bolsonaro his first Supreme Court appointment.

Frontrunners. In May 2019, Mr. Bolsonaro announced he would appoint then-Justice Minister Sergio Moro to fill the first available vacancy in the court. That bridge has been burnt, after Mr. Moro left the government accusing the president of malfeasance. Débora Álvares goes through the leading candidates for the country’s highest court.

  • Ives Gandra Filho. A member of the Superior Labor Court, the uber-religious Mr. Gandra Filho is a favorite among Jair Bolsonaro’s military advisors. He is seen as an “incorruptible” man who donates half of his salary to charity and lives in a small room in a Brasília parish. His father recently said President Bolsonaro has a “legal” way to stage a military coup, as he mischaracterized an article of the Brazilian Constitution.
  • Jorge Oliveira. If the pick is made among Bolsonaro’s sons, it would go to the current Secretary-General — who Mr. Bolsonaro calls Jorginho (“little Jorge”). A lawyer and retired member of the Military Police, Mr. Oliveira has worked for the Bolsonaros for over 20 years, and has a personal bond with the president’s family.
  • André Mendonça. The current Justice Minister is a respected legal scholar, with over 20 years of experience in the Solicitor General’s Office. He would check the box of being “extremely evangelical,” which Mr. Bolsonaro has said will be a prerequisite for a Supreme Court appointment. Moreover, Mr. Mendonça’s actions as Justice Minister showed loyalty to the president — including actions widely disapproved by legal scholars, such as creating a secret dossier with information on almost 600 civil servants and law enforcement agents monitored for being self-declared “anti-fascists.”
  • Other potential picks. Prosecutor General Augusto Aras and João Otávio Noronha, a member of the Superior Court of Justice (Brazil’s second-highest judicial body), are also in contention — albeit in the outside track. They have distinguished themselves to the president by bending over backward to please Mr. Bolsonaro with their legal decisions, in what observers say is an attempt to audition for a Supreme Court seat.

Consequential. Besides Celso de Mello’s seat, Jair Bolsonaro will have at least one more Supreme Court nomination before the end of his term — as Justice Marco Aurélio Mello retires next year. If he wins re-election in 2022, Mr. Bolsonaro would have two more seats to fill, meaning he could have four appointments out of a total of 11 justices.


The government’s plan for tax reform

After weeks of negotiations, the Bolsonaro administration will present Congress with its second set of proposals to reform Brazil’s tax system — which are rumored to include the creation of a new levy. According to the Economy Ministry, a novel 0.2-percent tax on financial transactions is the only way the government can make ends meet in 2021. In exchange, the government proposes a cut in payroll taxes.

  • This need for increased revenue becomes all the more pressing as President Jair Bolsonaro leads the creation of a new welfare program to replace the coronavirus emergency salary, which is set to expire in December. 

Why it matters. The emergency aid has had a tremendously positive impact on Mr. Bolsonaro’s approval ratings (more below). But the cash-strapped government still struggles to structure a new program for 2021 and beyond.

  • The government’s new tax is a new version of the CPMF — a tax on financial transactions which was enforced between 1997 and 2007. Brazilians loath this levy — and the fact that 2020 is an electoral year makes it a tough sell to Congress.
  • President Jair Bolsonaro has reportedly signed off on the new tax — as long as the Economy Ministry finds a way to avoid it harming his public image.

Maia. The government hopes that House Speaker Rodrigo Maia’s vanity could work in its favor. After success in 2019’s pension overhaul, Mr. Maia wants to go down in history as the Speaker who managed to approve two major reforms in as many years. But Mr. Maia — who is weighing up running for governor in Rio de Janeiro in 2022 — might not be so keen on attaching his name to such a reviled tax.

  • According to sources in Congress, Mr. Maia is likely to lend his support to another tax reform bill being discussed in the House. This proposal merges several federal and state taxes into a single VAT charge.

Calendar. Don’t expect major reforms in 2020. Activity in the House will decrease, as members engage in local electoral races. And contentious reforms usually take several months to pass, even in a best-case scenario. 


Markets

Global banks saw their share prices plummet last week, after a journalistic investigation showed that major institutions had engaged for years in knowingly handling up to USD 2 trillion in dirty money. In Brazil, however, banks’ share prices went up. Analysts are particularly keen on the state-controlled Banco do Brasil — which has seen profits soar in recent years, as well as having a conservative portfolio focused on payroll and agribusiness loans, and hefty provisions in case delinquency rates go up.

Natália Scalzaretto


Road transportation still massive bottleneck for Brazil

A new study by the Infrastructure Ministry shows that most of the ethanol, biodiesel, and jet fuel produced in Brazil is still transported by road. That’s why, in 2018, an 11-day truckers’ strike nearly halted the country and caused a fuel shortage in several states. Since 2016, the federal government has tried to map cargo transportation bottlenecks and opportunities, in order to structure the sector through popular cargo routes, identifying where investments are needed — and how to avoid exposure.


