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.


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]
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.”


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]
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. 


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]
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.


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]
Brazil Weekly

Latin America’s oil industry during Covid-19

This week, we give you an overview of the oil industry in Latin America. Bolsonaro’s Church v. State dilemma. And Brazilians’ increasing access to banks.

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The state of the Latin American oil industry during Covid-19  

Back in March, Petrobras CEO Roberto Castello Branco said the coronavirus pandemic could spark “the worst oil crisis in a century.” [restricted]Indeed, 2020 has proven to be a truly dreadful year for the industry, with Brent spot prices crashing from USD 67 back in January to just USD 39 today. Oil-rich Gulf nations have been forced to slash spending and borrow money, in a risky strategy as the outlook for oil continues to be uncertain. Latin America reporter Lucas Berti and I explain how the 2020 oil crisis has impacted the region:

Brazil. Shares of the country’s state-owned oil giant Petrobras are actually higher now then on March 11, when the World Health Organization declared a pandemic and Russia and Saudi Arabia were fighting an oil price war. But the company still has many questions to answer:

  • The company’s divestments program sees Petrobras focusing on oil extraction. Leadership wants to sell off assets in the North, Northeast, and South regions — concentrating their operations instead in the states of Rio de Janeiro and São Paulo (where the deepwater pre-salt reserves are). But before leaving their operations in these regions, Petrobras will have to negotiate billions in tax, labor, and environmental debts.
  • Moreover, the company is accused of falsely imprisoning 73 workers during a strike in February. Labor prosecutors say Petrobras prevented these workers from leaving their position until replacements arrived — with some working 11 straight days — and are asking judges to slap a BRL 100-million fine on the firm along with individual reparations of BRL 100,000.

Argentina. The oil sector has nearly stopped operations completely in Argentina, as only five oil-drilling rigs are currently operating, according to oil tech firm Baker Hughes. Current production is down to 1940 levels (fewer than 300,000 barrels a day). Experts predict that Argentina’s output will reach an average of 400,000 to 500,000 barrels a day by 2024.

Mexico. The oil industry represents roughly 6 percent of the Mexican GDP — a share that stood between 9.4 and 10.8 percent from 1996 to 2008. Pemex, the state-owned oil company, is the single largest tax contributor to the Mexican government, reduced losses in Q2 2020 when compared to one year ago (USD 1.9 billion), but overall revenue has been halved over the same period. Pemex’s debt reached USD 107 billion, hampering its long-term growth projections.

  • Moreover, as we at The Brazilian Report explained in September, a massive corruption scandal has rocked Pemex. Former chief executive officer Emilio Lozoya is accused of pocketing USD 10.5 million in bribes from Brazilian construction firm Odebrecht — the company behind a veritable avalanche of corruption in Latin America and Angola.

Colombia. According to consultancy Control Risks a quarter of Colombia’s oil production could be lost by 2021, “and will never be recovered” if prices remain at current levels. Production has dropped 10 percent since Q1, and the country’s sector leader, Ecopetrol, seems more focused on its USD 1.5-billion investment in the U.S. shale gas sector.

Chile. Production in Chile fell by 12.2 percent by July 2020, worsening a downward trend that predates the pandemic. Experts say that a drop in investments will certainly be detrimental to its recovery effort. 

Between the Church and the Deficit 

There is an expression in Brazil to describe when someone wants to have it both ways: we say they are lighting ‘one candle for God, and another for the devil.’ The expression seems to fit the latest tug of war between President Jair Bolsonaro and Paulo Guedes, his Economy Minister. Under pressure from Mr. Guedes, the president vetoed a piece of legislation pardoning BRL 1 billion (USD 188 million) in unpaid tax fines to churches. But then asked Congress to strike down his own veto.

What is behind the move. Brasília correspondent Débora Álvares explains that Jair Bolsonaro is trying to maintain the support of the evangelical caucus — which includes 187 congressmen (of 513) and eight senators (of 81). Last week, the president was determined not to veto the pardon, and ordered his aides to find legal arguments to back him.

  • Economic advisers, however, warned the president that granting BRL 1 billion in tax pardons — especially in a moment when the government is cash-strapped — could be considered an infringement of Brazil’s fiscal responsibility laws (which is an impeachable offense).

What he is saying. On Twitter, Mr. Bolsonaro called the fines “absurd,” and said that he only vetoed it as a way to avoid an “almost certain impeachment process.” But added: “I confess that, were I a representative or senator […] I’d vote to strike the veto down.”

Why it matters. This is not the first time Mr. Bolsonaro shows that he puts his personal alliances before fiscal stability.

  • Last year, he made churches exempt from the ICMS tax (a levy on goods and services) until 2033. And under the government’s auspices, the evangelical caucus has been working on muscling its way into using the tax reform being discussed in Congress as a way to enhance their already very generous tax exemptions.

Church and state. The rise of evangelicals in politics has created new forms of corruption in Brazil. Just this weekend, Rio prosecutors revealed that there is evidence that Mayor Marcelo Crivella used the Universal Church of the Kingdom of God (where he is a bishop) to launder billions siphoned from City Hall.


On Friday, Brazil’s second-largest pet retailer chain, Petz, raised over BRL 3 billion (USD 564 million) in the country’s biggest initial public offering of 2020. High demand boosted stock by 21 percent on the first day of trading. Suno Research estimates a target price of BRL 17.99 for Petz, considering strong future growth. Petz’s high reliance on animal feeding products and the fact it only has one warehouse for its entire supply chain are the company’s main weaknesses.

Natália Scalzaretto

More Brazilians enter the financial system

The number of Brazilians with a bank account has significantly increased over the past decade. All age brackets have seen advances — but 45 million adults still remain completely out of the banking system. Exclusion from the banking system is higher among women, blacks, low-income people, and the Northeast region (Brazil’s poorest). 

Looking ahead

  • Economy. The Central Bank publishes today its Economic Activity Index (IBC-Br) for July. The index is considered to be a preview of official GDP figures. Analysts predict a +4-percent result. On Wednesday, the bank will also decide on Brazil’s benchmark interest rate for the next 45 days. Markets expect the current 2-percent-a-year rate to stay unchanged.
  • Elections. Parties have until Wednesday to decide on their candidates for the 2020 municipal elections. In two months, 147.9 million voters will elect new mayors and city councilors across the country — the sole exception is Brasília. The federal capital has a state-like status and is run by a governor.
  • Vaccine. British-Swedish pharmaceutical giant AstraZeneca resumes today Phase-3 trials of a potential coronavirus vaccine in 5,000 Brazilian volunteers (many of whom are health workers). The study was suspended for a week after a suspected serious adverse reaction in a UK patient.
  • Government. Justice Minister André Mendonça was admitted into a hospital on Sunday after being diagnosed with acute myocarditis (an inflammation of the heart muscle). Mr. Mendonça will remain in hospital for at least 48 hours, but the latest medical report stated that he was feeling better.
  • Car Wash. On Thursday, a court of appeals will decide whether or not to punish Federal Judge Marcelo Bretas for taking part in political events alongside President Jair Bolsonaro and Rio Mayor Marcello Crivella. The trial will be explosive for the Brazilian Judiciary branch, as Mr. Bretas has become the face of Operation Car Wash— and just last week authorized an operation against relatives of members of high courts accused of influence peddling (more below).

In case you missed it

  • Inflation. Food prices have dramatically increased in Brazil, raising red flags in the government. President Jair Bolsonaro asked vendors to reduce their margins to “close to zero” as an act of patriotism, and the Justice Ministry ordered them to explain the reasons for price increases — but the administration says it won’t freeze prices. Food inflation weighs disproportionately on the poor and could spark mass anger among a significant proportion of the electorate.
  • Trade. Despite U.S. President Donald Trump’s decision to reduce import quotas on Brazilian semi-finished steel, President Jair Bolsonaro will extend a tariff-free ethanol import program with the U.S. for 90 days, starting today. The move breaks with Brazilian diplomacy’s reciprocity principle, but the Brazilian government hopes it could open the opportunity for a free-trade deal with the U.S. The strategy could fail if Mr. Trump fails to win re-election, as challenger Joe Biden has defended a tougher stance on Mr. Bolsonaro for his laissez-faire environmental approach.
  • IDB. The Inter-American Development Bank (IDB) elected as president Mauricio Claver-Carone, a Florida-born attorney best known for defending a hardline policy against Cuba and Venezuela. Besides breaking with tradition of always having a Latin American head for the bank, the U.S. move for control over the IDB scuppered the Jair Bolsonaro administration’s intention of naming the bank’s first Brazilian president. Still, Brazil’s Foreign Affairs Ministry celebrated Mr. Claver-Carone’s election.
  • Big law. Operation Car Wash launched an investigation into major law firms owned by relatives of members of high courts. According to Rio de Janeiro prosecutors, law firms have become fronts for money-laundering schemes or for paying kickbacks to judges. The operation, however, did not target the judges who might have received dirty money. That is because state prosecutors have no jurisdiction over high courts — only Prosecutor General Augusto Aras can charge high court justices. Considering that Mr. Aras has been extremely subservient to President Jair Bolsonaro, this is an interesting dynamic to observe.
  • Big meat. The U.S. Occupational Safety and Health Administration slapped a USD 15,000 fine on Brazilian meat giant JBS (which operates in the U.S. under the name Swift Beef) for failing to protect workers of a Colorado plant from Covid-19. Meat plants have also been linked to the rapid spread of the coronavirus in Brazil’s countryside, as working conditions increase the chances of transmitting respiratory viruses.[/restricted]
Brazil Weekly

Brazilian Supreme Court to get a new Chief Justice

This week, we cover a major change at the Supreme Court. Brazil’s most valuable brands. And Jair Bolsonaro re-election prospects.

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A big change at Brazil’s Supreme Court

On Thursday, the Brazilian Supreme Court will have a new chief justice in [restricted]Luiz Fux, who takes over the reins from Justice Dias Toffoli. Brasília correspondent Débora Álvares says Justice Fux is set to take on a less politicized approach to the position than his predecessor, who tried to act as a buffer between the federal government and Congress.

How it works. In Brazil, unlike the U.S., the Chief Justice position is rotative. The leader of the court serves a two-year term and steps down, being replaced by the Associate Justice who has served most time in the court without being Chief Justice.

Why it matters. The Chief Justice has agenda-setting powers, and can decide whether or not to bring to trial cases with major political repercussions. In recent months, the court has clashed with President Jair Bolsonaro on numerous occasions. 

Who is Luiz Fux? The first Jewish justice in the history of the Supreme Court, he was nominated by former President Dilma Rousseff and inaugurated in March 2011, after a stint as a prosecutor and serving a decade in the Superior Court of Justice (Brazil’s second-highest judicial body). Despite his reputation as a “good political interlocutor,” as sources describe him, Justice Fux won’t follow his predecessor in bending over backwards to try to nurture a good relationship with Brazil’s volatile president.

  • “Under Mr. Fux, the Supreme Court should have a strictly formal relationship with the Executive branch,” a fellow justice told The Brazilian Report.
  • Justice Fux is one of the main defenders of Operation Car Wash in the Supreme Court, and is only expected to bring cases related to the anti-corruption probe “when the climate is favorable,” sources told Débora Álvares. Infamously, Car Wash investigators declared in a leaked text conversation, revealed by The Intercept, that “in Fux we trust.”

Controversy. Justice Fux is a discrete judge and, unlike some of his peers, doesn’t use his votes on cases to score points against other justices. Still, his résumé includes some controversies. None was bigger than a 2012 report claiming that he hinted to government officials he would reward a Supreme Court nomination with verdicts in favor of the administration. 

  • The Workers’ Party government was facing what was at the time the biggest trial in Brazilian political history — when 40 politicians and bankers were on trial for operating a vote-for-cash scheme in Congress known as the “Mensalão Scandal.” Many of Mr. Fux’s votes, however, were against the people he had allegedly promised to protect.

Legacy. Justice Dias Toffoli ends his two-year term as the chief justice with a legacy widely considered as “extremely negative” even by his peers. One of them told Brasília correspondent Débora Álvares that he put the Supreme Court “in an unacceptable position of subservience” to the government — he went as far as describing the 1964 military coup as a “movement” just so he wouldn’t ruffle any feathers within the strongly pro-dictatorship administration.

  • Perhaps his lowest moment came on May 7, 2020, when the president marched from the presidential palace to the Supreme Court building, flanked by Economy Minister Paulo Guedes and several business owners. The group asked the court to revert a previous ruling that social isolation measures were under state jurisdiction. At the time, governors were attempting to enforce quarantines, while Mr. Bolsonaro was agitating people to go about their business as usual.
  • While justices generally agree that the president placed the chief justice in a terrible position, two of them told The Brazilian Report Mr. Toffoli “failed to assert the court’s authority” by hosting the group and giving it voice. Justice Fux is not expected to appease the government if faced with a similar situation.

Fake news probe. From a broader perspective, the most controversial part of Mr. Toffoli’s legacy might be a probe investigating the production and spread of false information online for political purposes. Many say the Supreme Court is overstepping its bounds and acting as judge, juror, and executioner — the court launched the investigation and is now conducting the probe, as well as being responsible for issuing the verdicts.

  • When the probe was launched, in March 2019, many from the left and right called it a move straight out of the dictatorial playbook. But as investigators began zeroing in on pro-Bolsonaro supporters, outrage waned within the left.

Brazil’s most valuable brands

Kantar and communications group WPP presented their most-recent Brandz Brasil ranking of the country’s top 25 most valuable companies. Despite the coronavirus crisis, these major Brazilian companies had a combined 4-percent growth in brand value.

Biggest growth. Beer and banks continue to dominate the rankings, but the retail sector also saw significant gains, with a 72-percent growth in brand value from last year. That put Magazine Luiza in the 4th position (the company alone increased its brand value by 124 percent). Supermarket chains Pão de Açúcar, Extra, and Assaí also saw triple-digit growth over the period: 187, 219 and 192 percent, respectively.

Main takeaways. “Brands which invested in increasing clients’ digital experience earlier managed to have a better performance,” says Silvia Quintanilha, a vice president at Kantar. 


Investors are paying close attention to Brazil’s cellulose sector. With state-owned bank BNDES wanting to sell its stake in sector giant Suzano, packaging producer Irani has become the new belle of the ball. Brokerage firm XP Investmentos gives Irani a “buy” recommendation, with a BRL 8.50 target price. Analyst Yuri Pereira says the company has good exposure for the food industry — which is still growing during the pandemic — and expects a surge in demand for packages.

Natália Scalzaretto

Pandemic doesn’t dent Bolsonaro’s electoral stock

A recent survey by renowned pollster Ibope shows that 33 percent of Brazilians hold President Jair Bolsonaro responsible for the coronavirus crisis in Brazil. The country has recorded the third-highest number of infections (4.1 million) and second-highest death count (127,000). However, a recent poll conducted by Ideia Big Data still suggests that Mr. Bolsonaro would win re-election against every other candidate, including former President Luiz Inácio Lula da Silva — who all but launched himself as a presidential candidate, putting himself “at the service of the country” in a speech delivered last night, despite being ineligible for office due to his conviction for passive corruption and money laundering.

One piece of data helps explain why: 65 percent of voters believe the president is the guy responsible for the coronavirus emergency salary, which has kept tens of millions from falling below the poverty line and even reduced extreme poverty rates in Brazil.

It remains far too early to predict the 2022 race, but the data shows just how important cash-transfer policies are in Brazil. Especially in a moment like this unprecedented crisis.

Looking ahead

  • Recovery. Two pieces of data will help assess how the Brazilian economy is recovering from the Q2 2020 9.7-percent GDP drop. On Thursday, the official inflation rate for August will be published — and analysts expect the IPCA index at 0.35 percent. However, increases in food prices could complicate matters. Also on Thursday we will have data on retail sales in July, which could influence share prices of Brazil’s sector giants (Magazine Luiza, Via Varejo, B2W).
  • Telecommunications. A shareholders’ meeting will vote today on Oi Telecom’s proposal to alter its court-supervised recovery plan. The proposal includes selling mobile networks, towers, data centers, and part of the company’s optic fiber network — to raise BRL 22 billion for debt repayments and investments. While major bondholders are in favor of the move, Oi’s main creditors — Brazil’s top banks — are attempting to block it.
  • Justice. Lawmakers will demand House Speaker Rodrigo Maia to reopen the works of a special committee to analyze the constitutional amendment proposal to legislate for the possibility of allowing defendants to go to jail after a single failed appeal. Congress has begun discussing that last year, shortly after a 6-5 Supreme Court majority decided that defendants can only be arrested after all appeals are exhausted. One of the results of the Supreme Court decision was the release of former president Lula da Silva.
  • Education. Starting today, schools in the state of São Paulo are allowed to provide tutoring services and sporting activities to students. The authorization applies to cities in an advanced reopening state, with flattening or descendant infection curves. A recent survey shows that 72 percent of Brazilians believe classes should only be resumed after a coronavirus vaccine is available.

In case you missed it

  • Budget 2021. Last week, the federal government presented its budget proposal for 2021. Among the highlights are the cuts to the Health Ministry’s funding to BRL 136.7 billion (USD 24.9 billion) — even less than the BRL 138.9 billion expected before Covid-19 arrived in Brazil. Meanwhile, the budget for investments in 2021 is slated to be BRL 28.6 billion — 56 percent more than what was expected for 2020.
  • Optimism 1. According to the Brazilian Institute of Geography and Statistics (IBGE), 37 percent of Brazil’s 3 million-plus companies still felt the negative effects of the pandemic by the end of July. Still, a major improvement has been recorded from June, when 62 percent of companies reported feeling the negative effects of the crisis.
  • Optimism 2. A survey by pollster PoderData shows that 45 percent of Brazilians expect the country’s general outlook to improve within the next six months — with only 20 percent saying things will get worse. Confidence levels seem to be linked to support for President Jair Bolsonaro, as the demographics that make up his base (males, elderly citizens, people from the South of Brazil) register the highest rates of optimism.
  • Window protests. Pot-banging protests — which took place on a nightly basis during the beginning of the pandemic, but then faded away — were once again heard in at least six state capitals as President Jair Bolsonaro addressed the nation in a televised speech. He talked about being committed to democracy, while praising the 1964 coup that inaugurated a 21-year military dictatorship in Brazil. Rather predictably, at no point did the president mention Covid-19.
  • Coronavirus. One pioneer study headed by the Federal University of Rio de Janeiro documented the case of a woman who remained infected with the virus for 152 days — the longest infection period recorded in the world. Identified as “Patient #3,” she presented mild symptoms for only three weeks, but the virus stayed in her body for five months, being able to multiply and contaminate others. The study could help researchers understand how asymptomatic patients spread of Covid-19.
  • Vaccination. For the first time in 20 years, Brazil hasn’t met immunization goals for any of the vaccines recommended for infants of up to one year old. Vaccination rates have been declining over the past few years, but the pandemic has worsened the trend. Experts warn about the risks of outbreaks of diseases which had been thought eradicated — such as polio or measles.[/restricted]
Brazil Weekly

Justice oversteps bounds in Rio Governor suspension case

This week, a look into how the Justice system has become excessively political. And a massive police operation against Brazil’s most powerful criminal organization.

Important: Next Monday is a federal holiday, Brazil’s Independence Day. Therefore, next week’s Weekly Report will be sent out on Tuesday, September 8.

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What Rio governor suspension says about Brazil’s Justice system

On Wednesday, the Superior Court of Justice decides [restricted]on whether to uphold a Friday decision by one of its justices, which suspended Rio de Janeiro Governor Wilson Witzel from office due to his alleged involvement in a corruption scheme to embezzle part of the state’s coronavirus budget. The individual decision was highly controversial, raising suspicions of being politically-driven — it also is a good example of how the Justice system operates in Brazil, writes reporter José Roberto Castro.

Exception becomes the rule. Brazilian high courts are designed to work as collegiate boards, with the intention of reaching fairer decisions. The Supreme Court has 11 justices, while the Superior Court of Justice (STJ), the second-highest judicial body in the land, has 33 members. Individual decisions should only occur in exceptional cases — and never in consequential decisions such as suspending a governor from office.

  • In 2010, the Superior Court of Justice authorized the Federal Police to arrest a sitting governor — but did so only after the entire court voted on the decision.

Overt politicization of Justice. Both Brazilian courts and the Federal Prosecution Office have become excessively politicized. And, as President Jair Bolsonaro has openly used his power to name two Supreme Court justices in the next two years as a carrot, it leads to suspicions that judges are using their courts to audition for the top job in Brazilian law. The fact that prosecutors and judges often praise Mr. Bolsonaro and bash his opponents on social media only adds to the suspicions.

  • The STJ’s former presiding justice granted house arrest benefits to Fabrício Queiroz, a longtime friend of the president who is believed to have run a money-laundering scheme within the office of Senator Flávio Bolsonaro — the president’s son. He remained at large for over one year — which would disqualify him from receiving said benefits under normal circumstances.
  • Just two days before Mr. Witzel was suspended, Brazil’s top prosecutor issued a recommendation that Senator Flávio Bolsonaro should be granted parliamentary immunity in the money-laundering probe, despite the case not meeting the criteria to do so.

Witzel v. Bolsonaro. Elected on Mr. Bolsonaro’s coattails, Mr. Witzel quickly became a sworn enemy of the president’s, openly vying for the top job himself in 2022. One accuses the other of using their power to direct law enforcement against adversaries. Speaking on Friday about the judicial decision, Mr. Witzel said he is being suspended because Mr. Bolsonaro reportedly wants to influence the appointment of the next Rio top prosecutor — a decision typically made by the sitting governor.

Flipside. Judges and prosecutors are not the only ones to blame for the political contamination of the court system. Political parties also have become trigger-happy in filing lawsuits to settle disputes that should remain in congressional spheres.

BREAKING: A mega operation against Brazil’s most powerful drug gang

pcc federal police operation
Photo: Justice and Security Secretary of Minas/SSP-MG

Brazil’s Federal Police has launched a mega operation this morning against the First Command of the Capital (PCC), a drug gang that emerged in São Paulo in the early 1990s and became the country’s best-structured organized crime group.

  • Courts have frozen around BRL 252 million (USD 47 million) in assets and have issued over 600 arrest and search and seizure warrants against people linked to the group. The operation is being carried out in 20 of Brazil’s 27 states and over 1,000 law enforcement agents have been mobilized.
  • According to the police, 210 people currently incarcerated continuously received monthly stipends from the group for having occupied high-ranking positions within the criminal organization. The payments were made through individuals not connected to the PCC, in order to make them difficult to trace.

Why it matters. Today’s operation is one in a series of moves by law enforcement against the PCC.

The PCC. Brazil’s best-organized criminal group began as a prisoners’ union in the aftermath of the 1992 Carandiru massacre, when 111 inmates were slaughtered in just 30 minutes by police after a riot.

  • Few Brazilians knew about the group’s existence until May 12, 2006, when the PCC staged a series of attacks against police forces. This violence came in response to the state government’s transfer of 765 inmates – including the PCC’s alleged leader – to a maximum-security prison. On the following day, violent attacks were carried out outside of prisons, as 59 police officers were murdered in a total of 293 attacks.
  • Twenty-five years after its creation, the organization now has over 30,000 members spread across nearly every Brazilian state. According to some estimates, the PCC has an annual turnover of between BRL 400 million (USD 106 million) and BRL 800 million. The lower estimate is double what the gang was believed to have earned in 2015. If the PCC were a corporation, it would be among the wealthiest 500 companies in the country.

How the group manages its finances. PCC members who are not in prison must pay a BRL 950 monthly membership fee, nicknamed a “cebola” (onion). Inmates must pay “union dues” ranging from BRL 100 to 600. If a prisoner is unable to pay, he goes into debt and must repay the organization once he is released from jail – usually by committing crimes.

  • The group has yet to make the full transition to a mafia-like organization, with a series of legitimate businesses to operate as a front for illegal operations. Today, though, most of the group’s transactions remain in cash.


The deadline for Gol Airlines to pay a USD 300-million loan guaranteed by Delta Air Lines expires today. Ratings agencies, however, say default is likely. “Gol is facing constant cash burn without refinancing possibilities,” said Amalia Bulacios, of S&P, which rates Gol’s debt as CCC-. According to calculations by Reuters based on Gol’s cash flow, cash equivalents, and liquid investments, Brazil’s biggest airline could have just USD 285 million left in the bank.

Government benefits: the pandemic effect

The number of Brazilians in vulnerable situations and depending on government-issued benefits has quadrupled in 2020 — from 20.5 to 85.3 million from last year. In 2019, 10.8 percent of the population got money from the government, a rate that jumped to nearly 45 percent after the pandemic struck. In 25 of 27 states, there are more people getting the coronavirus emergency salary than there are formally employed workers.

Looking ahead

  • 2021 budget. The government must present its proposal for next year’s budget by the end of today. With the need for beefed-up aid programs, ministries are battling not to have their funds cut and reallocated. On Friday, Environment Minister Ricardo Salles pulled a bold move, announcing he was halting all actions against deforestation in the Amazon and Pantanal due to a lack of funds — which naturally generated an image crisis, and prompted Vice President Hamilton Mourão to publicly state that the money wouldn’t be cut. But not all other cabinet members will be able to pull such maneuvers.
  • GDP. Brazil is set to publish its official Q2 GDP figures on September 1. We already know that the drop will be significant, as economic activity was halted for much of the quarter. According to most financial institutions’ projections, the quarterly drop will be somewhere between 8 and 10 percent. If projections are confirmed, it means that the Brazilian economy will regress to levels recorded in Q3 2009 — meaning that the pandemic has scrapped 11 years of (feeble) growth.
  • Emergency salary. President Jair Bolsonaro is expected to officially announce the extension of the coronavirus emergency salary on Tuesday. The BRL 600 (USD 111) payments were set to expire this month, but the president said he wants to maintain the program at least until the end of the year to help voters cope with the economic crisis. The value of future handouts is unknown — the current monthly price tag (BRL 50 million) is untenable, but Mr. Bolsonaro said the Economy Ministry’s BRL 200-per-person proposal is not good enough.
  • Elections. Starting today, parties are allowed to hold their conventions and choose their candidates for the November municipal elections. Due to the pandemic, campaigns will predominantly happen on social media and by way of TV and radio ads. This year brings a completely different context from the 2016 race, with a weakened Workers’ Party not well-placed in any of the biggest stages, namely São Paulo and Rio de Janeiro.

In case you missed it

  • Coronavirus. Brazil has so far registered 3.8 million coronavirus cases and 120,828 deaths. However, the 7-day rolling average of new daily deaths is now at 875 — still one of the highest in the world, but the lowest for the country since May 21. However, as The Brazilian Report showed on multiple occasions, the pandemic has progressed unevenly in a country that is as large and unequal as Brazil. 
  • Trade. The Mercosur-EU trade deal has lost its main advocate on the European side, with the resignation of Ireland’s Phil Hogan as the EU trade commissioner. Mr. Hogan stepped down after being accused of breaching Covid-19 guidelines during a trip to his home country Ireland. Climate Action Network (CAN) Europe said the Mercosur deal could be ‘put on ice’ by the European Commission.
  • 5G. According to estimates from Ericsson, the implementation of 5G networks in Brazil will generate investments of around BRL 9.2 billion from telecom companies until 2025. The company also discusses the creation of 205,000 direct jobs and an increase of up to 2.4 percent in the Brazilian GDP. Of course, Ericsson is not an unbiased observer, being a 5G provider itself.
  • Argentina. After almost six months of lockdown due to the coronavirus, bars and restaurants in Buenos Aires are reopening today, though with heavy restrictions such as no indoor seating and no more than four people per table. President Alberto Fernández announced last week that the quarantine would be extended until September 20 but groups of up to ten people would be allowed to meet outdoors in Argentina.[/restricted]
Brazil Weekly

Brazil latest country to launch digital currency plan

This week, Brazil’s go at a digital currency. What earnings reports tell us about the crisis. Plus, job figures begin to come back positive.

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Brazil’s Central Bank wants to issue a digital currency

The Brazilian Central Bank continues its efforts to modernize and digitize the Brazilian economy. [restricted]After approving regulations for instant payment system PIX and green-lighting open banking, the monetary authority now plans to issue its own Central bank digital currency (CBDC).

What CBDCs are. According to the Atlantic Council, “CBDCs are the liability of the central bank, which means the government must maintain reserves and deposits to back them up, rather than a private bank. […] As decentralized digital currencies such as Bitcoin have become more popular, the world’s central banks are beginning to realize they need to get in the game or let the evolution of money pass them by.”

The Brazilian case. The Central Bank launched a working group to identify potential risks for cybersecurity, data protection, and necessary regulations. They also want to evaluate the impacts of such an initiative on monetary and economic policies — as well as how a CBDC could work in tandem with recent digitization initiatives such as PIX.

Pros. Advocates believe that digital currencies foster the economy with faster and more convenient transactions, as well as being a secure means of payment. “Digital money makes life harder on criminals, from white-collar thugs to guys stealing cell phones on the street,” says João Marco Cunha, a portfolio manager at crypto-assets management firm Hashdex.

Cons. The European Central Bank released a comprehensive study in January 2020 about the financial dangers of digital currencies. It says the structural or cyclical disintermediation of deposit collecting institutions (such as banks) “would facilitate runs out of bank deposits into central bank money in financial crisis situations.”

  • In other words, having digital money disconnected from banks could cause liquidity problems to the financial systems in panic situations. To avoid that, a “tier remuneration” system, with different interest rates, could be adopted in order to prevent the currency to be used as a value reserve, like gold. 
  • Critics also point out that a CBDC would allow authorities to have more control over people’s data — weakening citizens’ rights to bank secrecy. That is a no-no for data protection advocates. Recent moves by the federal government, such as the decision to create a single database for citizen data, are considered dangerous — especially under a far-right Bolsonaro administration. The MIT Technological Review says Brazil may be on a path to becoming a surveillance state.

How to do it. Increasing the country’s monetary base — that is, printing money — generates inflation and devalues a currency. For Mr. Cunha, ideally, the new digital currency would have a 1:1 ratio to physical money, thus avoiding monetary expansion. 

— with Natália Scalzaretto

Companies performed better than expected during pandemic — but recovery remains uncertain

With the end of Q2 2020 earnings report season, we can assess how damaging the pandemic has been on Brazil’s publicly-listed companies. While the past quarter — the first that came fully during the pandemic — was objectively terrible, companies outperformed expectations. The results suggest that forecasts were too pessimistic, and that companies showed resilience. However, quarantine measures in Brazil were much laxer than in other countries, which helps to explain why the drop wasn’t that dramatic.

Why it matters. While some results are encouraging, it is no time for celebration. The Covid-19 pandemic is not controlled in Brazil, which creates a continuing scenario of uncertainty. 

Winners. A few sectors were better positioned to deal with the pandemic, due to the nature of the crisis:

  • E-commerce. Retailers with potent digital channels boosted sales as the in-person economy shut down. Like in China, consumers’ demand rushed to online shopping, and digital retailers increased market value by up to 70 percent.
  • Supermarkets. With consumers afraid of supply shortages, many stacked their carts. Also, with people eating more at home, their needs for food products skyrocketed.
  • Construction. Considered an “essential” sector, construction continued through the quarantine — and the real estate industry heated up in São Paulo, the country’s biggest market. Moreover, with people working from home, demand for renovations soared.
  • Healthcare. Health providers were faced with increased Covid-19 costs, being forced to take measures such as hiring new doctors. However, the steep drop in elective procedures during the pandemic offset much of these expenses.
  • The “Big 2.” Petrobras and Vale — which account for 20 percent of Brazil’s benchmark stock index, were positive surprises. Despite the oil crisis, Petrobras showed it was capable of controlling costs, preserving its cash-generating ability during the pandemic. Meanwhile, Vale is reaping the benefits of a bump in demand for iron ore — its main production asset.