Looking ahead

  • Unemployment. On Tuesday, the Economy Ministry will publish August’s formal employment data; on Wednesday, the Brazilian Institute of Geography and Statistics releases the official unemployment rate until July. Government data showed a positive balance between formal hirings and firings in July, but analysts are cautious to treat the data as a sign of a recovery. Unemployment rates are going up as Brazilians begin to leave social isolation — and millions are now falling into another category: discouraged workers, i.e., when people stop looking for jobs in the belief they won’t find one.
  • 2020 election. Even though voting is mandatory in Brazil, voters may ignore their duty if they justify their absence at the polls — or pay a fine worth less than USD 1. Since the return of democracy in 1985, abstention rates have climbed election after election, and a recent poll suggests that voter turnout could be historically low in 2020, as a result of the pandemic. Pollster Datafolha says 34 percent of São Paulo voters don’t feel safe to go out and vote on November 15. Furthermore, Brazil doesn’t have a mail-in ballot system like the U.S., or a vote-by-proxy system, like France.
  • Coronavirus. Three weeks after the September 7 Independence Day holiday, Rio de Janeiro saw a spike in ICU occupancy rates, which now stand at 87 percent — nearly 10 percentage points above July levels. Experts say the uptake in admittance of patients with severe Covid-19 cases might be linked to the loosening of social distancing observed during the holiday, with thousands flocking to beaches, bars, and restaurants.

In case you missed it

  • Bolsonaro. A new poll by Ibope shows that 40 percent of Brazilians believe Jair Bolsonaro is doing a ‘good or great’ job as president. Mr. Bolsonaro gained ground among poorer and less-educated voters, suggesting that the BRL 600 (USD 107) emergency coronavirus salary has made him more popular. However, interviews were made before the benefit was halved to BRL 300.
  • Economy. Many industrial sectors have regained their optimism toward the Brazilian economy, according to a preliminary study by the Brazilian Institute of Economics at Fundação Getulio Vargas (IBRE-FGV). “This optimism signals that productive sectors may ramp up production,” writes economist Renata Mello Franco.
  • Borders. The Brazilian government has lifted restrictions on the entry of foreign nationals at every airport in the country — revoking a March rule that barred the influx of tourists in six states. A 30-day restriction remains for the entry of foreigners by land and sea. Venezuelan citizens, however, are granted an exception due to humanitarian reasons.
  • UN. Jair Bolsonaro’s address to the United Nations General Assembly tried to deflect responsibility for Brazil’s environmental crisis and the coronavirus pandemic. The president lashed out at indigenous communities, “spurious” international interests, and “unpatriotic” organizations for leading a “brutal smear campaign” against Brazil — denying official data that shows a massive surge of fires and deforestation since he took office.
  • Rio. On Wednesday, the State Congress in Rio de Janeiro moved forward with its impeachment process against Governor Wilson Witzel, who is accused of embezzling funds earmarked for the state’s anti-coronavirus effort. One day later, an electoral court declared Rio’s Mayor Marcelo Crivella ineligible for office for committing electoral crimes. However, Mr. Crivella may still be able to run for re-election in November, thanks to the possibility of dragging the case through multiple appeals.[/restricted]
Categories
Brazil Daily

Bolsonaro’s popularity boost tied to temporary benefit

Today, Bolsonaro faces a dilemma following new polls. Brazil to lift restrictions on foreign nationals. And a new chapter of Rio’s political debacle.

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Bolsonaro’s approval reaches new heights

A new poll by renowned pollster Ibope shows that[restricted] 40 percent of Brazilians believe Jair Bolsonaro is doing a ‘good or great’ job as president. This was the first nationwide poll carried out in Brazil through in-person interviews since the pandemic started — which makes it more comparable to surveys from before March 2020. 

Why it matters. A boost in his approval ratings certainly gives the president more political muscle — and the timing is great for him. Mr. Bolsonaro is facing a potentially embarrassing situation: the Supreme Court will decide whether or not he will be allowed to testify in writing in an investigation into his alleged illegal interference with the Federal Police. 

Emergency aid. Once again, polls show how the BRL 600 emergency aid program has boosted the president’s popularity. His approval skyrocketed among poorer and less-educated voters — while stagnating among college-educated people and those who earn at least BRL 5,000 a month (USD 907).

  • Remember that adage by Bill Clinton’s advisor James Carville, “it’s the economy, stupid”? In a country as unequal as Brazil, providing millions of poor people with purchasing power to cater to their basic needs works wonders for presidents. It helped Lula, and it is now helping Mr. Bolsonaro.

Yes, but … Interviews were made before the benefit was halved to BRL 300. For the country’s poorest 10 percent, the cut could lead to an immediate 44-percent loss in purchasing power

  • The progression of Mr. Bolsonaro’s approval ratings will be worth monitoring until the end of the year, when the emergency benefit is set to end outright. And it puts pressure on the administration to create a new cash-transfer program to prevent tens of millions from falling below the poverty line in 2021.
  • But the budgetary constraints that forced the government to slash the emergency aid will persist. The Economy Ministry foresees a BRL 861-billion deficit for this year — about 12 percent of the GDP.

Approval? A total of 51 percent of voters say they don’t trust the president, further suggesting that the rise in his popularity is less on his personal allure and more to do with emergency aid payments.


Government allows foreigners back into Brazil

The Brazilian government has lifted restrictions on the entry of foreign nationals at every airport in the country — revoking a March rule barring it in six states. A 30-day restriction remains for the entry of foreigners by land and sea. Venezuelan citizens, however, are granted an exception due to humanitarian reasons.

Why it matters. Brazil is lifting restrictions as many countries experience a second wave of coronavirus infections — raising uncertainty about the progression of the pandemic.

Restrictions. That kind of uncertainty is already being observed in Brazil — namely in the state of Amazonas, which was the first in the country to experience a full-scale collapse of its healthcare system. Authorities had lifted restrictions on commerce and tourist locations, but infection curves have increased in recent weeks — forcing the state government to shut down bars, public events, and resorts.