Losers. Banks, shopping malls, and tourism-related companies got the short end of the stick, meanwhile. For banks, provisions had to be beefed up, with a higher risk of default. Malls are reopening, but customers are still wary to visit. And for tourism and aviation firms, recovery will be hard. Still, major airlines were able to renegotiate debts, bringing the sector some relief.


Oi Telecom is scheduled to host a meeting with its 50,000 creditors on September 8. However, two of its main creditors — banks Itaú and Banco do Brasil — are trying to cancel it, requesting a court injunction claiming that the gathering poses a Covid-19 transmission risk. A judge ruled that the meeting will take place remotely. Still, brokerage Guide Investimentos sees the banks’ move as a possible obstacle to a new agreement between the company and creditors — which would unblock Oi’s plan to sell assets valued at BRL 22 billion, stopping the telecom operator from falling into insolvency.

Natália Scalzaretto

Brazil creates jobs again

Hirings in Brazil outnumbered layoffs for the first time since before the pandemic. The country recorded over 131,000 net jobs — still not enough to offset a net loss of over 1 million formal jobs in 2020. Economy Minister Paulo Guedes discussed a GDP contraction of only 4 percent this year (as opposed to initial forecasts of -10 percent), and said the numbers show a “Nike-swoosh-shaped recovery.” President Jair Bolsonaro added that “Brazil is going back to normal.” 

It might, however, still be too soon for a victory lap. Mr. Guedes’ analysis seems not to account for the government’s program allowing companies to suspend contracts and reduce hours and salaries during the pandemic — which has either avoided 10 million layoffs or postponed them until the coming months.

Looking ahead

  • No more Mr. Nice Jair. After staying clear of controversy for two full months, President Jair Bolsonaro went back to his belligerent self on Sunday. Asked about checks worth BRL 89,000 paid by former fixer Fabrício Queiroz (under arrest for suspected money laundering) to First Lady Michelle Bolsonaro, the president threatened to “smash [the reporter’s] face in.” Social media exploded after the incident — with influencers, journalists, and politicians tagging the president’s official profile and asking the same question. 
  • Diplomacy. The U.S. government has reportedly requested support from Brazil to pass a proposal to reform the World Health Organization — trying to ostracize China in the process. European countries are wary of the initiative, criticizing U.S. President Donald Trump for announcing the U.S.’ withdrawal from the WHO and cutting its funding, while at the same time trying to lead a reform within the institution.
  • Health. Between March and June, the number of elective surgeries performed by the national public healthcare system dropped 61 percent from the average of the five previous years. But as social isolation measures are lifted, experts foresee an explosion in demand — as many patients see their health conditions worsening due to the postponement of their procedures — and a possible massive health crisis following the pandemic. The specialties that worry experts the most are oncology, cardiology, and psychiatry — areas in which patients’ development is highly unpredictable.
  • Left adrift. The outlook of the 2020 municipal elections doesn’t seem encouraging for the Workers’ Party — Brazil’s main political force on the left. A study of multiple polls by website Poder360 shows that not a single candidate of what was once the strongest party in the country is favored to win in any Brazilian state capital. In 2016, the Workers’ Party had already lost ground — and it doesn’t seem poised to regain it. As an opposition force, it has been a toothless group with no strategy to counter Jair Bolsonaro. All of the government’s crises were made by the government itself, with the left acting as passive bystanders in Congress. And The Brazilian Report showed this weekend, the Workers’ Party still has no strategy to prevent Mr. Bolsonaro’s advances in its final stronghold of popularity: the poor Northeast region.

In case you missed it

  • Emergency aid. President Jair Bolsonaro said on Sunday that the government has no means to keep the BRL 600 emergency salary at the current price tag of BRL 50 billion a month. The effects of the program’s suspension or reduction will be unpredictable, as the aid represents 97 percent of all income among Brazil’s poorest 10 percent of people. The government was set to deliver a proposal to extend the initiative last week, but has yet to come up with a solution. 
  • Strike. Workers of Correios, Brazil’s federally-owned postal company, will continue a strike that began one week ago. Unions complain that the company has rolled back their employee benefits and protest the government’s willingness to privatize the firm. But their leverage is not what it once was — with e-commerce firms relying increasingly more on its private competitors.
  • Congress. After the government was “blindsided” by the Senate’s decision to unfreeze civil servant wages despite the current fiscal crisis, lawmakers in the lower house came to the administration’s rescue. With help from Speaker Rodrigo Maia, the government managed to build a sizable majority and uphold a presidential veto on pay raises to public servants in 2020 and 2021. 
  • Justice. In a 9-1 vote, the Supreme Court ruled that the government must immediately suspend any efforts to produce dossiers with personal information of citizens who declare themselves “anti-fascist.” The decision states something that should be obvious: the government cannot monitor citizens who are not under formal investigation. Almost 600 civil servants and law enforcement agents had their private information compiled by the Justice Ministry, and the secret document was shared with police departments across the country, as well as to the office of the president’s Chief of Staff.[/restricted]
Brazil Weekly

LGBTQ bank goes live in Brazil

We’re covering the launch of Brazil’s first financial institution tailored to LGBTQ customers. An exclusive report concerning President Jair Bolsonaro’s talks of a coup d’état.

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Pride Bank comes out today

As Brazil’s first LGBTQ-oriented bank, [restricted]Pride Bank will open to the public today after almost one year of “beta operations,” during which only invited customers had access to their services. The bank tries to set itself apart by promising to invest 5 percent of its gross income to finance LGBTQ-inclusion projects. It will also allow transgender customers to use their social names, as opposed to the names on their birth certificates.

  • Pride Bank will also have a prepaid debit card — which allows people with credit restrictions to use its services as well. 

Why it matters. Pink money — a term used to describe the LGBTQ community’s purchasing power — was estimated at USD 134 billion per year (BRL 722 billion).

  • Same-sex couples are overwhelmingly DINKs (“dual income, no kids”), often leaving them with more disposable income.

Projections. While Pride Bank officially avoids disclosing projections, CEO Marcio Orlandi Junior said in an interview that they are confident: “The potential is huge, we could reach at least 5 percent of that [LGBTQ] public.” That would correspond to over 1 million people.

Discrimination. There is little data on sexual orientation-based discrimination by Brazilian banking institutions. But a 2019 study from Iowa State University shows that, in the U.S., same-sex couples are 73 percent more likely to have mortgage loan applications turned down than heterosexual couples. Those who are approved have to face above-average interest rates, despite being less likely to default.

  • A LinkedIn survey says half of LGBTQ Brazilians have come out to their coworkers, but 25 percent have kept their sexual orientation a secret for fears of not being accepted. 

Improvement. Companies in Brazil are becoming more and more aware of the need for diversity of gender and sexual orientation. According to the LGBT+ Forum of Companies and Rights, over 3,000 transgender professionals were hired by big corporations, a major push for one of the most marginalized groups in the job market.

First LGBTQ? Pride Bank boasts that it is the world’s first digital bank specifically tailored to the LGBTQ population. Digital is the operative word in this claim, as a credit union in the U.S. state of Michigan was actually the world’s first financial institution (digital or otherwise) targeted at the LGBTQ community.

Timing. The launch to the general public was scheduled for June, when São Paulo hosts what is arguably the world’s biggest Pride Parade. But the event, which raises around BRL 400 million to the city every year, was canceled in 2020 due to the Covid-19 pandemic.

Exclusive: Coup talks a regular thing for Bolsonaro

In its August issue, monthly magazine Piauí told the story of a May 22 meeting between President Jair Bolsonaro and his closest advisers. The head of state is reported to have threatened to send troops to the Supreme Court, vacating its 11 seats. Mr. Bolsonaro was furious about the possibility of the court ordering him to surrender his cell phone as evidence in a federal probe on whether he illegally tried to meddle with the Federal Police.

Mr. Bolsonaro was then talked down, with his chief security officer Augusto Heleno reportedly saying “it was not the time,” and proposing instead a pointed open letter, saying that the Supreme Court’s behavior could lead to “unpredictable consequences.”

  • For The Brazilian Report, journalist Débora Álvares spoke with eight independent sources about the behind-closed-doors discussion: two attended the meeting; four are close to those who did, and another two are close advisors to the president. She was able to confirm the veracity of the Piauí story, also learning that May 22 was not the only time Mr. Bolsonaro has discussed toppling Brazil’s democratic institutions. Friends of the president confirmed having “chatted” about “sending troops to shut down” Congress or the Supreme Court.

What they say. “In moments of rage, when the court intervenes in government actions, of course his wish is to shut it down,” said one source. “In the intimacy of the [presidential] palace, in confidence, he has mentioned it. But I’m sure he doesn’t mean it,” says another.

  • In the weekend following the May 22 meeting, Defense Minister Fernando Azevedo sat down with the heads of Brazil’s three Armed Forces to expose the president’s tantrum. “There was no request [for military action],” said one source familiar with what was discussed. “It is known that the heads of the forces are absolutely against any kind of coup,” the source continued.

Why it matters. Débora Álvares’ report shows that, given the proper conditions, Brazil’s president would welcome the idea of a self-coup, making his administration the most troubled moment in 35 years of Brazilian democracy.

  • These dangers may be dissuaded somewhat by the fact that the Armed Forces — which in the 20th century were frequently involved in coups — seem unwilling to create such conditions.

Yes, but … The more politically comfortable Mr. Bolsonaro becomes, the more he allows himself to charge at democratic institutions. And latest polls show his popularity ratings at their highest levels since he took office — which could raise tensions between branches of government.


Locals in, foreigners out. While foreign investors fled Brazil during the coronavirus crisis — pulling BRL 45 billion (USD 8.3 billion) from the country — around 900,000 Brazilians began trading on the domestic stock market, taking the total tally of individual investors to almost 3 million. With benchmark interest rates at their lowest levels ever (2 percent a year), traditional fixed-income funds pay minimal returns, pushing investors towards riskier assets.

1 of 10 Brazilians would not get Covid-19 vaccine if available today

According to pollster Datafolha, 89 percent of Brazilians would be willing to take a Covid-19 vaccine if it were available today — while 9 percent would be skeptical of its safety and effectiveness. With its uncontrolled coronavirus spread, Brazil has become a key player in the race for a vaccine, with the three most advanced potential vaccines relying on trials within the country. Last week, the state of Paraná inked a deal with Russia to secure the still-unproven Sputnik V vaccine, announced by the Kremlin on August 11.

Looking ahead

  • Austerity? Last week, two top Economy Ministry officials resigned due to frustrations over the government’s perceived lack of commitment to austerity and privatizations — two of the administration’s campaign promises. Economy Minister Paulo Guedes managed to strongarm President Jair Bolsonaro into publicly defending the respect for the federal spending cap — to the detriment of stimulating the economy. But the president has sent mixed signals. Behind the scenes, he has said that Mr. Guedes should be “less strict” when it comes to the budget. Several reports claim Mr. Bolsonaro believes the Economy Minister is no longer “indispensable” for him, suggesting that a change might be in the works.
  • Tax collection. The week will not bring many significant economic indicators, except for the tax revenue figures from July. The coronavirus crisis saw tax collection for June hit its lowest level in 16 years: BRL 86 billion, or 30 percent below June 2019 levels.
  • WTO. Brazil is expected to file a complaint at the World Trade Organization against the Philippines after it suspended Brazilian poultry imports due to coronavirus fears. The embargo was called after Chinese authorities said traces of the coronavirus were found in a poultry shipment. Brazilian producers say the contamination probably did not happen in Brazil — and that there is no evidence of risks of food-to-person transmission.

In case you missed it

  • Coronavirus. Brazil has reached 3.3 million confirmed Covid-19 infections and nearly 108,000 deaths as of Sunday evening. The pandemic has affected 98.7 percent of Brazil’s municipalities, with only 67 staying free of the virus.  
  • Approval ratings. Despite Brazil having the second-worst death tallies in the world, President Jair Bolsonaro is currently posting his highest approval ratings since taking office in January 2019. Most of the president’s newfound support comes from households with family incomes of up to BRL 3,000 (USD 559) per month, largely made up of informal workers or the unemployed. These demographics are the ones eligible to receive the government’s BRL 600 monthly emergency salary.
  • Corruption. Despite the rise in popularity, things are not exactly rosy in the Bolsonaro camp. On Thursday, the Superior Court of Justice issued an order sending Fabrício Queiroz — a long-time friend of the president who worked as a fixer for his family — back to jail after being transferred into house arrest. Mr. Queiroz is a key part in an investigation into a money-laundering scheme that operated within the office of Senator Flávio Bolsonaro, the president’s eldest son, and is linked to First Lady Michelle Bolsonaro.
  • Finance. The Brazilian Central Bank has officially approved regulations for PIX, an instant payment system set to be operational by November 16. Announced in February, PIX will allow transactions to be concluded in no more than 10 seconds — and accounts will be credited instantly, at any time of the day. Currently, transactions can only be processed and credited to recipients during business hours. 
  • Lebanon. Brazil sent roughly 6 tons of hospital supplies, food, and medicines to Lebanon — as part of a relief effort to help survivors of the massive August 4 explosion in the capital Beirut. With 10 million people descending from the country, Brazil’s Lebanese diaspora is the largest in the world — almost three times the population of Lebanon itself.[/restricted]
Brazil Weekly

Brazil to regulate infrastructure projects … without China?

This week, we are covering Brazil’s push to clear infrastructure projects. And the government’s moves to make life harder for Chinese companies.

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Greenlighting new infrastructure regulations

There is a major divide within the Jair Bolsonaro administration over how to deal with the push for recovery in the post-pandemic economy.[restricted] The government’s military wing, which enjoys much prestige with the president, is in favor of massive infrastructure investments, even if that means smashing the federal spending cap created late in 2016 to rein in public expenditure. To deal with that impetus, Economy Minister Paulo Guedes and House Speaker Rodrigo Maia appear to have found a Solomonic solution: they want to change regulations on several infrastructure sectors as a way to boost private investment.

  • That would include new regulatory frameworks for the gas and electricity sectors, as well as altering the rules for concessions and PPPs (public-private partnerships).

Why it matters. Mr. Maia argues that the federal spending cap is the only way Brazil will sustain long-term investments and move forward with structural reforms — such as overhauling its labyrinthine tax code and trimming the fat in public service.

Tug of war. The Economy Ministry agrees with the Speaker, but many sectors of the administration want to create exceptions in the spending ceiling, using the post-pandemic recovery as a justification. Mr. Maia spoke out against this possibility last week, saying that one exception could lead to several more, potentially causing public debt to balloon.

On the docket. During a live broadcast with the Brazilian Infrastructure and Base Industries Association, Mr. Maia said that new regulations for the gas and electricity sectors “will progress” this week after Congress reached an agreement with the Mines and Energy Ministry.

Harder. The framework to regulate concessions and PPPs will not go so smoothly. One bill has already gained the approval of a congressional committee — but the Economy Ministry asked for it to be revised. The government was expected to present suggestions by February 15 but still has yet to do so.

  • Lawmakers believe that the current framework for concessions and PPPs is “insufficient to attract private investments,” due to legal insecurity and the superposition of different watchdogs over the same contracts. The bill plans to define the role of each element of said contracts and create mechanisms to avoid litigation in case of conflict between parties.

Yes, but … Congress’ effort was not well received by the government — with Economy Minister Paulo Guedes publicly bashing it for “making the rules even more complex than they already are.” 

Creating barriers to Chinese investment

In his first year in office, President Jair Bolsonaro adopted a fairly pragmatic approach to China, choosing not to engage in conflict with Brazil’s top trading partner. But now, Brazil has become much less neutral in the current Cold War-like dispute between the Asian giant and the U.S. That shift is observed in many ways: from racist comments by members of the administration, to a stand against China at the World Trade Organization, or even the fact that the Brazilian government is meeting with 5G providers while excluding China’s Huawei.

  • Now, Brazil is imposing barriers on Chinese investments in two major infrastructure projects: the Angra 3 nuclear power plant and a fund for infrastructure investments.

What is being done? Rest assured, there is no ban on Chinese companies … not explicitly. But according to finance newspaper Valor, the government is drafting rules for public procurement that would make life harder for Chinese competitors.

  • In the Angra 3 project — valued at BRL 17.5 billion (USD 3,200) — the idea is to prohibit the winning bidder from taking out loans with its own subsidiary companies or hiring these subsidiaries for construction work. That would favor Russia’s Rosatom, France’s EDF, or the U.S.’s Westinghouse over China’s CNNC, which tends to self-finance its projects. This would force CNNC to fragment its operations, making the contract less profitable for the company. 
  • There is also the matter of a USD 20-billion fund for infrastructure development, created in 2017. The deal was that the Chinese would contribute with three-quarters of the money — and the Brazilian government would pick the projects the money would be spent on. But since the new administration took office in January 2019, the fund has simply stalled.

Why it matters. China is responsible for a considerable chunk of foreign investment in Brazil. Between 2010 and 2019, USD 55.1 billion came through Chinese-led projects — mostly energy or oil ventures.

Big stick diplomacy. Jair Bolsonaro’s seemingly unconditional will to align his government to the Donald Trump White House has given the U.S. some liberties: recently, Ambassador Todd Chapman said Brazil would face “consequences” if it chose not to ban Huawei from its upcoming 5G spectrum auction.


Markets eagerly await this week’s earnings reports. The list of expected results includes banks (BTG, Inter), construction companies (MRV, Cyrela, Eztec, Tecnisa), and the consumption sector (B2W, Via Varejo, Renner, Hering, Natura). Their results — very much tied to domestic demand — will help analysts get a clearer picture of how badly consumption fell during the pandemic. The early signs point to a dramatic drop: banks’ provisions are sky-high, and payment companies reported a drop in transactions. 

Interest rate at all-time low: for whom?

Last week, the Brazilian Central Bank slashed the country’s benchmark interest rate to its lowest level ever: 2 percent a year. However, Brazil continues to have the highest average rate charged to consumers and companies worldwide, per the International Monetary Fund. And that is even after banks cut that average to the lowest point since 2011. Also last week, Congress limited the interest rates banks can charge on overdrafts and credit cards, a move some experts fear will reduce credit availability even more amid the coronavirus economy.

Looking ahead

  • Indicators. The week will bring updates to a multitude of economic indexes that will help assess the state of the Brazilian economy. They include a forecast of this month’s inflation (Monday); retail sales (Wednesday); services companies’ performance (Thursday); and the Central Bank’s Economic Activity Index, a predictor of GDP growth (Friday).
  • Taxes. Lawmakers could vote this week to strike down a presidential veto against extending cuts on payroll taxes for 17 business sectors until the end of 2021. President Bolsonaro’s decision kept the benefit valid only for this year. That’s because the federal government is trying to use payroll tax deductions as a bargaining chip to pass a new levy on financial transactions in Congress — an idea that is deeply unpopular among voters and politicians alike.
  • Beirut. The Brazilian government is sending a military aircraft on Wednesday, carrying 5.5 tons of medicines, supplies, food products, and hospital equipment to Lebanon. President Bolsonaro named his predecessor, Michel Temer (the son of Lebanese immigrants), to head Brazil’s aid mission to Beirut, following the massive August 4 blast which killed over 150 people and left 5,000 injured in the Lebanese capital. It remains unclear if Mr. Temer will be on the military plane or if he will fly to the Middle East at a later date.
  • Environment. A group of executives putting pressure on the government to adopt stricter environmental controls will meet with Supreme Court Chief Justice Dias Toffoli on Tuesday. Then, they will talk to the governors of Amazonian states. The movement is formed by 62 large corporations, five private equity funds, and five sector associations. They began voicing a pro-environment agenda after international investors threatened to pull their assets from Brazilian companies not complying with ESG principles (environmental, social, and governance).

In case you missed it

  • Coronavirus. Brazil reached the terrible milestones of 3 million coronavirus cases and 100,000 deaths. Last week, during a live social media broadcast alongside Interim Health Minister Eduardo Pazuello, President Bolsonaro urged the population to “get on with our lives and find a way out of this.” Mr. Bolsonaro added that he is “sorry” for the casualties. Mr. Pazuello mentioned that most patients recover and that “life goes on.”
  • Scandal. Online magazine Crusoé revealed on Friday that money laundering enforcement agents came across a total of 21 checks from Fabrício Queiroz — a former cop tied to urban paramilitary militias and money laundering schemes — made out to First Lady Michelle Bolsonaro. Mr. Queiroz has been a friend of President Jair Bolsonaro for decades and worked as a sort of fixer for his family. The Brazilian Report’s Brasília correspondent Renato Alves had access to the investigation’s documents and confirmed the revelations, which link the presidential couple to an alleged money-laundering scheme running within the office of Senator Flávio Bolsonaro, the president’s eldest son. The government has yet to comment on the issue.
  • Coup? Monthly magazine Piauí published a story detailing a May 22 meeting between Mr. Bolsonaro and his closest advisers. The president is reported to have informed them he was about to send troops to the Supreme Court and vacate its 11 seats. Eventually, Mr. Bolsonaro is said to have been talked down by his cabinet members. The report only makes the president’s rocky relationship with the Supreme Court worse — in a moment when justices are about to hold trials that have the potential to trigger several crises for the government.
  • Industry. Brazil’s industrial output grew 8.9 percent in June, following May’s 8.2-percent growth. But despite two very positive months, the truth is that Brazil’s industry remains far below its pre-pandemic level — which was already underwhelming. Brazil’s general industrial index, compiled by the country’s official statistics agency, remains almost 25 percent below January 2010 levels.[/restricted]
Brazil Weekly

High-profile cases on the Supreme Court docket

This week, we’re covering the eventful return from vacation of Brazil’s Supreme Court. And the worst month of the year for politicians is just starting.

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Brazilian courts back from vacation with explosive cases ahead

The Brazilian Justice system resumes its activities today, as its July recess comes to an end. And many high-profile cases will now be heard before the Supreme Court and the Superior Court of Justice — Brazil’s two highest judicial bodies.[restricted]

Why it matters. Upcoming trials have the potential to trigger several crises for the government, directly concerning President Jair Bolsonaro, his family, and his allies. Here are some of the cases:

  • Meddling with the Feds. The investigation into whether Mr. Bolsonaro illegally tried to tamper with federal probes continues — and the Supreme Court will rule on whether or not he must testify. That could spark a new rift between the Executive and Judiciary branches — a rocky relationship that had calmed in recent weeks.
  • Fake news. The probe on the use of illegal underground fake news rings continues at full throttle (more below), and investigators are zeroing in on the president’s inner circle.
  • Money laundering. The Superior Court of Justice will decide on whether or not Fabrício Queiroz — a key figure in a money-laundering investigation against Senator Flávio Bolsonaro — shall return to prison or remain on house arrest. The case’s rapporteur has denied 97 percent of habeas corpus requests. Plus, the Supreme Court will decide if the president’s son can enjoy legal prerogatives given to elected officials in special circumstances, or if the case should go to lower courts.
  • Car Wash. The Supreme Court will decide on the disqualification of Sergio Moro in the Operation Car Wash cases he judged. After it was revealed that the former judge quarterbacked prosecutors — which he must not do — former President Luiz Inácio Lula da Silva asked that his corruption convictions be voided, as Mr. Moro was the presiding judge on his case.

Changes ahead. In September, the Supreme Court will have a new chief justice, Luiz Fux. The change is part of the court’s rotation system, and happens every two years. Mr. Fux is expected to be much less friendly to Mr. Bolsonaro than the incumbent Dias Toffoli has been. Moreover, while Justice Toffoli is considered an anti-Car Wash judge, Justice Fux is the opposite.

  • On November 1, Justice Celso de Mello will turn 75 and thus reach compulsory retirement. He will be replaced by a justice chosen by President Bolsonaro.

A “mad-dog” month for a mad-dog year commences

According to the folklore of Brazilian politics, August is a particularly dreadful month. It is nicknamed the “Month of the Mad Dog” because, apparently, Brazil’s climate in the middle of the year causes female dogs to be in heat, thus driving male dogs crazy. While there are many modern examples of political turbulence in the month, the ‘curse’ is believed to date back to colonial times. August was traditionally the month where 15th and 16th century explorers would leave European shores to find new lands abroad, risky endeavors that many never returned from.

Why it matters. In Brazilian politics, the Month of the Mad Dog has thrown up a surprising number of twists and turns for decades now. And it’s not like 2020 hasn’t hit Brazil and the world hard enough in its first seven months.

History. Call it a coincidence, but August does have a bad track record:

  • 1954. On August 24, under pressure to resign and fearing a coup d’état, then-President Getulio Vargas killed himself in the presidential palace with a gunshot to his chest.
  • 1961. On August 25, Jânio Quadros decided to resign from the presidency after just a few months in office — a failed self-coup. Mr. Quadros hoped that Congress and voters would not let him step down, and give him extra powers to govern. It didn’t work and sparked an institutional crisis that culminated in the 1964 military coup.
  • 1969. Field Marshal Artur da Costa e Silva, the second president of the dictatorship, became incapacitated by a stroke on August 31. The Armed Forces’ so-called “hard-line” prevented civilian Vice President Pedro Aleixo from taking office, giving power to a junta of the heads of the three military forces instead. Four months later, the government passes the infamous AI-5 — the harshest piece of legislation of the dictatorship period, inaugurating Brazil’s so-called “Years of Lead.”
  • 1976. Juscelino Kubistchek, the former president known for having created the capital city Brasília, died in a August 22 car crash. Many believe he was in fact assassinated by the military government, after two other high-profile opponents of the regime died in suspicious circumstances that same year.
  • 1992. Cornered by scandals, Fernando Collor — the first democratically elected president after the dictatorship — asked voters to take to the streets on August 16, wearing yellow and green in support of him. They wore black instead, demanding his ousting and triggering an impeachment process.
  • 2014. Presidential candidate Eduardo Campos died in an August 13 plane crash.
  • 2016. After being suspended from office by the House in May, Dilma Rousseff was finally removed by the Senate early on August 31. The entire process was a highly controversial, divisive affair, with Brazilians split between those who said Ms. Rousseff’s strategy to mask public deficits just before her re-election campaign was undemocratic (which it was), and those saying that Congress removed her on jumped-up charges as a pretext to install a right-wing coalition in power (which also was true).

Bolsonaro. In his first August as president, Jair Bolsonaro faced a global image crisis sparked by the increase in Amazon fires. However, he made it to September reasonably unscathed. Now, with the end of the government’s coronavirus emergency salary looming, will he be able to do that again?


IRB Brasil RE, Latin America’s biggest reinsurance group, has informed markets of the postponement of its Q2 earnings report, from August 14 to 28. The company has had a terrible 2020, with accusations of doctoring profitability reports and lying to the market — which led to comparisons with the 1990s Enron scandal — and a 92-percent drop in net profits in Q1 2020. Since the beginning of the year, IRB Brasil RE’s stock dropped 78 percent.

The coronavirus becomes more lethal in Brazil

According to the Health Ministry’s official figures, July was the deadliest month since the coronavirus arrived in Brazil, late in February. At least 32,912 Brazilians died last month, taking the total tally to over 94,000. However, due to underreporting, the real figures are probably much higher. Still, coronavirus deaths in Brazil over the last month alone outnumbered the entire death tolls for several countries that have been badly hit by the pandemic, such as France (30,135), Spain (28,445), or Russia (14,128). Experts say only mass testing will reduce death rates in Brazil.

Looking ahead

  • Taxes. President Jair Bolsonaro said on Sunday that he has authorized Economy Minister Paulo Guedes to go ahead with his proposal to create a new tax on financial transactions — something the president has spoken out against several times in the past. Mr. Bolsonaro added that the new levy would have to replace a tax that is already in place — most likely payroll tax — but the idea is not popular among members of Congress … and even less so among voters.
  • Interest rates. The Central Bank’s Monetary Policy Committee will establish Brazil’s new benchmark interest rate on Wednesday. Due to a lower-than-expected inflation rate, analysts expect yet another cut — from 2.25 to just 2 percent a year, which would be another all-time low. Markets will be holding out for the meeting’s minutes to be published, which will indicate if more cuts are on the horizon.
  • Telecoms. Oi Telecom’s agreement for exclusive talks with Highline over the sale of the former’s mobile telephony infrastructure expires today. The latter — controlled by global investment fund Digital Colony — must top the BRL 16.5-billion bid made by a consortium of the top three telecom companies in Brazil — Vivo, TIM, and Claro. Highline, however, isn’t inclined to do so and is expected to drop out of the bidding.
  • Trade. Members of the U.S. House Foreign Affairs Committee will investigate allegations that the country’s ambassador to Brasília, Todd Chapman, is framing trade policies with Brazil in a partisan manner in order to help Donald Trump’s re-election campaign. Mr. Chapman is lobbying for Brazil to lift tariffs on U.S. ethanol, reportedly arguing that it would give Mr. Trump an important trade win, which would bode well with voters. Per a media report, Mr. Chapman “highlighted the importance of Mr. Trump’s re-election for the Jair Bolsonaro administration.” Last week, the ambassador warned that if Brazil doesn’t ban China’s Huawei from its 5G grid, it would face “consequences.” These pressures come as a Gallup study shows that approval of U.S. leadership in Latin America is on par with sentiment in favor of Germany, China, and Russia.

In case you missed it

  • Social media. Facebook said on Saturday it has enforced a worldwide block on certain accounts connected to President Jair Bolsonaro staffers — flagged by the Supreme Court as illegal spreaders of false information with political purposes. On Friday, Justice Alexandre de Moraes penalized the social media company after it only blocked the accounts for IP addresses located in Brazil, dishing out a BRL 1.92 million (USD 367,000) fine. Facebook said it will appeal the decision, which, in its opinion, goes outside of “the limits of [Brazilian courts’ jurisdiction].” Freedom of speech advocates warn that the court’s crackdown on ‘fake news’ opens a dangerous precedent for censorship of unwanted content.
  • Energy. On Saturday, state-owned power company Eletrobras announced plans to invest BRL 6 billion per year until 2035 to expand its electricity generation and transmission. That amount could double if the government is successful in privatizing Eletrobras, reported the company, in a securities filing.
  • Infrastructure. Privatizing Eletrobras will be hard, however. In 2020, of the government’s 16 priority infrastructure projects, only one passed in Congress: the new legal framework for basic sanitation. The rest stalled, in part because of emergency votes on coronavirus-related matters, but also because Congress’ new remote work routine has halted progress of issue-based committees.
  • Banking. André Brandão, head of global banking and markets for the Americas at HSBC in the country, has reportedly accepted an invitation to become the new chief executive officer at state-controlled lender Banco do Brasil. Incumbent Rubem Novaes announced his resignation a week and a half ago.
  • Aviation. Latam Airlines, the top aviation group in Latin America, announced it will fire “at least” 2,700 workers in a statement — and opened a voluntary redundancy program on Friday. With 43,000 employees worldwide, Latam has filed for Chapter 11 bankruptcy protection in the U.S., and hopes to restructure USD 18 billion in debt. The aviation industry has been ravaged by the coronavirus — which makes the announcement of a new airline in Brazil, Nella, owned by a Panama-based group, all the more puzzling. Reporter Renato Alves told that story.
  • Spying. Justice Minister André Mendonça has faced heat after a report revealed that his department created a secret dossier with information about almost 600 civil servants and law enforcement agents monitored for being self-declared “anti-fascists.” Days later, a presidential decree enhanced the powers of the Brazilian Intelligence Agency (Abin).[/restricted]
Brazil Weekly

Revolutionizing public procurement in Brazil

This week, we cover the government’s advances to revolutionize public procurement in Brazil. And we break down the tax reform bills on the table.