Rio Mayor declared ineligible for office

One day after the Rio de Janeiro State Congress moved forward with its impeachment process against Governor Wilson Witzel, the mayor of the city of Rio de Janeiro was declared ineligible for office. A state electoral court found Marcelo Crivella guilty of “abuse of economic power,” an electoral crime — and could suspend his political rights for eight years.

  • In 2018, the mayor used a City Hall event to canvass votes for his son, who launched an unsuccessful bid for Congress.

Why it matters. The decision comes 52 days before the November 15 municipal elections, when Mr. Crivella will fight for re-election (with the veiled support of the Bolsonaro family).

What happens now. Mr. Crivella will probably be able to run in November, as he will be entitled to multiple appeals until the case reaches the Superior Electoral Court and Supreme Court — a process that could take years.

Rio’s mayoral race. Rejected by 75 percent of the Rio electorate, the incumbent Mr. Crivella could fail to make it to the runoff stage altogether. According to the latest polls, he is tied for second place in a race being led by former Mayor Eduardo Paes — who is facing corruption charges.


What else you need to know today

  • Vaccine. The Brazilian federal government announced it would set aside BRL 2.5 billion (USD 453 million) to join the COVAX Facility, a worldwide initiative that brings together governments and manufacturers to ensure future Covid-19 vaccines reach those in greatest need, whoever they are and wherever they live. The government says the move will allow the country to “guarantee the immunization of 10 percent of the population by the end of 2021” when a vaccine is available.
  • Aviation. The first Gripen fighter jet to be delivered by Swedish manufacturer Saab to the Brazilian Air Force made its maiden flight yesterday — a 1-hour journey between Santa Catarina and São Paulo. Back in 2014, Brazil bought 36 Gripen jets — deliveries shall happen between 2021 and 2026.
  • Oil and gas. Supreme Court Chief Justice Luiz Fux scheduled for September 30 a trial on whether or not state-controlled oil giant Petrobras can slice up its assets into multiple subsidiaries to speed up their privatization. Senate President Davi Alcolumbre says the firm plans to circumvent Congress’ prerogative to block privatizations. As we explained on Wednesday, the sale of refineries is a cornerstone of Petrobras’ divestments plan — suspending it would delay the company’s deleveraging.
  • Environment 1. A Federal Police investigation concluded that the fires responsible for destroying 25,000 hectares of the Pantanal wetlands were started within four large properties in the Corumbá region, close to the Bolivian border. According to Brazil’s Institute of Geography and Statistics, the country lost over 8 percent of its natural vegetation between 2000 and 2018 alone — an area almost the size of Spain.
  • Environment 2. Nubank became the first bank in Brazil or Mexico to neutralize all or its carbon emissions, after being founded in 2013. The company will support three projects to offset 4,300 tons of carbon dioxide. Nubank pointed out that digital banks are responsible for fewer emissions than traditional ones. Days after Nubank’s announcement, investment bank BTG Pactual said it offset 13,000 tons of carbon dioxide to compensate for its 2019 emissions.
  • New book. Former Health Minister Luiz Henrique Mandetta launches his new book today: “A patient called Brazil,” in which he gives his perspective on the last 87 days of his time as a member of the Jair Bolsonaro administration. Mr. Mandetta singles out the president’s Covid-19 denialism as the biggest problem in tackling the pandemic. “First, he denied the Covid-19’s severity, calling it ‘the sniffles.’ Then, he got mad at the doctor, that is, me. Then, he aimed for a miracle: believing in chloroquine,” writes the former minister.[/restricted]
Categories
Brazil Daily

Volkswagen to pay reparations for dictatorship involvement

Today: Volkswagen reckons with its past. The impeachment of Rio de Janeiro’s governor. A massive merger that will challenge antitrust authorities. And the progression of the coronavirus in the country.

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Volkswagen apologizes for role during dictatorship

German automaker Volkswagen will pay BRL 36 million (USD 6.44 million) in [restricted]reparations and donations to the families of victims of the Brazilian dictatorship — as well as to human rights initiatives. The payments are part of a settlement that will end three criminal investigations into the company’s role in assisting the Department of Social and Political Order (DOPS) — Brazil’s former political police — which kidnapped, tortured, and killed hundreds of people.

  • In a 2017 report led by Volkswagen, historian Christopher Kopper determined that the company’s security crew spied on its staff and told DOPS of any “suspect” activity. Over 100 people were directly impacted by Volkswagen’s relationship with the military. 
  • In 2015, Volkswagen became the first company to negotiate paying compensation for its role during that period. And, according to Mr. Kopper, “the first time that a German company accepts responsibility for human rights violations against its own workers for events that happened after the end of National Socialism.”

Why it matters. According to Brazil’s Truth Commission, created to set the record straight on human rights abuses during the dictatorship (1964-1985), over 80 companies helped turn in their own employees associated with union movements and considered to be “potential subversive agents” — including Ford, Toyota, and Mercedes-Benz.

Memory. The documents dug up by the commission, however, do not provide a complete record of state repression during the dictatorship — nor the full extent of private firms’ involvement. Many documents of the time were burned by the military or have otherwise vanished.


Rio governor’s impeachment moves forward

Rio de Janeiro’s State Congress voted in favor of submitting Governor Wilson Witzel to an impeachment trial. As with previous votes in the process, lawmakers unanimously voted against the politician, who is accused of embezzling funds intended for use in the coronavirus effort.