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The Federal Police has launched an operation against Piauí Governor Wellington Dias, of the Workers’ Party. Alongside the state’s former Education Secretary, he is suspected of rigging procurement processes for buses for public school students, in exchange for bribes. These alleged illegalities have been under investigation since 2018.

Turning public bidding into a marketplace

The Economy Ministry is advancing a project that would radically change the way public institutions make purchasing decisions. [restricted]Instead of the current bidding process of reserve price auctions — wherein the bidder with the lowest price is awarded the contract — the idea would be to create an online marketplace on which suppliers would propose their products and services, allowing the government to select companies according to its needs. A similar system is already used in Chile. 

  • At first, the change would be applied for cases in which bidding processes are not legally required — i.e. contracts for goods and services valued up to BRL 50,000 a year, or infrastructure services of up to BRL 100,000 a year. But the plan would be to extend this to all contracts in the future.

Why it matters. The Brazilian government is the country’s biggest buyer — and around 15 to 20 percent of GDP originates in public procurement.

Change. This new marketplace would revolutionize how government procurement happens in Brazil. At its best, it could speed up small contracts and reduce red tape. Today, government entities inform all registered suppliers of their needs for products and services, and companies adapt themselves to these demands. 

  • Purchases such as furniture or computer software are prime examples of goods and services that wouldn’t have to jump through all the hoops currently in place, according to Renato Fenili, the Deputy Management Secretary at the Economy Ministry.

Risks. The marketplace would make tech vendors expendable, for instance, with the government being able to contract products directly from companies such as Microsoft, Google, or IBM. That could ravage hundreds of companies which currently rely on selling software and providing IT support to public bodies, and potentially create dangerous market concentration in the hands of just a few players.

Breaking down Brazil’s multiple tax reform proposals

Last week, Economy Minister Paulo Guedes paid a visit to Congress to submit his tax reform bill. Mr. Guedes was criticized for taking too long — over 18 months — to propose what ended up as more of a “tweak” rather than a true overhaul of one of the most complex tax systems in the world. Moreover, the new proposal is the third in Congress right now — and lawmakers will have the challenge of merging them all in one single coherent reform. Reporter José Roberto Castro has broken down each bill.

Why it matters. Brazil currently has 73 different types of taxes — each one following its own labyrinthine set of rules. This creates an environment in which companies spend too much time and human resources just to comply with the rules.

What all bills have in common. The three tax reform bills propose the merger of multiple taxes into one value-added tax (VAT).

Lower house bill. The reform proposal in the House plans to merge five taxes of multiple levels (one municipal levy, one state, and three federal taxes) into a single VAT. State taxes on goods and services (ICMS) would have one simple rule: they would be charged at their destination — at a rate established by each state. The federal government would collect all tax revenues and manage their distribution. A transition from the current to the new system would take around eight years.

  • Positive change. Today, ICMS rules are a mess. Each product is taxed differently depending on the place of origin, destination, and even to whom one is selling. 
  • But … It is the states’ single most important source of revenue. Convincing governors to surrender control of their money-making levy is a tough sell.

Senate bill. Senators talk of merging nine different taxes into a VAT. The final rate of this new duty would vary according to the product, but it would be the same all over the country — regardless of the origin or destination of goods and services. Taxes would be collected at the destination and distributed to states and cities along the production chain. Part of the revenue would go to a fund aiming at reducing the per capita income gap between cities and states.

Guedes’ tax bill. The Economy Minister proposed combining two social security taxes into a 12-percent VAT, leaving the ICMS — the most problematic of Brazil’s taxes — untouched. Deemed “not bold enough” by congressmen, the upside of this proposal is precisely how conservative it is. 

  • By merging only two federal levies and leaving state and city taxes unchanged, Mr. Guedes’ proposal can pass as an ordinary law, requiring just a simple majority of votes in Congress. Meanwhile, the reform plans in the House and Senate call for amending the constitution, a much longer process that requires 60-percent majorities over two-round votes in both congressional chambers.
  • But being formally easier to pass doesn’t mean it is politically easier to pass. Business owners reacted negatively to the bill — especially those in the services sector, which will be worst-affected by the changes. Meanwhile, economists showed concern about the tax burden becoming even heavier than it is now.
  • The government promises to reduce corporate taxes and begin taxing dividends. However, no time frame for these proposals was given. 


Shares of retail giant Magazine Luiza have soared 67 percent so far this year, so is it still worth investing? For asset management firm Reach Capital, the answer is not quite clear. They say the stock is difficult to price and have reduced their exposure to Magazine Luiza’s shares. But they do add that the stock has potential to rise even more. “As the company delivers [its quarterly] results, it will be more clear to investors [if it’s worth a long-term investment].”

Natália Scalzaretto

The virus is not slowing down in Brazil

Over the past month, Brazil has consistently recorded a daily average of over 40,000 new cases and over 1,000 new deaths. Data journalist Aline Gatto Boueri analyzed the progression of the disease in each of the country’s 5,570 municipalities over the first three weeks of July. And the data suggests we could see a second coronavirus wave in the Amazon. New cases per 100,000 people have been particularly high in the region — notably in the municipalities of Jacareacanga (460) and Campos de Júlio (504).

Looking ahead

  • Politics. House Speaker Rodrigo Maia made a proposal that could reignite the crisis between Congress and the Bolsonaro government. He wants to limit the participation of military officers in executive positions — forcing them to retire if they join the government. There are at last 2,500 active members of the Armed Forces currently working in the Bolsonaro administration — and over 3,500 military retirees. This massive presence of the military in his government is considered to be one of the reasons why Mr. Bolsonaro has managed to avoid more open attacks from the political establishment.
  • Economy. The week will bring new data about the state of the government’s public accounts and formal employment numbers. Both indicators will provide a picture of the extent of the crisis and how resilient the Brazilian economy can be. In May alone, the federal deficit topped BRL 126 billion (USD 24 billion) — the largest on record. By the end of the year, it could reach at least BRL 800 billion. Moreover, the pandemic kept 19.4 million people from seeking a job in the first week of July, according to new data from the Brazilian Institute of Geography and Statistics. At that moment, the country had 76.8 million workers out of the labor force.
  • Bolsonaro. Unions representing over 1 million health workers, alongside international entities, have filed a complaint at the International Court of Justice against President Jair Bolsonaro — accusing him of committing “crimes against humanity,” due to his approach to the coronavirus crisis. They say the president “adopted negligent and irresponsible actions, which contributed to the number of deaths topping the 80,000 mark.” The complaint will be analyzed by Gambian lawyer Fatou Bensouda, Prosecutor of the International Criminal Court — and any decision could take months.

In case you missed it

  • Oil and gas. After eight years, Brazil’s oil and gas giant Petrobras has decided to order three new offshore oil-drilling platforms — one of which will be leased. The cost for each platform is estimated at USD 2 billion. While Brazil’s naval industry doesn’t expect to win the bidding war against Asian competitors, they hope to get part of the orders for equipment and services — and in turn help reignite the sector. 
  • Public bank. Rubem Novaes announced his resignation as CEO of Banco do Brasil, a state-controlled, publicly-traded bank. In a statement to Brazilian Securities Commission, he cited personal reasons and highlighted the institution’s need for “fresh faces.” But Mr. Novaes had grown frustrated due to not being able to carry out the project to fully privatize Banco do Brasil.
  • Amazon. Reporter Natália Scalzaretto spoke with fintech Moss, which was created four months ago with the goal of “helping save the Amazon.” It plans to develop a market that remains incipient in the country: carbon credit. Read more.
  • Telecom. Brazil’s fourth-largest telecom company Oi announced it has entered exclusive talks with Highline to sell its mobile telephony operations. The bidders — which made a better offer than competitors Vivo, TIM, and Claro — are a telecom infrastructure company owned by Digital Colony, the digital infrastructure investment platform of Colony Capital, Inc.
  • Fake news. The Supreme Court’s highly controversial anti-fake news investigation continued last week, with many pro-Bolsonaro activists having their Facebook and Twitter accounts blocked. The move followed a ruling by Justice Alexandre de Moraes, who claimed it was necessary in order to “curb users from spreading hate speech and fueling actions against the democratic order.” But Justice Moraes is not exactly a neutral umpire in the discussion: fact-checking agency Aos Fatos shows that he is the target of choice of the far-right’s vitriol, with 71 percent of negative posts about the Supreme Court mentioning him. At President Jair Bolsonaro’s orders, the Solicitor General’s Office filed a lawsuit to overturn the decision.[/restricted]
Brazil Weekly

Working from home Brazil’s new normal

This week we’re covering how remote work might become the “new normal” in Brazil. Plus, the USD 6-billion trial against BHP for its role in the 2015 Mariana tragedy.

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The future for work in Brazil seems to be remote

In June, 12.7 percent of the Brazilian formal labor force worked remotely[restricted], according to the latest household survey by the Brazilian Institute of Geography and Statistics. And while that rate has gone down since May, when 13.3 percent continued to perform their duties from home, the truth is that most companies are unlikely to ever return to what were once “normal” practices.

  • A survey by Mercer shows that 43 percent of Brazilian companies have not established a date to return to their offices — even if authorities have authorized regular work to resume. “This return date was pushed back on several occasions. In April, companies thought they would be back in the office by June. We’re in July and the coronavirus numbers haven’t allowed that yet,” said Mercer’s Rafael Ricarte, when announcing the results.
  • Even in companies that will resume office activities, some sectors will migrate to remote work on a definitive basis. Notably, 91 percent of companies are planning to have employees on administrative tasks working from home permanently.

Reasons. A study by the University of São Paulo’s School of Economics shows that 70 percent of Brazilian executives believe productivity has improved with their staff at home. Moreover, only one-third of firms have developed programs to ensure the safety of their employees in post-pandemic workspaces — something that could be expensive for many.

  • Seventy-eight percent of the companies surveyed by Mercer say keeping social distancing in their current office spaces is the biggest challenge. And almost half mention the lack of available Covid-19 tests to regularly monitor the virus’ presence among workers.

Why it matters. Data suggests that the “new normal” will probably look a lot like what we are seeing today. Even companies that will not fully embrace remote work are likely to adopt some sort of rotation system to avoid overcrowding their place of business.

Civil servants. The Economy Minister wants to make remote work a feature in public service. Around 350,000 federal employees are currently working from home — which could allow for savings of BRL 500 million (USD 93 million) per year.

How to get away with mud

This week, a group of 200,000 individuals — alongside 25 municipalities and 530 companies — kicks off a USD 6.3-billion lawsuit against BHP at a court in Manchester, England. The Anglo-Australian oil and mining giant owns a 50-percent stake at Samarco, a company responsible for one of the worst environmental disasters in Brazilian history.

  • After an iron ore tailings dam collapsed in the municipality of Mariana, some 65 kilometers from Belo Horizonte, the equivalent of 25,000 Olympic swimming pools of toxic sludge was spilled into the surrounding area, destroying entire towns and resulting in 19 deaths. It also devastated the nearby Doce river, killing thousands of animals. Experts at the time reckoned that it would take decades to reverse the catastrophic damage caused.

The trial. An eight-day hearing will establish if the case can be heard in England and Wales. Plaintiffs want BHP to be held liable for its “ultimate responsibility” as a Samarco owner. They claim — and are backed up by evidence — that Samarco deliberately ignored safety warnings, repeatedly increasing the dam’s capacity by raising its height and ignoring cracks that showed early signs of a possible rupture.

  • As journalist Karla Mendes showed on The Brazilian Report, the disaster could have been avoided if Samarco, the mining company responsible for the dam, had spent a mere USD 1.5 million in safety measures.

What they are saying. “The companies atop the BHP Group’s structure have so far been spared by the Brazilian justice system, but must be held accountable for their deeds,” said Tom Goodhead, who represents the plaintiffs. “This case seeks a little bit of justice for the thousands of lives that were immediately impacted by the environmental chaos that was caused.”

  • In an emailed statement to The Brazilian Report, BHP said the claims duplicate matters which are, or have been, subject to pre-existing legal proceedings in Brazil and are also covered by the work of Renova Foundation, an entity created by the miner and its partners to manage reparations and repairs. “To BHP, the Brazilian courts and Renova Foundation are better placed to address claims, arising from events which occurred in Brazil and are brought under Brazilian law, and where there is already considerable experience in dealing with these claims,” they wrote.
  • Reached out to by The Brazilian Report, Samarco said that BRL 8.85 billion had been spent on reparations by Renova Foundation up to May 2020. The company is expected to resume operations by year-end. 

What has been done so far? According to BHP, almost six years after the disaster, Renova Foundation has carried out:

  • Around 280,000 payments of damages amounting to roughly BRL 2.7 billion, and emergency financial aid to over 22,000 people;
  • Forty-two programs of compensation, remediation and rehabilitation for people and the environment;
  • Resolved 10,000 claims for general damages; another 12,000 are currently under consideration;
  • Over 110 houses and properties, 27 businesses, and over 180 plots of land were restored in the city of Barra Longa (MG).

But … Not a single individual has been punished in Brazil — and legal cases have encountered many hiccups along the way.

The other Samarco owner. Samarco is also partially owned by Brazilian mining giant Vale (which was involved in a second dam disaster last year). Despite this track record, Vale shares topped BRL 62, their highest price ever, boosted by high iron ore prices and the possibility that Vale may pay dividends once more.

— with Natália Scalzaretto


Protected against default, digitally competitive … and a bargain. That is how analysts at brokerage firm XP have evaluated Banco do Brasil — the biggest state-controlled bank in the country. They point out that 27 percent of the bank’s portfolio relies on credit to rural producers, “which can be an advantage in times of crisis, while allowing for long-term gains.” That’s because rural credit, while less profitable, has a substantially lower default rate. 

Eyes on November

Earlier this year, we had stressed the importance for the government not to lose any time in pushing its agenda forward in Congress. That’s because 2020 is an electoral year, with the country’s 5,570 municipalities expected to head to the polls in November to choose new mayors and city councilors. As the chart below shows, Congress’ focus will be elsewhere in the second half of 2020: of the House’s 513 members, 112 are going to run for municipal office. With the pandemic disrupting traditional campaigning, candidates will be required to produce tons of content to try and lure voters — which could impact quorums for congressional sittings.

Looking ahead

  • Tax reform. The government is expected to submit its own tax reform bill this week. Economy Minister Paulo Guedes has insisted on a few proposals which are unpopular among lawmakers, such as the recreation of a tax on financial transactions. The Economy Minister’s biggest adversary is House Speaker Rodrigo Maia — who instead supports an ongoing bill in Congress to create a value-added tax by merging several municipal-, state-, and federal-level duties. Political disagreements and the pandemic led JPMorgan to tell its clients it is “skeptical” about the possibility of a reform passing in 2020 — or even 2021.
  • Vaccine. A shipment carrying a potential coronavirus vaccine developed in China arrived in São Paulo on Monday — and tests with healthcare workers from five states will begin. A second round of testing shall include 9,000 volunteers (over 1 million people have applied for the trials), and São Paulo Governor João Doria hopes the vaccine will be available by June 2021. Beijing-based lab Sinovac Biotech became the first pharmaceutical company able to successfully protect animals from infection by the coronavirus, according to Science Mag.
  • Credit. The House should vote on Monday on approving a presidential provisional decree with the potential of injecting BRL 32 billion (USD 5.9 billion) in subsidized credit for small- and medium-sized companies. Around 60 percent of the funds will go to the so-called PESE, a credit line run by the National Development Bank (BNDES) to help small firms with their payroll. PESE, however, has been massively underperforming, and only 10 percent of its available BRL 40-billion amount has been lent.
  • Multilateralism. Brazilian diplomacy has started to lobby for Federal Judge Monica Sifuentes to be appointed to one of the six seats up for selection at the International Court of Justice in December. The court has entered the administration’s radar after it received three complaints against President Jair Bolsonaro’s dealing with the coronavirus, using such terms as “crimes against humanity” and “genocide.”