  • Now, a committee of five lawmakers and five state judges will trial the case. Mr. Witzel’s recent political defeats suggest that the chances of him escaping the ousting are slim to none.

Why it matters. Mr. Witzel’s downfall epitomizes Rio’s political collapse. The state is living in a position of financial calamity and five former governors have been arrested since 2016.

Trivializing impeachment. By definition, impeachments should be exceptional measures but have become part of the political landscape since 2016, when Dilma Rousseff became the second president to be impeached since Brazil’s return to democracy in 1985.

  • Before 2016, only two state governors had faced impeachment proceedings over the last 60 years. After Ms. Rousseff’s ousting, five governors saw themselves in that situation — three in the past few months.
  • According to João Villaverde, a consultant and researcher at Fundação Getulio Vargas, “the political costs of impeachment for lawmakers has disappeared.”

What comes next. Barring a shocking twist, Rio shall continue to be governed by Cláudio Castro, a fervently religious politician who has become close to the Bolsonaro family — and is himself under investigation for corruption.


Merger in car rental sector a regulatory pickle

Localiza and Unidas, the two biggest car rental companies operating in Brazil, announced on Wednesday their intention to merge. If the deal goes through, it would create a massive BRL 48-billion firm with a fleet of over 468,000 vehicles and a footprint in 404 cities, as well as six South American countries. 

  • However, the merger will be a tough sell to antitrust watchdog Cade — as the two companies combine for a 47-percent market share of car rentals and fleet management, which could skew the market in their favor. Analysts say there is little chance of the deal being approved without restrictions.
  • Still, markets received the news positively, with shares of Localiza rising 14 percent, and Unidas stock going up by 17 percent.

Why it matters. The car rental market boomed in Brazil as millions of people sought job opportunities working for logistics apps. But the sector was severely hit by the pandemic. Localiza’s Q2 profits dropped 53 percent, while Unidas’ net recurring profits were nearly wiped out. Together, the companies would be better positioned for a recovery.


8 percent of Brazilians have taken coronavirus tests

According to the Brazilian Institute of Geography and Statistics, 17.9 million Brazilians (or 8.5 percent of the total population) had taken a coronavirus test by the end of August. Considering that the country had 3.9 million confirmed infections during the same period, Brazil had a positive rate of approximately 21 percent — one of the highest in the world.

Why it matters. The rate of positive results is a good measure of how adequately countries are testing, as it indicates the level of screening relative to the size of the outbreak. 

Lack of data. As we at The Brazilian Report have pointed out on numerous occasions, Brazil doesn’t test nearly enough people to have an accurate understanding of how the pandemic has progressed in the country.

Deceleration. In seven Brazilian states, the 7-day rolling average of new daily deaths rose by more than 10 percent between September 8 and 22. In 14 states, it decreased by more than 10 percent.


What else you need to know today

  • Diplomacy. Foreign Minister Ernesto Araújo will attend the Senate’s Foreign Affairs Committee to explain the visit of U.S. Secretary of State Mike Pompeo to the Venezuelan border last week — during which Mr. Pompeo called Venezuelan President Nicolás Maduro a “drug trafficker.” The move, just 46 days before the U.S. election, was considered by lawmakers an “affront to Brazil’s diplomatic tradition” of neutrality and good relations with neighboring nations.
  • Trade. The government announced trade deals with Mexico and Paraguay to boost sales of vehicles and auto parts with the two Latin American countries. According to ordinances published on Brazil’s Federal Register, the idea is to progressively reduce tariffs before scrapping them altogether in 2022.
  • Environment. The Federal Prosecution Service has requested that a federal court in Brasília promptly analyze a request to remove Environment Minister Ricardo Salles from office. Signed by 12 federal prosecutors in July, the complaint accuses the minister of “purposely depleting Brazil’s environmental protection structures and policies.” During an April 22 cabinet meeting, Mr. Salles said the government should take advantage of the undivided attention of the press on the Covid-19 pandemic to “run the cattle herd” through the Amazon, “changing all of the rules and simplifying standards.”
  • Inflation. The IPCA-15 price index, a predictor of the official inflation rate, rose 0.45 percent in September — the biggest bump for the month since 2012. Food products were the main culprits, continuing a trend that has been observed for the past few months — and has already worried the government about possible effects on poor populations.[/restricted]
Categories
Brazil Daily

Bolsonaro gives up on international popularity

Today, a look into the Jair Bolsonaro UN speech and his international reputation. Growing optimism among industries. And a Supreme Court stalemate that harms Petrobras.

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Is Bolsonaro’s international reputation beyond repair?

President Jair Bolsonaro’s 14-and-a-half-minute speech at the 75th United Nations General Assembly [restricted]had a different tone from his 2019 address. One year ago, the Brazilian leader positioned himself in defiance to what his supporters call the “globalist order.” This time around, Mr. Bolsonaro seemed much more defensive and interested in addressing some of the world’s concerns around Brazil. But once again, his words seemed more targeted at his own supporters rather than an international audience.

Why it matters. In the words of Lucas Leite, a Ph.D. in international relations and a professor at the São Paulo-based Fundação Armando Álvares Penteado, it is as if Mr. Bolsonaro has given up on cultivating a positive image worldwide — instead using major international stages to talk to his own supporters. “At this point, only a radical shift in the government’s environmental policy would cast him in a better light — and that is unlikely to happen. The president’s bad reputation seems beyond repair,” he says.