In case you missed it

  • Telecom. Brazil’s three major telecom companies — TIM, Vivo, and Claro — have presented a joint bid to purchase the mobile telephony assets of the country’s fourth-largest player, Oi. Sources say an unidentified foreign investor has placed a second bid. Under court-supervised reorganization since 2016, Oi wants at least BRL 15 billion for its mobile infrastructure and it plans to use the money to enhance its fibre-optic broadband network and pay off some of its debt, which topped BRL 65 billion when it entered into administration.
  • “Fake” meat. One of 2019’s biggest success stories in the stock market, Beyond Meat — which sells plant-based meat imitations — has arrived in Brazil. The country is the world’s second-largest beef consumer, after the U.S., but the no-meat “revolution” won’t be for everyone. Beyond Meat will be sold in 19 upscale stores in São Paulo, with its imitation burgers costing four times the price of local competitors. 
  • Tainted exports. A study called “The rotten apples of Brazil’s agribusiness” shows that up to 22 percent of Brazilian exports which leave the Amazon and Cerrado biomes and head to the European Union may have been produced on illegally deforested land. Last week, the government finally made a commitment to preserve the rainforest. The latest episode of our Explaining Brazil podcast breaks down what that means.
  • BRICS. The Senate approved the creation of a Brazilian branch of the Shanghai-based New Development Bank — NDB, commonly known as the BRICS Bank — in São Paulo. The new office will serve as the bank’s headquarters in the Americas. The bank will also have a representation bureau in capital city Brasília. With the São Paulo HQ, Brazil takes on a bigger role in the bank, after picking its newly-inaugurated chair Marcos Troyjo, a former Secretary of Foreign Trade at the Economy Ministry.
  • Revenue. It sounds counterintuitive, but Brazilian workers’ average income has actually gone up amid the pandemic. Economist Daniel Duque, of think tank Fundação Getulio Vargas, believes in two possible explanations: (1) the crisis has been harsher on informal workers or those in low-paying jobs, and (2) telephone surveys — a method imposed by the pandemic — can over-represent rich population strata.[/restricted]
Brazil Weekly

Scientists in Brazil kick off groundbreaking Covid-19 research

We’re covering this week one of the boldest projects against the coronavirus by Brazilian scientists. The spree of IPOs — despite the crisis. And the workers most affected by job cuts.

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Brazilian scientists make progress against coronavirus

The Brazilian Center for Research in Energy and Materials (CNPEM) will open its doors [restricted]today to host research projects related to the coronavirus. Located in the southeastern city of Campinas, the center is home to Sirius, the BRL 1.8-billion particle accelerator which is Brazil’s biggest and most complex scientific structure to date.

State-of-the-art science. Sirius is, more specifically, a synchrotron, a particular kind of accelerator which moves particles around a fixed, closed-loop pattern. In addition to providing a great source of energy, synchrotrons can have various scientific and industrial applications. Inaugurated in November 2018, the facility is still in the commissioning stage — which imposes some limitations on researchers.

  • Still, CNPEM decided to go ahead and launch studies in response to the pandemic. The center announced over the weekend that it had completed its first experiment: creating 3D images of essential Sars-CoV-2 proteins.

Why it matters. The pictures could help scientists understand how the virus works inside human cells and could be pivotal to support research for drugs against Sars-CoV-2.

How the scientists did it. Using a beamline dedicated to macromolecular crystallography, scientists analyzed the 3CL protein, which is crucial for the virus’ development.”When we can inhibit these proteins, we can interfere in the replication process,” says Daniela Trivella, research coordinator of the center’s Covid-19 task force.

  • According to the researchers, the first anti-HIV drugs were also developed from a deeper knowledge of the virus’ essential proteins.

Funding. Sirius is a rare example of a long-term scientific project in Brazil. It could be an island of state-of-the-art science in a country where funding for research has become so scarce. Some scientists are funding research themselves, as the government is turning down most projects, claiming a lack of money.

Stock market set for IPOverdose

Despite the challenging economic scenario caused by the coronavirus crisis, Brazil may witness one of the biggest sprees of companies going public this year. So far, initial and follow-on offerings have amassed BRL 40 billion (USD 7.5 billion) in 2020 — already the third-highest in the decade. And the number is set to grow, with environmental solutions provider Ambipar holding its IPO today on the São Paulo stock exchange, pricing its offer on the top of the range and raising BRL 1.08 billion.

More to come. Two more offerings are expected to be priced in July:

  • Soma. The group owns several fashion brands, including luxury ones such as Animale and Farm. With 221 stores in Brazil and two in the U.S., the group posted net profits of BRL 126.8 million. The IPO could raise up to BRL 1.5 billion — which shall be used to pay for debts and dividends, acquisitions, new stores, and tech investments.
  • Riva 9. The company focuses on building homes for medium-income families and could raise up to BRL 1.1 billion with its listing, scheduled for July 30. Riva 9 aims at spending one-third of that money on buying land from its parent company, Direcional, while the rest shall fund new projects.

Also in line. Brazil’s Securities Commission’s website shows at least 20 IPO requests in progress. But, according to some estimates, up to 50 companies are getting ready to go public or post follow-on offerings.

Momentum. With benchmark interest rates at their lowest ever, demand for variable income assets is soaring. Plus, companies have been resorting to capital markets to beef up their cash reserves and weather the crisis.

Atypical. Previous years of crisis (2009, 2015, and 2016) didn’t see the same activity. What sets 2020 apart? According to Pablo Spyer, director at Mirae Asset, “200,000 new investors are joining the [domestic] stock exchange every month,” he wrote. “There is no doubt that there is demand for new stocks.”

— with Natália Scalzaretto


Latam Brazil was included in its parent company’s Chapter 11 bankruptcy protection filing in the U.S. last week. Meanwhile, analysts are optimistic about its main competitor, Gol. Investment bank BTG Pactual raised Gol’s target share price from BRL 20 to 27, with a “buy” rating — saying the airline will benefit from low exposure to international markets, strong liquidity, and a better fleet downsizing program. BB Investimentos adds that Gol should gobble up much of Latam’s market share in the near future.

Natália Scalzaretto

Which jobs are closing?

In 2018 and 2019, most formal jobs were low-paying ones, of up to BRL 2,000 (USD 375.66) per month. In 2020, however, these jobs were the first to disappear. Over 75 percent of the 1.1 million formal positions that have been closed this year were in this salary range. The retail sector lost the most jobs, being an area that was severely affected by the pandemic.

Looking ahead

  • U.S. v. China. The Chinese and American ambassadors to Brazil exchanged harsh words over the weekend. On Friday, the U.S.’s Todd Chapman posted on Twitter: “Mass sterilization of Uighur women by the Chinese Communist Party — silence is not an option.” On the following day, the U.S. Embassy in Brasília took another jab: “FBI director: ‘China pays scientists in U.S. universities to secretly take our knowledge and innovation back to China — including valuable, federally financed research.’ Is that happening in Brazil?” China’s Yang Wanming replied: “An ant is trying to knock down a giant tree, ridiculously overestimating its own capacity.” 
  • EU. Foreign ministers from European Union member nations meet today, and among the many items on the agenda is the bloc’s strained relationship with Latin America. They will discuss how the EU has provided support to the region. However, intense trade disputes and growing skepticism with Latin American leaders, especially Brazil’s Jair Bolsonaro, continue to prevent rapprochement.
  • GDP. On Tuesday, the Central Bank publishes its Economic Activity Index for May. The numbers are expected to be positive, reflecting an improvement in the country’s industrial results and retail performance.
  • Tax reform. House Speaker Rodrigo Maia and Senate President Davi Alcolumbre have given the government its last chance to submit its tax reform proposal. If the Economy Ministry doesn’t send its bill by the end of the month, Congress will disregard its input and go ahead with designing its own proposal to overhaul the country’s super-complicated tax system.
  • Labor. The Senate is expected to vote on the provisional decree altering labor rules during the pandemic as a move to avoid layoffs — regulating comp time, remote work, bringing forward holidays, and collective vacations. The matter has already passed in the House and must be approved by the Senate before July 19 — otherwise it will expire. On another front, Congress is expected to strike down a presidential veto barring payroll bonuses until the end of 2021.

In case you missed it

  • Coronavirus 1. After months belittling the severity of the coronavirus, President Jair Bolsonaro announced he had contracted Covid-19 last week, and has tried to use his diagnosis politically — doubling down on every talking point he has used since the beginning of the pandemic. He once again promoted controversial antimalarial drug chloroquine — stating he is taking it regularly to positive effect — and said social isolation measures are useless, as most Brazilians will get the virus anyway. Political scientists believe the strategy won’t work.
  • Coronavirus 2. Meanwhile, Brazil has recorded over 1.86 million infections and 72,100 deaths from Covid-19. The real tallies, however, are likely to be much higher, as Brazil has struggled with data reporting problems and low levels of testing. In ten states, death numbers are on an upward trend — which hasn’t stopped governors from continuing to reopen non-essential activities.
  • Environment. VP Hamilton Mourão met with the major international investment funds that threatened to pull their money from Brazil unless the government actively starts curbing deforestation. On the same day of the meeting, official data showed that June had a record-setting number of deforestation alerts. Over the first half of the year, there was a 25-percent increase in destroyed forest area when compared to 2019. But if deforestation is going up, sanctions by authorities are down 60 percent under Jair Bolsonaro. Experts warn of an ‘environmental blackout.’
  • Education. After three weeks and two botched nominations, President Jair Bolsonaro finally picked a new Education Minister: presbyterian preacher Milton Ribeiro. The choice was highly controversial, even though Mr. Ribeiro has previously served as vice-rector at the prestigious Mackenzie University in São Paulo. That’s because he has already defended inflicting physical punishment on children, and said universities teach students to engage in “limitless sexual practices.”[/restricted]
Brazil Weekly

Agribusiness sees growth during pandemic

This week, we are covering Brazil’s economic outlier: the agribusiness sector. And a trial that will be pivotal for evangelical communities engaging in politics.

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Brazilian agribusiness knows no crisis

The 2020 recession is expected to be acute — perhaps the worst on record. GDP projections predict contractions ranging between 6.5 and 9 percent[restricted]. Industrial output should shrink by 7.9 percent, while services, Brazil’s biggest employing sector, is expected to have a 5.5-percent fall. One sector, however, remains strong: agribusiness. The National Agriculture Confederation, one of the most powerful lobbies in Brasília, expects the sector’s GDP to grow 2.5 percent, reaching BRL 728 billion (USD 137 billion) — which would be the highest figures on record.

Why it matters. Agribusiness is set to account for 24 percent of Brazil’s GDP in 2020, direct and indirectly. 

Agribusiness by the numbers. In a year of nothing but negative news, Brazil’s rural economy brings many positive figures:

  • Food shipments were up 23 percent between January and April. Exports could amount to USD 102 billion, according to government projections;
  • Grain production is expected to set a new record at 250 million tons — which could reach 300 million tons by 2027;
  • While the year has been defined by layoffs, agribusiness companies are still hiring in Brazil. Meat giants JBS and BRF have reportedly opened a combined 5,000 positions in 2020;
  • Investments on inputs — with more productive seeds and modern fertilizers — have amounted to BRL 84 million for the crops harvested in 2020, a 10-percent bump from the previous cycle.
  • A report by consultancy firm McKinsey revealed that 70 percent of agro entrepreneurs up to 45 years old are likely to modernize their businesses further, with new sensors and machines operating through the Internet of Things.

Productivity. Brazil has seen escalating gains of productivity for the past 40 years. Since 1977, planted area has increased by 1.7 times — while productivity (in kilos per hectare) tripled.

Public policy. None of that would be possible without state-owned company Embrapa, the Brazilian Agricultural Research Corporation. Created in 1972, during some of the hardest years of the military dictatorship, the company has been instrumental in transforming Brazil from a food importer into one of the world’s leading agricultural powers. 

  • With Embrapa, Brazil began developing seeds adapted to tropical weather — instead of simply importing them from the U.S. Developing the use of microorganisms to capture nitrogen to nourish plants — thus avoiding excessive use of fertilizers — is just one example of the company’s noteworthy accomplishments.
  • Embrapa’s multiple advances turned the cerrado — a savanna-like biome with notoriously poor soils — into Brazil’s biggest grain-producing region.

Giving agribusiness a bad name. There are two main problems with Brazilian agribusiness, however: the often excessive use of pesticides and the image crisis created by increased deforestation in the Amazon. Researchers say cattle breeding is responsible for 80 percent of Amazon deforestation.

  • Of 981,000 fire alerts registered by Brazil’s deforestation monitoring system between July and October 2019, half took place in areas from where suppliers of giants such as JBS, Marfrig, Bunge, and Cargill buy inputs. In Brazil, monitoring of best practices remains very incipient — favoring unethical producers.

A push against Evangelicals’ political power

evangelical preachers jair bolsonaro
Evangelicals are an important support group for President Jair Bolsonaro. Photo: Carolina Antunes/PR

The Superior Electoral Court debates the possibility of listing “abuse of religious power” as an electoral crime that could cost elected officials their term. Existing laws prohibit general “abuses of authority” but Supreme Court Justice Edson Fachin wants a specific rule policing religious leaders, starting in the 2020 municipal elections.

Context. The debate started when the court received the case of Valdirene Tavares, a city councilor in Luziânia, a city in the central-western state of Goiás. Ms. Tavares was removed from office for allegedly using her status as an Evangelical pastor to whip votes from her congregation in 2016.

  • Justice Fachin ruled in favor of her acquittal due to a lack of condemning evidence, but wants this process to become a paramount case, setting a precedent for future elections.

Why it matters. Evangelical leaders have become a political force to be reckoned with in Brazil. Their followers comprise one-quarter of the Brazilian population and could become a majority within a couple of decades. And evangelical preachers have become powerful kingmakers.

The trial. So far, only one other Supreme Court Justice, Alexandre de Moraes, has voted on the matter — and he went against Mr. Fachin.

Opposition. Conservative sectors have fiercely opposed Justice Fachin’s move, claiming it goes against religious freedoms. Some have called an attempt to remove Christian communities from public life in Brazil. They also claim the law allows the mixture between religion and politics — as Brazil can have openly religious parties, which is prohibited in countries such as France or Mexico.


Environmental solutions provider Ambipar is accepting reserves for its initial public offering until July 8. The company deals with waste management and biological crises and has grown during the pandemic. The IPO could raise up to BRL 1.27 billion, with the firm expected to use 70 percent of the money for acquisitions. If Ambipar manages to price its stock above the upper range of BRL 24.75, its market cap would be 64 times larger than its earnings, a ratio analysts say is too big. 

Natália Scalzaretto

Who lost more money during the pandemic

The pandemic caused a drop in earnings for almost all social strata in Brazil. Predictably, however, the crisis was harsher on workers who were already in a more precarious situation. While college-educated workers saw an average drop of 15 percent of their usual earnings, those without a high-school diploma lost as much as 25 percent of their income.

Looking ahead

  • Corruption. On Sunday, newspaper Folha de S.Paulo reported on shady practices within Jair Bolsonaro’s office during his time as a congressman. There were at least 350 changes to his staff, including suspiciously abrupt firings and re-hirings — telltale signs of money-laundering schemes the likes for which his son, Senator Flávio Bolsonaro, is under investigation.
  • Justice. Prosecutor General Augusto Aras will have to decide whether or not to request an investigation into Flávio Bolsonaro’s lawyer, Frederico Wassef, who had been harboring Fabrício Queiroz, a former fixer of the Bolsonaros suspected of operating a money-laundering scheme within Mr. Bolsonaro’s office (and under his auspices). The new case revolves around a BRL 5-million contract Mr. Wassef had with Campinas Airport for “legal and strategic counseling.” However, there is reportedly no evidence that any service was made. Law firms have become a go-to front for kickbacks — and investigators believe this might be the case with Mr. Wassef’s contract. Once a docile prosecutor, Mr. Aras is becoming increasingly independent from the government, fearing a rebellion from the prosecutors below him.
  • Education. Businessman Renato Feder, who serves as state education secretary in the state of Paraná, was announced as Brazil’s next Education Minister. His name, however, sparked fury among the president’s most radical supporters — and he turned the invitation down, saying on Twitter that he will stay in Paraná. Mr. Feder becomes the second man in a row to be named to the Education Ministry and not make it to the swearing-in ceremony. The president is expected to pick a new name this week.