No blame. As The Brazilian Report’s Débora Álvares revealed last week, Mr. Bolsonaro used the address to try and deflect responsibility for Brazil’s environmental crisis and the coronavirus pandemic. Click here for a breakdown of the key points in Mr. Bolsonaro’s speech.

Trump and the U.S. Mr. Bolsonaro made one noteworthy comment — once again positioning Brazil as an automatic ally of the U.S. in its continued tensions with China. In what could only be interpreted as a jab at Beijing, he said Brazil is open to the development of flagship technology, including 5G, with “any partner that respects our sovereignty, and cherishes freedom and data protection.”

  • To Mr. Bolsonaro’s point, there are increasing concerns that Chinese businesses may serve as Trojan horses for the Chinese Communist Party. Especially after a September 15 memo by the CCP’s top decision-making body called for closer ties between private Chinese firms and the United Front Work Department — the CCP’s bureau charged with extending its influence across society.
  • Still, there is a time and a place for these comments. Mr. Bolsonaro’s words sparked a reaction Chinese diplomats in Brazil. “We hope [Brazil’s 5G auction] will have objective, transparent, and non-discriminatory rules, respecting basic norms of the world economic system,” said Qu Yuhui, a counselor at the Chinese Embassy in Brasília.

EU. At no point did Mr. Bolsonaro extend an olive branch to the European Union countries that threatened to block a trade deal with Mercosur, citing environmental concerns. Instead, the president said Brazil is the “victim of a most brutal disinformation campaign” orchestrated by “shady interests coupled with exploitative and unpatriotic Brazilian associations.”

  • Then, in an act of defiance, Brazil’s Foreign Affairs Ministry released a statement saying that the non-ratification of the Mercosur-EU deal would “further aggravate environmental problems in the [Amazon] region.”

Industrial confidence to surpass pre-pandemic levels

Many industrial sectors have recovered their optimism toward the Brazilian economy, according to a preliminary study by the Brazilian Institute of Economics at Fundação Getulio Vargas (IBRE-FGV). 

  • Industries were the worst-affected businesses by the pandemic in Brazil, with an overall drop of 12.3 percent in Q2 2020 alone. In June, idleness was at a historic high of over 40 percent.

Why it matters. “This optimism signals that productive sectors may ramp up production,” writes economist Renata Mello Franco.

Expectations. Since social isolation measures began being lifted, industrialists regained confidence in their short-term future. In 16 out of 19 surveyed sectors, there was a reduction in idleness and an improvement in stock levels.


Supreme Court’s indecision harms Petrobras

Supreme Court Chief Justice Luiz Fux suspended an online trial about whether or not state-controlled oil giant Petrobras can slice up its assets into multiple subsidiaries with the goal of speeding up their privatization. A verdict shall be reached during an in-person trial instead, which has no date of yet.

  • A 2019 Supreme Court ruling established that the government cannot privatize public parent companies without a green light from Congress. However, it is free to sell off subsidiaries. Senate President Davi Alcolumbre has accused the government of using this decision as a way to circumvent Congress in its intent of privatizing “Petrobras’ strategic assets.”

Why it matters. “A suspension in the sale of Petrobras refineries could delay the company’s deleveraging plan,” read a Goldman Sachs report to clients.

The trial. Three of 11 justices have voted not to give Petrobras the right to surreptitiously privatize its assets. Still, brokerage firm XP expects the vote to go in the company’s favor — forecasting that the court will continue holding a more lenient position toward privatizations.

Bidding. Even with a favorable Supreme Court decision, the company said it could hold onto its assets if offers are not attractive enough. On Monday, Petrobras said it would open another round of bidding for a refinery in the state of Paraná, after considering the presented binding offers were too similar in value. 

Market. Over the course of the year, Petrobras shares have lost 32 percent in value.


What else you need to know today

  • Environment. The Justice Ministry will send national troops to help put out wildfires in the Pantanal wetlands. Around 19 percent of the biome has been destroyed this year alone, as a result of an increasing number of criminal fires combined with a severe drought. The Paraguay River, one of the largest in South America, is at worrisomely low levels, as rainfall has dropped 40 percent from the average of the past two years.
  • Voting. The Superior Electoral Court will test a vote-by-app system in this year’s November 15 election. While it will only be a mock vote — with fake candidates and parties — the trial will mark the start of a process to allow voters, in the future, to cast their ballots from home on their smartphones. Trials are set to be held in three municipalities, including São Paulo. 
  • Cannabidiols. A group of 29 senators have requested the government include cannabis-based medicines in the public healthcare system’s list of available treatments. Medicinal cannabinoids have been cleared by health regulators but are still very expensive in Brazil — this decision would make them more affordable. On Tuesday, however, President Jair Bolsonaro signalled he would be against such a move: “In my administration there will be no clearance for drugs. Agribusiness does not include marijuana,” he told supporters.
  • Argentina. According to Argentina’s official statistics agency, Indec, the country’s Q2 2020 GDP showed a 16.2-percent drop from the first quarter. Still, the numbers were slightly better than analysts’ forecasts. Compared to the same period in 2019, the Argentinian economy shrank 19.1 percent — falling deeper than during the major 2002 crisis — as the country imposed strict lockdown measures in mid-March. While some restrictions have been lifted since, many are still in place.
  • Impeachment. The Rio de Janeiro State Congress votes today on whether to begin an impeachment trial against Governor Wilson Witzel, accused of embezzling funds originally earmarked for the anti-coronavirus effort. It would take 47 out of 70 votes for the request to pass — which is highly probable, given that all impeachment-related votes have gone unanimously against Mr. Witzel until this point. If impeachment is approved, a committee of five lawmakers and five state judges will have 120 days to determine whether or not the governor is guilty of the accusations.[/restricted]
Categories
Brazil Daily

Congress corners Bolsonaro over U.S. Secretary of State visit

Today, the Brazilian government criticized in Congress for hosting Mike Pompeo just ahead of the UN General Assembly. The massive drop in income caused by the pandemic. And the dog-eat-dog brokerage market just got more competitive. 

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Bolsonaro takes heat in Congress for Pompeo visit

The Brazilian Senate’s return to in-person sittings after a six-month hiatus was an eventful one. [restricted]The Foreign Affairs Committee confirmed the appointments of 32 people to diplomatic posts abroad — and also approved the formal invitation to Foreign Minister Ernesto Araújo to come before the committee and provide clarifications about the U.S. Secretary of State Mike Pompeo’s visit to the Venezuelan border last Thursday.

Why it matters. Such moves are acts of defiance by lawmakers, and show the fragility of President Jair Bolsonaro’s support base in Congress. Despite his recent spending of political capital to form an inchoate coalition, he still lacks a tight grip on the legislature. 

  • While Mr. Araújo is not obliged to accept the invitation to speak before the Foreign Affairs Committee, he said he will go to Congress on Thursday, fearing problems for the government were he to refuse.

What they are saying. Mr. Pompeo’s visit was criticized by all sides of the political spectrum.

  • House Speaker Rodrigo Maia said Mr. Araújo’s decision to take Mr. Pompeo to the headquarters of Operation Welcome, which hosts Venezuelan migrants in the border state of Roraima, “affronts Brazil’s tradition of being an autonomous and proud diplomacy.” He also lashed out at the timing of the visit — just 46 days before the U.S. election.
  • Former leftist President Luiz Inácio Lula da Silva called it an act of provocation toward Venezuela, and told Reuters the U.S. “needs to drop this habit of wanting to be the world’s sheriff.”
  • A group of six former Foreign Ministers published a statement repudiating what they called “a spurious utilization of Brazilian soil by a foreign power as a platform for provocation and hostility towards a neighboring nation.”

Context. As international relations professor Carlos Gustavo Poggio told our Explaining Brazil Podcast, Brazil’s recent stance of total alignment with the U.S. is a new thing. “Throughout history, Brazil has always tried to keep the U.S. close — but never too close.” Even Brazil’s U.S.-backed military dictatorship maintained a certain distance from Washington, with an independent foreign policy.

UNGA. This latest questioning of Brazil’s foreign policy comes as President Jair Bolsonaro opens the debates at the socially-distanced 75th United Nations General Assembly. Last week, we anticipated that Mr. Bolsonaro’s pre-recorded address will try to spin the narrative around recent environmental tragedies and the government’s mismanagement of the coronavirus pandemic.


Pandemic slashed 20 percent of Brazilians’ income 

The first three months of the pandemic were brutal on Brazilian households, according to a recent study by think tank Fundação Getulio Vargas. Average income dropped 20 percent — as millions of workers saw their employment contracts reduced, suspended, or terminated. Moreover, the number of bankruptcy filings rose 71 percent nationwide.

Meanwhile … Brazil’s Gini index for individual income from labor — a measurement of inequality — shot up from 0.792 at the end of last year to 0.825 after Q2 2020. The crisis was disproportionately harder on women, indigenous populations, young professionals, and illiterate people.

  • Still, overall inequality actually went down, thanks to relief measures by the government — i.e., the coronavirus emergency salary.

Yes, but … The emergency salary has now been halved to payments of BRL 300 (USD 55) a month, and is set to end after December. “When the emergency aid’s ‘anesthesia-like effect’ is over, the country’s social situation could severely deteriorate if labor conditions don’t improve fast,” writes economist Marcelo Neri, who heads the study.

And there’s more. The study “Inflation with Covid Consumption Baskets,” by the National Bureau of Economic Research, compares official inflation rates with price fluctuations of the “Covid-19 basket of goods,” that is, inflation that takes new consumption habits into account. The difference between the “Covid inflation” and the official consumer price index was higher in Brazil than in any of the 18 countries analyzed by economist Alberto Cavallo.


Brazil’s brokerage market just got hotter

Private bank Bradesco is planning on turning its brokerage unit Ágora into a publicly-traded company. An initial public offering could happen within four to five years, but Bradesco has taken the first step in that direction, announcing it will turn Ágora into a separate company. Finance reporter Natália Scalzaretto explains the implications of the move:

Why it matters. Ágora has 500,000-plus customers and BRL 65 billion (USD 12 billion) in assets under custody. With the split, Bradesco can redirect all of its investment customers to Ágora, causing its total assets to soar to somewhere close to BRL 200 billion.

  • The bank says the split and listing would help the company gather resources to invest and, later, prepare for an IPO.

A “new XP.” The move is reportedly part of Bradesco’s strategy to create its answer to XP Inc, arguably Brazil’s most dynamic brokerage firm, which reached a USD 15-billion valuation in its Nasdaq IPO. So far, XP is the only publicly-traded brokerage firm, managing BRL 436 billion in assets.

Meanwhile … Brokerage Ideal announced on Monday it has raised BRL 100 million in a series A investment round led by Kaszek Ventures, the biggest venture-capital fund in Latin America — known for its stakes in unicorns such as Nubank, Gympass, and Loggi. Ideal, which initially targeted international investors and has a leading position in the derivatives market, now moves to expand its portfolio with Main Street investors, “invading” XP’s turf.