In case you missed it

  • 5G, after all. Despite the constant delays in Brazil’s public auction of 5G frequencies, the country will soon have its first commercial 5G provider. Telecom giant Claro — in partnership with Motorola, Ericsson, and Qualcomm — used a technology called DDS (Dynamic Spectrum Sharing), which allows the deployment of both 4G and 5G on the same frequency band, allowing Claro to use already-regulated bands to implement 5G.
  • Elections. Congress moved Brazil’s 2020 municipal elections from October to November due to the coronavirus pandemic. While a sensible move, there is little indication that the pandemic will be tamed by that time, given the constantly rising infection curve in Brazil. Infections tripled over the month of June, while deaths doubled. 
  • Meat. China’s General Administration of Customs suspended imports from six Brazilian meat-processing plants over the past week, over concerns of Covid-19 contamination. Last week, China asked for information about Brazilian slaughterhouses that have registered outbreaks of coronavirus infections. By June 16, at least 47 abattoirs in 17 states had been shut down by the Agriculture Ministry due to the coronavirus. The looming crisis could have massive repercussions across the globe — as Brazil is the world’s largest meat exporter.
  • Fake news. The Senate approved a fake news bill on Tuesday that is deemed “highly problematic” by freedom of speech advocates. While senators struck down many of the draconian articles inserted by the bill’s rapporteur, Senator Angelo Coronel, some remained in place. Namely, the requirement for social media platforms to store so-called ‘forwarding chains,’ a sort of flow chart that would allow law enforcement to trace the exact path of a piece of information shared at least five times. Also, in the case of a complaint against a user, platforms must demand proof of the suspected user’s identity. The bill now goes to the lower house.[/restricted]
Brazil Weekly

River transfer is Bolsonaro’s ploy to gain support in Northeast

Jair Bolsonaro kicks off his strategy to gain support in the Northeast with a water infrastructure project. The new behavior of Brazilian investors. And just how important is the coronavirus stipend for families.

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Bolsonaro uses water diplomacy to gain support in Northeast

President Jair Bolsonaro has inaugurated a stretch of the São Francisco river transfer project, [restricted]in the northeastern state of Ceará. Friday’s event kicked off a project to increase the government’s popularity in the region, where Mr. Bolsonaro has his lowest approval ratings in the entire country. Eyeing the 2022 re-election bid, the government plans to launch several development actions in the poor semi-arid region.

Infrastructure. The project to transfer the São Francisco River is the biggest hydric infrastructure project in Brazilian history. With 13 aqueducts, nine pumping stations, 27 reservoirs, and 270 kilometers of high-tension transmission lines, it plans to divert 1.4 percent of the river’s water to supply municipalities that have historically struggled with droughts.

History. The project was initially conceived by Emperor Dom Pedro II in the mid-1800s, but construction only started 150 years later, during the government of Luiz Inácio Lula da Silva. Last week, Mr. Bolsonaro became the fourth president to inaugurate a stretch of the project in the hopes of claiming ownership for its completion. His predecessors Michel Temer and Dilma Rousseff did the same.

  • The transfer is one of Brazil’s many hyperbolic projects that seem to never end. Other examples are the Trans-Amazonian Highway, which started in the 1970s, and the Trans-Northeastern Railroad, in the 1980s.

Why it matters. If properly functioning, the river transfer will provide water security to 12 million people (more than the entire population of Portugal). The project is even more important if we consider that extreme climate events are becoming more and more frequent. Between 2012 and 2017, the semi-arid region faced the worst drought ever recorded in Brazil.

Northeast in the political chess. The Northeast remains a stronghold for the Workers’ Party — it is the only region in which Mr. Bolsonaro did not win in the 2018 election, and where he still faces his highest rejection rates. With almost 40 million voters, the Northeast can never be ignored by politicians. 

  • The president has dismissed the region on a few occasions, but his new congressional bedfellows, the so-called Big Center, want him to develop a foothold in the area in order to galvanize a highly conservative electorate that could flip to their side.
  • The coronavirus emergency salary is expected to boost the president’s stock among lower-income voters — and no Brazilian region is poorer than the Northeast.
São Francisco River transfer project
Development for the Northeast. Chart: Marcelo Anache/TBR

Brazilian funds increasingly eager to invest abroad

A study by consultancy Economatica showed that Brazilian funds’ investments in international assets have reached historic highs. As of May, BRL 278.5 billion were invested abroad, a staggering 90-percent growth since the end of 2019. Now, this type of investment accounts for 5.6 percent of portfolios. Meanwhile, variable income assets, such as stocks, represent 8.5 percent of local funds’ investments.

Why it matters. Brazilian portfolios tend to be less diversified and overly exposed to fixed-income dynamics, especially for investors relying on government bonds. With Brazil’s benchmark interest rate at historic lows, the investment market in the country is shifting fast.

BDRs. Economatica also points out an increase in the investments in Brazilian Depositary Receipts — a tool used by local investors to buy stocks of U.S. companies in Brazil — has reached all-time highs, with almost BRL 4 billion invested. 

  • This type of investment, however, is not for everyone. Only so-called “qualified investors” — that is, those with at least BRL 1 million in financial equity — can deal in BDRs.

Exposure. For Marco Harbich, a strategist at Terra Investimentos, it makes sense to pursue diversification while the so-called “risk premium” in Brazil is small, due to the country’s benchmark interest rate falling to its lowest level in history.

  • “These are ways to protect a portfolio with assets that are not related to Brazil. And you have the chance of enjoying a strong economy, as the recovery seems faster abroad than it looks here. Also, there is the fiscal side, which is very committed in Brazil,” he told The Brazilian Report.

— with Natália Scalzaretto


With the sanitation bill approved by Congress, investment bank BTG Pactual lists water and waste management company Sabesp as its top pick in the sector, due to its higher probability of privatization. If that does happen, analysts project Sabesp share prices jumping from the current level of BRL 56.30 to as high as BRL 94. Investors should bear two things in mind: the São Paulo government has to choose a privatization model — and there is a long way ahead before the new regulatory framework is fully implemented.

Natália Scalzaretto

How important is the coronavirus emergency salary?

President Jair Bolsonaro announced that the coronavirus emergency salary may be extended to three extra installments. Each payment, however, will be lower than the current BRL 600 (USD 110) with the current plan being to pay BRL 500 in the first month, lowered to BRL 400 and 300 in the subsequent stipends. The benefit has been pivotal to preventing an even deeper crisis, with over one-third of the Brazilian adult population receiving the payments. In some states, over half of the population aged over 18 depends on that money.

Looking ahead

  • Elections. Last week, the Senate passed a constitutional amendment changing the dates of the 2020 municipal elections, from October 4 and 25 to November 15 and 29. The matter now must be approved by the House, where there is little consensus on the change. Pressured by incumbent mayors, parties of the so-called Big Center in Congress have opposed the new calendar. To gather support, House Speaker Rodrigo Maia has proposed increasing money transfers from the federal government to municipalities. It will take 308 of 513 seats to change the election date.
  • Truce? Cornered by multiple investigations reaching members of his inner circle, President Jair Bolsonaro has charged his top political advisors with initiating conversations with Supreme Court justices and lowering tensions between the branches of government. The question is how long will this truce last — in the past, similar efforts did not last more than a few days. Perhaps the probes against his eldest son — or against his online supporters — will force a change of heart.
  • Coronavirus. It has been a month since states began reopening their economies, and the results are not encouraging. The infection curve saw steep bumps in the Northeast and Southeast regions. The epidemic is also advancing in the South — where cases and deaths have doubled over the month of June. In Brasília, the biggest public hospital has 100 percent of ventilators in use — and its director said in a leaked audio message that there are no longer available beds in most of the capital’s health units. Meanwhile, the city of São Paulo could reopen bars and restaurants as early as next week.

In case you missed it

  • Commodities. CME Group, the parent company of the Chicago Board of Trade, has celebrated a partnership with B3 — which controls São Paulo’s stock exchange — to develop risk management products for Brazilian companies on the domestic and global market. They will launch futures on Brazilian soybeans in Q3, pending regulatory approvals. The expanded deal includes the extension of the existing B3 cross-listed mini-soybean futures and options contracts, and will allow the companies to evaluate potential products related to South American soybeans and similar commodities.
  • Sanitation. After years of waiting, Congress has finally passed a new regulatory framework for sanitation services — which will allow private players to fight on an equal footing with public companies. The government expects BRL 700 billion in new investments in the near future and hopes the sector will help kickstart the economy. 
  • Justice. A Rio appeals court granted “parliamentary immunity” to Senator Flávio Bolsonaro in the investigation into alleged money-laundering operations carried out within his office, during his stint as a Rio state lawmaker. In practical terms, the case now leaves the trial courts and moves up to an appellate court, where it will be conducted by the politically-appointed State Prosecutor General. While the decision can be struck down by higher courts, it gives Mr. Bolsonaro more time to plan a defense or stall the case even more.
  • Cabinet. President Jair Bolsonaro announced Carlos Alberto Decotelli, the former head of Brazil’s National Fund for Education Development, as his new Education Minister. But his latest cabinet appointment didn’t come without its dose of controversy: on Twitter, Mr. Bolsonaro mentioned Mr. Decotelli held a Ph.D. from the University of Rosario (Argentina), which was denied by the institution’s dean — also on Twitter. Mr. Decotelli, however, is just the latest in a long line of Brazilian public officials who have lied about their résumés.[/restricted]
Brazil Weekly

Productivity bombs in coronavirus crisis

It’s not Groundhog Day — it’s another crisis in the federal government. The drop in productivity caused by the pandemic. How inflation has a larger effect on the poor.

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Pandemic slashes Brazilian productivity

The productivity level of the Brazilian economy dropped [restricted]1.7 percent in Q1 2020 when compared to the same period last year. This is the sharpest drop since a 2.5-percent fall in Q4 2015 — when Brazil was in the middle of what was then its worst recession on record. The situation is only expected to get worse, however. As social isolation measures were only implemented late in March, they had a reduced impact on Q1 — the drop in productivity during Q2 should be brutal.

Why it matters. Brazil has passed the period of the so-called “demographic bonus,” that is, when young people of working age far outnumber older populations. Therefore, a sharp increase in productivity is the only way to increase per capita income over the next few decades.

Slow pace. While the pandemic is set to aggravate Brazil’s productivity problem, the issue predates the coronavirus. Productivity levels have advanced very slowly since the 1980s and had a massive drop during the 2014-2016 crisis. 

  • The drop in “total factor productivity” (which is a measure of economic efficiency and accounts for part of the differences in cross-country per-capita income) dropped more severely than in past recessions, and its recovery was also slower, at an average of only 0.45 percent per quarter.
  • That has a lot to do with Brazil’s neverending state of political crisis. Uncertainty has made companies delay investments and formal hirings. In past years, Brazil’s economy has become increasingly informal — which is also a factor that drives productivity down.

Lost decade. The 1980s are known in Brazil as the “lost decade.” Historical data shows that it was the only 10-year span on record to register a drop in GDP per capita. The 2011-2020 period should be just as bad, if not worse. In just three months, the pandemic helped scrap whatever small gains were made in per capita GDP since 2010. And, as we have pointed out, we are still beginning to measure the true extent of the crisis.

Another week, another crisis

Yet again, the week starts with President Jair Bolsonaro on the ropes. On Thursday, his longtime friend Fabrício Queiroz — who served as an advisor to his eldest son Senator Flávio Bolsonaro — was arrested. Mr. Queiroz is believed to be at the center of a money-laundering scheme which, investigators say, benefited Flávio. To make matters worse, the former aide was found in a home belonging to the senator’s lawyer, a shady character named Frederick Wassef.

Jumping the grenade. Mr. Wassef said the Bolsonaros knew nothing about the fact that Mr. Queiroz was living on his estate. On Sunday, he confirmed he is no longer Flávio Bolsonaro’s lawyer. 

  • Allies to the president want him to be distanced from the lawyer — but Ms. Wassef has indicated he might not tolerate being tossed aside. As leverage, he has hinted, on multiple occasions, that he knows secrets the First Family prefers to keep hidden.

Why it matters. This new crisis comes precisely at a moment in which the government hoped to decompress tensions with other branches of government. This further isolates Mr. Bolsonaro and makes any support in Congress far more expensive — in terms of dividing power with what the president often called “old politics.”

Bound for impeachment? Mr. Bolsonaro is facing a multi-headed crisis: the pandemic and its devastating economic consequences, investigations into his son, a probe in the electoral courts, and actions by the Supreme Court against his supporters. His ousting is certainly a possibility — but not a given. 

  • On his side lies the fact that Vice President Hamilton Mourão has not actively engaged in promoting himself as an alternative. The political establishment would hardly initiate impeachment proceedings without knowing what would come next.

How to defuse the crisis. The president must make a convincing case that the cost of ousting him from office would be far greater than keeping him. That is a hard argument to make, however, as Mr. Bolsonaro has been the leading rogue factor of his own administration. He has undermined the Covid-19 fight, boycotted the reforms his own economic advisors proposed, and has shown no economic plan to allow Brazil to rise from the ashes of the coronavirus pandemic.


Bradesco BBI analysts have become more optimistic about Brazilian steelmakers. Sales dropped less than expected and strong Chinese demand could see iron ore prices soar. However, improved conditions may have already been priced in, leaving little room for stock prices to rise further. Bradesco BBI is neutral on Usiminas and Gerdau (setting target prices at BRL 7.30 and BRL 17, respectively), and has labeled CSN an “underperformer,” with a BRL 11 target price.

Natália Scalzaretto

How inflation is harsher on poorer families

The pandemic has pushed inflation rates down in Brazil. But not for everyone, according to a study by the Institute for Applied Economic Research (Ipea). For poorer populations, prices actually rose 0.45 percent between January and May 2020. That is because food products account for a bigger chunk of their budget. Meanwhile, high-income families actually saw prices go down 0.45 percent over the same period — and that’s because they spend more, for instance, on transportation. And the pandemic caused oil prices and air travel fares to plummet.

Looking ahead

  • Sanitation. On Wednesday, the Senate is expected to vote on a new regulatory framework for sanitation services — allowing private companies to enter the market. The government hopes the changes will attract BRL 700 billion in new investments, helping the country kickstart the economy after the pandemic. Sewage services remain accessible to just 50 percent of the Brazilian population, while 35 million citizens have no access to treated water.
  • Emergency aid. Over the weekend, House Speaker Rodrigo Maia argued in favor of extending the three-month BRL 600 coronavirus emergency salary for vulnerable populations for “two or three additional months.” The government had announced that it would provide only two extra payments, while cutting the value of the benefit in half. While there is no debate over how necessary this financial cushion is for families to offset the effects of the crisis, experts warn about its effects on the budget. As it is, Brazil’s 2020 budget deficit should be around BRL 800 billion (USD 150 billion).
  • Rio. Already battling an impeachment process, Governor Wilson Witzel has just lost his second health secretary in less than a month. Fernando Ferry, who announced his resignation on Saturday, complained about being forced to pay for “problematic contracts.” Mr. Witzel’s administration faces multiple accusations of embezzling money earmarked for the Covid-19 fight.