  • A similar move could be pulled by Nubank, after the digital bank acquired Easynvest, as we detailed in our September 11 Tech Roundup.

What else you need to know today

  • Coronavirus 1. Brazilian scientists believe that citizens in Manaus have attained a so-called “herd immunity” against the coronavirus. Manaus was the first Brazilian city to experience a full-scale healthcare collapse earlier this year — and up to 66 percent of its 1.8-million population may have been infected at some point, according to a survey analyzing 6,300 blood samples. Over 4.5 million Brazilians have tested positive for Covid-19, and 137,272 have died so far.
  • Coronavirus 2. A yet-to-be-published study led by Miguel Nicolelis, a Brazilian professor at Duke University, has found a link between the spread of the coronavirus and past dengue fever epidemics — suggesting that exposure to dengue may provide some level of immunity against Covid-19. Places with lower coronavirus infection rates and slower case growth were locations that had suffered intense dengue outbreaks this year or last, Mr. Nicolelis told Reuters.
  • Strike. The Superior Labor Court ruled on the strike of postal workers — granting them a 2.6-percent wage bump and ordering their return to work. Additionally, they shall receive half-pay for the days they were on strike. Unions, however, dismissed the court’s decision as “political” and urged workers to continue the strike — even if they face BRL 100,000 daily fines.
  • Rio. An electoral court is set to make Rio de Janeiro Mayor Marcelo Crivella ineligible for public office until 2026. Five of the court’s seven judges voted to convict Mr. Crivella of illegally using his office to support his son’s 2018 congressional candidacy. The trial has been suspended but is set to resume on Thursday. Even with the conviction, Mr. Crivella might still be able to run for re-election in November by way of multiple appeals.
  • Elections. The pandemic may affect the 2020 electoral cycle in yet another way: Brazil’s biggest media group Globo said it could pass on holding televised debates this year. In a statement by its head of journalism, the company said debates will only happen in cities where parties agree that only the four best-placed candidates shall participate — as a measure to avoid having too many people in a studio. São Paulo and Rio de Janeiro, with 10-plus candidates each, are unlikely to have any debates at all. Globo said it will not hold remote debates due to the possibility of candidates receiving outside help.[/restricted]
Categories
Brazil Weekly

Rains reach Pantanal but damage is done

This week, we explore the causes behind the Pantanal crisis, one of the worst environmental disasters in Brazil’s recent memory. And the little-known cases of child abduction during the dictatorship are taken to the UN.

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How the Pantanal wetlands became a graveyard of ashes

After four months of drought, it has finally rained in the Pantanal region[restricted] — the world’s largest wetland, famed for its wildlife. The precipitation has mitigated several blazes across the biome, which has seen unprecedented levels of destruction in 2020. By August 3, fires had destroyed 1.2 million hectares of land in the Pantanal; a month later, the Brazilian Environmental Agency (Ibama) estimated that 2.9 million hectares had been affected — which represents 19 percent of the entire region.

  • No less than 90 percent of the Sesc Pantanal Reserve — the main conservation site dedicated to research in the wetlands — has been destroyed. The fires are not only devastating to fauna and flora but may also affect scientific study for years to come.

How it happened. Antônio Nobre, a researcher at the National Institute for Space Research, compares Brazil’s “climate dystopia” to a plane crash. “It’s never one reason, but a multitude of factors that lead to the disaster.” Here are the main determinants:

  • Climate change. Brazil is seeing progressively warmer and drier weather conditions — which make forest fires more hazardous.
  • Amazon fires. The destruction of the rainforest to the north of the Pantanal affects the “flying river” phenomenon, which consists of the movement of large quantities of water vapor transported in the atmosphere from the Amazon Basin to other parts of South America.
  • Criminal activity. The Federal Police has launched an investigation into illegal fires started by landowners, seeking to clear land for pasture. On multiple properties, cattle herding began just days after blazes subsided. The fact that multiple fires happened simultaneously suggests that ranchers may have coordinated their actions — as was the case last year in the Amazon.

Government role. The Jair Bolsonaro administration has faced harsh criticism for its laissez-faire stance toward the environment. Back in April, Environment Minister Ricardo Salles said the government should use the coronavirus crisis — which monopolized press coverage at the time — to “run the cattle herd” through environmental restrictions.

Consequences. On Friday, French Prime Minister Jean Castex said his country will oppose the ratification of the Mercosur-EU trade deal, citing environmental concerns about Brazil. Elsewhere, Austria, the Netherlands, Belgium, Ireland, Luxembourg, and Germany have either rejected or expressed reservations about the deal.

Strange alliance. A group of 230 institutions — including environmentalists and big agro firms — banded together in an alliance that would have seemed impossible years ago. These companies asked the government to take real action against deforestation in the Amazon and Pantanal biomes. 

  • As ESG (Environmental, Social, and Governance) principles become the norm among major investment firms, big players are forced to play by certain standards to avoid being blacklisted by markets.

Child abduction during Brazil’s dictatorship

The Vladimir Herzog Institute, a São Paulo-based non-profit focused on defending human rights causes and promoting studies related to the dictatorship, will present information of child kidnappings during the Brazilian military regime (1964-1985) at the United Nations today.

  • The complaint is based on the work of journalist Eduardo Reina, who discovered at least 19 cases of children of political prisoners being illegally adopted by military families.

Why it matters. Similar stories are famous in Argentina, where at least 500 children were seized by the military junta that ruled the country between 1976 and 1983. There was no such data about similar practices in Brazil until Mr. Reina’s investigation.

Rulebook. The Brazilian dictatorship followed similar guidelines to a rulebook used in Argentina. “It said that infants and children under 6 years old could be adopted by other families. Older than that, it was said the children were already ‘contaminated by their parents’ subversion’ and should be killed,” said Mr. Reina, in a recent interview.

Monitoring. The Vladimir Herzog Institute will also present a secret report showing that the Brazilian Air Force operated a secret service that monitored over 25,000 people identified as opponents of the military regime. 

  • The Defense Ministry said that “any assessment of past events outside of their historical context is completely inadequate, distorts reality, and can misinform people.” It is important to remember that President Jair Bolsonaro has constantly sung the praises of the military regime, and once said the dictatorship’s only flaw was that it “didn’t kill enough people.”

Tensions. The complaints come at a time when Brazil is already becoming a pariah in the international community — and are presented just one day before Mr. Bolsonaro delivers the opening address of the United Nations General Assembly.


Markets

On Friday, investment bank BR Partners will hold its initial public offering. According to a financial statement, the company plans to raise up to BRL 885 million (USD 164 million). BR Partners said it intends to sell 34.6 million units, each consisting of one common share and two preferred shares. Depending on the issuance of over-allotments, the offer may rise by 35 percent.


Unemployment peaks in Brazil

Brazil’s unemployment rate reached 14.3 percent in the last week of August — a 1.1-percent bump from the previous week. At the beginning of May, the rate sat at 10.5 percent. According to the Brazilian Institute of Geography and Statistics, the recent surge in unemployment is explained both by the fact that many people continue to lose their jobs, but also that more people are leaving self-isolation to look for work. 


Looking ahead

  • UNGA. President Jair Bolsonaro will deliver the opening speech at the United Nations General Assembly tomorrow. As we said in our September 16 Daily Briefing, he ordered his advisers to “dig up all the data that can put Brazil in a positive light compared to other countries.” Mr. Bolsonaro will try to counter accusations of his mishandling of the coronavirus crisis, as well as dodging responsibility for the current environmental tragedy in the Pantanal wetlands.
  • Inflation. On Wednesday, the government will publish the IPCA-15 index, a mid-month preview of monthly inflation. Economists expect the data will show an acceleration in price rises — especially for food products. Items such as rice, soy oil, and beef have become up to 30 percent more expensive in recent weeks — a trend that has worried the government, as food price hikes are especially hard on the poor. President Jair Bolsonaro has even asked vendors to “be patriotic” and reduce their margins to “close to zero.”
  • Interest rates. On Tuesday, the Central Bank releases the minutes of the last Monetary Policy Committee meeting, which could give markets some indication of what will happen to Brazil’s benchmark interest rate. Analysts believe that rising inflation could force the committee to start bumping up the rates once again.
  • Congress. After a six-month hiatus, the Senate will hold in-person sittings again this week. The plan is to hold at least 35 confirmation hearings for government-appointed authorities, which have stalled due to the pandemic. Meanwhile, the government works to negotiate the confirmation of provisional decrees that are set to expire.
  • Bolsonaro. On Friday, Brazilian President Jair Bolsonaro is scheduled to undergo surgery to remove a bladder stone. Early in September, Mr. Bolsonaro told supporters he had a stone “larger than a bean” and decided to remove it as “it was hurting [his] bladder.” The government’s press service has not responded to any request for comment on the matter so far.

In case you missed it

  • Data protection. The General Data Protection Law came into effect on Friday, but the government has yet to create a regulatory body to monitor the implementation of new rules on handling citizens’ personal information. Business associations warn that the lack of regulation will lead to unnecessary litigation and insecurity about how the new law will be interpreted.
  • Emergency aid. From now until the end of the year, emergency coronavirus aid payments will be of BRL 300 (USD 57) as opposed to the usual BRL 600. To maintain the benefit until the end of the year, the government cut its value in half due to budgetary constraints. The aid program has accounted for 97 percent of the income of Brazil’s poorest 10 percent. This demographic is now expected to lose 44 percent of its purchasing power instantly.
  • Hunger. Brazil has made an unwelcome return to the world’s Hunger Map — the list of countries in which over 5 percent of the population is undernourished. New data from the Brazilian Institute of Geography and Statistics shows that 4.6 percent of households faced severe food insecurity in 2018. In the space of five years, over 3 million Brazilians moved into the category of those who regularly have nothing to eat, the total number of citizens in this situation stands at 10.2 million.
  • Venezuela. United Nations investigators say the Venezuelan government has engaged in a pattern of systematic violence since 2014, aimed at consolidating power and stoking fear among its citizens. A 411-page report lists “extrajudicial executions, enforced disappearances, arbitrary detentions, and other crimes.” It also accuses President Nicolás Maduro and some of his top aides of torturing protesters, imprisoning political rivals, and sexually abusing detainees.
  • Peru. President Martín Vizcarra survived an impeachment vote on Friday, ending a political battle that threatened to worsen Peru’s political crisis while the country battles the Covid-19 pandemic. A motion to impeach Mr. Vizcarra fell flat after military leaders voiced their support for the president — and members of the opposition called for stability amid the major health crisis. Despite enforcing strict lockdowns before many European nations, Peru has seen coronavirus deaths increase sharply and has become the country with most per capita fatalities by the virus.[/restricted]