In case you missed it

  • Coronavirus. Over 1 million people have contracted Covid-19 in Brazil. Meanwhile, the death toll has topped the 50,000-people mark, making the pandemic the single deadliest event in Brazilian modern history. The coronavirus death count has even surpassed that of the War of the Triple Alliance, the bloodiest conflict in Brazilian history — which killed 50,000 Brazilians between 1864 and 1870. The count, of course, excludes the horrors of colonization and slavery — whose true death totals we will never accurately know.
  • ESG. Seven major European investment firms will divest from Brazilian beef producers, grains traders, and even government bonds if they do not see progress in halting the surging destruction of the Amazon rainforest. Companies pointed out that deforestation “surged to an 11-year high in 2019, Mr. Bolsonaro’s first year in office, and has risen a further 34 percent in the first five months of 2020.”
  • Cabinet. After 14 months of controversy and little to no consequential policymaking, economist Abraham Weintraub is out of the Education Ministry. He landed on his feet, though, and shall be nominated for a role at the World Bank — despite the fact that Mr. Weintraub describes himself as staunchly anti-globalist. Experts warn that naming a rogue actor to the World Bank will only worsen Brazil’s already tattered image internationally.
  • Closed borders. The Brazilian government has extended restrictions on all foreigners to enter Brazil for another 15 days. The decree allows for a few exceptions: Brazilian residents born abroad, those with work permits, diplomats, passengers with connecting flights — who must not leave the airport boarding area — and foreign government contractors.[/restricted]
Brazil Weekly

Covid-19 pandemic has brought Brazil to its knees

This week, we’re covering the ways in which the pandemic has brought Brazil to its knees. And the exit of Treasury Secretary Mansueto Almeida — one of the most respected members of the Bolsonaro administration.

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How the pandemic broke Brazil

It’s been 16 weeks since the coronavirus reached Brazil — and the country seems no closer to developing a national strategy to reopen, rebuild its economy, or defeat the virus. [restricted]Brazil has been held hostage by leaders placing their electoral strategies ahead of public safety when deciding on how to tackle the pandemic — and short-sighted corporations who are jeopardizing the long-term economy to mitigate short-term losses. Meanwhile, the government’s only strategy to reduce deaths seems to be ejecting one Health Minister after another, or tampering with the numbers.

Why it matters. In recent years, every single aspect of public life seems to trigger a culture war. And that is weakening the country’s ability to respond to a crisis that demands united action.

Exposing fractures. Brazil’s response has been hobbled by trends that precede the coronavirus — growing income inequality, the rise of disinformation, lack of trust in democratic institutions, and hyper-partisanship.

  • “Far from being a wakeup call, it feels more and more like the pandemic will produce a worse version of the same, by worsening existing social crises and accelerating authoritarian tendencies,” writes The Brazilian Report columnist Benjamin Fogel.
  • Last week, President Bolsonaro asked supporters to invade hospitals and film “empty beds” to “unmask” what he calls a media conspiracy to inflate coronavirus numbers in order to destabilize his administration.
  • We are not even seeing the same threat. Supporters of the president and evangelicals are more prone to downplay the severity of the pandemic.

Dangers. The pandemic has also exacerbated Brazil’s institutional deadlock, with tensions between President Jair Bolsonaro and the Supreme Court continuing to boil over. 

  • Over the weekend, Mr. Bolsonaro and his vice president, Hamilton Mourão, released a statement with a not-so-veiled threat: saying that the Armed Forces operate “under the supreme authority of the president.” The statement mentions Article 142 of the Constitution, which the far-right has wrongly interpreted as a “military coup voucher” it could cash in if necessary.

Mansueto, out

mansueto almeida
Mansueto Almeida. Photo: Fábio Pozzebom/ABr

The government’s economic team will suffer a major loss after Treasury Secretary Mansueto Almeida announced he will resign, after four years in the job. Mr. Almeida, however, promised to remain in office until the end of July, in order to assure an “organized transition.”

  • This is not necessarily breaking news for Economy Minister Paulo Guedes, who in February hinted that the government “might lose this guy soon” to the private sector.
  • Mr. Almeida said he planned to leave at the beginning of the year, but that the pandemic delayed his decision. He says now is the right time, as Brazil enters what he calls the “post-Covid” stage, which will demand government action to mitigate the economic effects of the pandemic and kickstart the reopening process.

Why it matters. Mansueto Almeida is seen as one of the government’s fiercest defenders of fiscal austerity — and his exit will certainly create apprehension among investors.

  • It remains unknown who will be the next Treasury Secretary, though Mr. Guedes has a shortlist with four names.

Challenges ahead. Mr. Almeida’s replacement will have a gargantuan task ahead — making room for stimulus policies in an already tight budget.

  • Emergency salary. The recently created BRL 600 (USD 118) coronavirus emergency salary has given some relief to poorer populations, but the government argues there is not enough money to extend it further than two more payments of BRL 300. However, a World Bank study suggests that 7 million people would be immediately pushed below the poverty line should the benefit be interrupted.
  • New Bolsa Família. Mr. Guedes has told Congress that the government will launch a new cash-transfer program to replace the world-renowned Bolsa Família. Mr. Guedes promises that his initiative, called Renda Brasil (Income Brazil), will be broader and “more inclusive” than Bolsa Família.
  • Debt renegotiations. Lawmakers are discussing a new debt-renegotiation program for companies with overdue tax bills. With GDP expected to fall up to 8 percent this year — according to the latest World Bank projections — there is a consensus in Brasília that aiding private business is unavoidable. But this kind of program has failed to help the government recoup tax revenue.


Stock offerings are slowly resuming in Brazil. After two follow-ons by retailers Centauro and Via Varejo, homebuilder You, Inc. has put in a request at the Brazilian Securities Commission to restart the analysis of its initial public offering. According to Guide Investimentos, B3, the company behind São Paulo’s stock exchange, is set to be the big winner of this decision: “with capital markets picking up again, strong trading volumes and growth in the number of investors, B3 tends to have positive results in almost all of its segments this year,” they wrote.

Natália Scalzaretto

What is happening in Chile?

Chilean Health Minister Jaime Mañalich resigned on Saturday after the number of new daily Covid-19 deaths increased sharply over the past week. Criticism toward Mr. Mañalich mounted after Ciper Chile — an investigation center led by journalists — denounced a possible distortion of official data. One week ago, the ministry was forced to include 653 deaths which had not been accounted for in its official Covid-19 toll. The coronavirus has officially claimed 3,101 lives in Chile — however, independent sources say the real numbers are closer to 5,000.

Looking ahead

  • Coronavirus. As the state of São Paulo — Brazil’s Covid-19 epicenter in absolute numbers — continues to reopen its economy, experts warn of the risks a rushed return to normality entails. Researchers from the University of São Paulo and Fundação Getulio Vargas project a 71-percent increase in coronavirus deaths in the state by the end of the month. So far, the virus has killed over 10,500 people in São Paulo.
  • Congress. Lawmakers must vote this week on the provisional decree allowing companies to suspend contracts or cut workers’ hours and wages (which will be partially compensated by the government), for three months. In a push to help businesses, the government wants to allow companies to cut wages for 60 extra days. The change, however, is not set in stone, as it depends on budgetary space.
  • Interest rate. The Central Bank’s Monetary Policy Committee will announce Brazil’s new benchmark interest rate on Wednesday. While it is a consensus among market analysts that the bank will promote a further cut from the current level of 3 percent, forecasts are divided between a reduction of 0.5 or 0.75 percentage points. Since the beginning of the pandemic, the committee has lowered the rate two times, from its 4.25-percent pre-pandemic level.

In case you missed it

  • Impeachment. The Rio de Janeiro State Congress has initiated impeachment proceedings against Governor Wilson Witzel. Two weeks prior, he was targeted by a Federal Police operation and is suspected of taking kickbacks from companies that siphoned part of Rio’s coronavirus budget. Barring his own ousting will be a Herculean task for Mr. Witzel, and will require immense pork-barrelling.
  • Cabinet. In order to please his new allies in Congress, President Jair Bolsonaro re-created the Communications Ministry, naming Congressman Fabio Faria as minister. He is a member of the Social Democratic Party — which holds 36 seats in the lower house — and son-in-law of TV mogul Silvio Santos, whose SBT network has been supportive of the government. One of the ministry’s key challenges is the 5G auction, which is unlikely to take place before 2021.
  • Intimidation. A handful of members of a far-right group known as “Brazil’s 300” launched fireworks in the direction of the Supreme Court building on Saturday — simulating a bomb attack. At the request of Chief Justice Dias Toffoli, the prosecutor general has opened an investigation into the act — and a former government contractor was temporarily detained for publishing a video with threats to the court members.
  • Finance. After a two-year evaluation process, Brazil’s Central Bank has authorized British fintech TransferWise to operate in the country as an exchange brokerage. The international money transfer service, most recently valued at USD 3.5 billion, has operated in Brazil since 2016 but has always had to use a Brazilian bank as an intermediary. Now, the company promises to reduce its fees from an average of 1.5 percent to somewhere closer to its global 0.74-percent average.[/restricted]
Brazil Weekly

Brazil tries to cover up Covid-19 death count

This week, we talk about the Brazilian government’s active attempts to cover up the Covid-19 problem. And the rollercoaster that has been the country’s foreign exchange rate.

To cure a fever, break the thermometer

Incapable of containing the spread of the coronavirus, Brazil’s government has instead engaged in hiding the numbers of the pandemic in the country. [restricted]Since last week, when the number of daily new deaths started breaking consecutive records — always in the four-digit territory —, the federal government began tampering with official data.

  • Earlier last week, the government began delaying its updates until after all nightly newscasts on national television had finished.
  • On Friday, the online dashboard containing the progress of Covid-19 cases and deaths went off the air. It returned almost a full day later — but included only daily cases and casualties, hiding the total tallies.
  • On Sunday, the government published not one, but two very different counts. At 8:40 pm, it published that 1,382 deaths had been recorded over the previous 24 hours. Then, at 9:50 pm, that figure was changed to just 525 deaths — a difference of 857.

What could have happened. The government had previously announced that it would only declare the deaths that occurred on that very day — excluding deaths from previous days that had been confirmed at a later date. That could explain the discrepancy between 1,382 and 525.

  • Regardless of the reason, the government is creating an environment in which official data simply cannot be trusted — putting Brazil in a similar category as countries such as Venezuela.

Why it matters. The government is trying to rewrite history as it happens. That much was admitted by billionaire Carlos Wizard, who was set to be named to a senior position in the Health Ministry — but resigned after receiving backlash for publicly acknowledging that the administration was going to “recount the dead.”

  • Besides masking the reality — and possibly creating a false sense of security that could lead people to expose themselves more — the lack of reliable data has an immense impact on scientific research, which is already suffering from budget cuts.

Irony. President Jair Bolsonaro says his personal motto is a biblical passage from the gospel of John: “Ye shall know the truth, and the truth shall make you free.”

“Hidden” bodies. On Saturday, The Brazilian Report revealed that in cities where Covid-19 death rates are low, casualties caused by acute respiratory distress syndrome have skyrocketed — suggesting that many Covid-19 deaths are going by undiagnosed.

Reaction. Federal prosecutors started an investigation into the case, asking the ministry for information on why it has changed its data disclosure methods.

Understanding Brazil’s currency rollercoaster

On Friday, the Brazilian Real recovered some of its value against the U.S. Dollar, with the exchange rate falling below the USD 1 : BRL 5 mark for the first time since March 13. Despite still being the worst-performing currency in the world so far this year, the Brazilian Real has nevertheless rallied 16 percent since May 14, when it hit its lowest nominal level against the greenback.

  • The Brazilian Real has suffered from the country’s triple-headed crisis: political turmoil, looming recession, and the Covid-19 pandemic. In the meantime, the Central Bank has also slashed the benchmark interest rate to new all-time lows of 3 percent, which adds additional pressure to the currency.

An unusual effect. As a general rule, a weaker currency means higher inflation, as industrial inputs become more expensive. But that hasn’t been the case in 2020, and Brazil is actually expecting deflation in May. This time around, companies are not being able to pass their enhanced costs on to the consumers, as the coronavirus pandemic has held back consumption.

  • “The link between the exchange rate and inflation has not changed. The problem now is that income has taken a nosedive, as has demand. We have pent-up inflation,” University of São Paulo economist Michael Viriato told UOL.

Political factors. More than anything else, political developments will dictate the currency’s behavior in the near future. Internationally, the deteriorating relationship between the U.S. and China — Brazil’s main trading partners — is something worth monitoring. “However, the Brazilian currency is more susceptible to local political issues, especially those that could have severe implications on fiscal policies,” says economist Camila Abdelmalack.

Interest rates. Next week, the Central Bank is expected to slash benchmark interest rates to just 2.25 percent a year, as investors debate whether or not we have reached the point in which lowering these rates produces no stimulus effect in the economy.


Covid-19 has imposed a challenging scenario for shopping malls. Still, there are some bright spots in the industry. Sector giant BR Malls has inked a partnership with e-commerce firm B2W for the online sale of products from 6,000 stores, using their brick-and-mortar stores for click-and-collect purchases. Moreover, BR Malls has already reopened 11 of its 32 malls across the country.

Natália Scalzaretto

Streaming v. pay-TV

The number of Latin American subscribers to streaming services is set to surpass those of pay-TV this year, for the first time ever. The region should end 2020 with 62.2 million subscribers to streaming video services, a 36-percent jump compared to last year’s figures. By 2024, this number will nearly double.

Looking ahead

  • Environment. After being chastised on the international stage for a spike in deforestation rates, the Brazilian government is set to present a plan to protect forest lands, which should involve actions to be taken between now and June 2023. The plan is being led by Vice President Hamilton Mourão — after Environment Minister Ricardo Salles was caught on tape saying the government should seize the “opportunity” given by the Covid-19 pandemic to “run the cattle herd” through the Amazon, “changing all of the rules and simplifying standards.”
  • Inflation. On Wednesday, Brazil will know its official inflation rate for May. Analysts at Bradesco BBI bank expect a 0.45-percent deflation for the month — reflecting the drop in fuel and industrial goods prices, not to mention the slowdown of the services sector. A study by think tank Fundação Getulio Vargas believes the 2020 inflation rate could be the lowest since 1933 — when Brazil was feeling the effects of the Great Depression.
  • Stocks. The Brazilian benchmark stock index Ibovespa reached almost 95,000 points on Friday, a level analysts were only expecting to be reached at the end of the year. The swift change in outlook comes after other world economies have improved their economic expectations, not to mention promising news around efforts to produce a Covid-19 vaccine. Will the V-shaped recovery last? Or is there a W-shaped scenario on the horizon?

In case you missed it

  • Protests. The fears that pro- and anti-Bolsonaro demonstrators could descend into violent clashes on the streets did not materialize this weekend — and rallies in 12 states happened in a largely peaceful way on Sunday. In São Paulo, the demonstration in favor of the president gathered around 100 people, dwarfed by the 3,000 protesters calling for his ousting. The opposition, however, remains divided — with many groups coming out against street protests due to the health risks that public gatherings entail.
  • Politics. The Bolsonaro administration has struck up an alliance with the so-called “Big Center” — a group of faceless center-right parties with a large bench in Congress — in the hopes of barring a potential impeachment request against the president. On Friday, however, Prosecutor General Augusto Aras filed corruption charges against Congressman Arthur Lira, a prominent member of the Big Center. The indictment could rattle the relationship between President Jair Bolsonaro and his new allies, as Mr. Aras had been seen as being totally aligned with the president’s office.
  • Industry. The Brazilian Institute of Geography and Statistics published its latest figures for industrial production in April, showing an 18.8-percent drop in output. While it is the worst result on record, the sector actually outperformed expectations, thanks to positive results from food processing firms (+3.3 percent) and pharmaceutical companies (+6.6 percent).
  • Kickstart. The government announced that a new regulatory framework for sanitation services is its gamble to attract investments and stimulate the economy in the post-pandemic period. The Economy Ministry hopes that the bill — which has been in discussion since the Michel Temer administration (2016-2018) — will finally be put to a vote late in June. It could raise up to BRL 700 billion in new investments.[/restricted]