July 30, 2019 | Energy deal with Brazil sparks crisis in Paraguay

Good morning! Brazil-Paraguay energy deal sparks a political crisis in Asunción. Yet another deadly prison riot shocks Brazil. Tensions rise on indigenous land in Northern Brazil. Brazil’s tax burden reaches a new high. Enjoy your read!

to share the rights over energy produced by the bi-national Itaipu dam—but the deal has only now been disclosed, and it has sparked outrage in the neighboring country. As Brazil claims Paraguay was under-declaring its energy consumption (thus paying less for it), Asunción agreed to pay roughly USD 250m more than before. Why it matters. After Paraguayans protested the deal, four members of the government were fired—including Paraguay’s ambassador to Brasília. President Marío Abdo Benítez’s administration is being pushed to pull out of the deal. Itaipu’s energy production is split equally between the two countries, with Brazil buying 85% of Paraguay’s half. The dam accounts for 15% of the energy consumed in Brazil. The two countries had been in negotiations for months, as the current contract is set to expire in 2023, which would leave Brazilian distributors exposed. Proximity. The case is a major blow to Mr. Benítez’s presidency—as he advertised closer proximity with Brazil as one of the major accomplishments of his administration. Some strains between the two countries have appeared in recent years, after Paraguay’s 2000 “maquila law,” which aimed at replicating the economic successes of Mexico’s maquiladora (manufacturing plant) operations. As Emerson de Pieri, Managing Director of Barings Investments Latin America, wrote, “[at first, it was] broadly welcomed by the Brazilian government, [but] the migration of investment is now facing increasing scrutiny as unemployment rises to unprecedented levels.” <ul><li>Go deeper: <a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://brazilian.report/money/2019/02/04/energy-problems-itaipu-paraguay/" target="_blank">Energy – The billion-dollar time bomb Brazil needs to diffuse</a></li></ul> <hr class="wp-block-separator"/> <h2>Deadly riots a morbid recurrence in Brazilian prisons</h2> Just two months after a deadly prison riot in Brazil’s North, 57 inmates were killed in a penitentiary in Altamira, in the state of Pará. Sixteen victims were beheaded and 36 were asphyxiated following a fire in a cell block. Over the past two and a half years, a series of riots have left 227 inmates dead—continually exposing the inhumane conditions in Brazil’s prison system, which is wracked by overpopulation and lack of basic infrastructure. Why it matters. Brazilian prisons have become hotbeds for drug gangs to recruit new members and many crime bosses still command their business from behind bars. In recent years, the North region has become a strategic piece of the organized crime puzzle, sitting directly on one of the main drug routes between Colombia, Peru, and Bolivia to Europe. The latest riots are proxy wars—staged by groups representing the interest of Brazil’s main rival gangs: São Paulo’s First Command of the Capital (PCC) and Rio de Janeiro’s Red Command (CV). Massive incarceration. In absolute terms, Brazil has the world’s 4th-largest prison population, with at least 812,564 inmates (in facilities only built to house up to 415,960 people). If the prison population were a city, it would be one of Brazil’s top 25 most-populated—and the most dangerous one, with an average of four deaths per day (caused by violence and the widespread presence of diseases). <h4 style="text-align:center">Main drug routes in Brazil</h4> <figure class="wp-block-image"><img src="https://brazilian.report/wp-content/uploads/2019/06/WhatsApp-Image-2019-06-12-at-17.53.53.jpeg" alt="drug routes brazil" class="wp-image-19136" srcset="https://brazilian.report/wp-content/uploads/2019/06/WhatsApp-Image-2019-06-12-at-17.53.53.jpeg 815w, https://brazilian.report/wp-content/uploads/2019/06/WhatsApp-Image-2019-06-12-at-17.53.53-300x198.jpeg 300w, https://brazilian.report/wp-content/uploads/2019/06/WhatsApp-Image-2019-06-12-at-17.53.53-768x508.jpeg 768w, https://brazilian.report/wp-content/uploads/2019/06/WhatsApp-Image-2019-06-12-at-17.53.53-610x403.jpeg 610w" sizes="(max-width: 815px) 100vw, 815px" /></figure> <ul><li>Go deeper: <a href="https://brazilian.report/society/2019/07/29/prison-riot-exposes-brazil-inhumane-system/">Latest riot exposes Brazil’s inhumane prison system</a></li><li>And: <a href="https://brazilian.report/society/2019/06/13/prison-murders-gang-killings-brazil-amazon/">Prison murders illustrate a spike in gang killings in Brazil’s Amazon</a></li></ul> <hr class="wp-block-separator"/> <h2>Tensions rise after killing in indigenous land</h2> Indigenous leader Emyra Wajãpi was stabbed to death last week after a group of gold diggers invaded his tribe’s land in the state of Amapá. Over the past few days, this group has made incursions on indigenous settlements, aimed at scaring off the native people and freeing them up to proceed with illegal mining activities. While Funai—Brazil’s agency for indigenous affairs—confirmed the assassination, President Jair Bolsonaro said “there’s no strong evidence” to prove the murder took place. Why it matters. No other president in Brazilian history has been so dismissive of indigenous rights as Jair Bolsonaro. During last year’s campaign, he said his administration would not let one inch of land be given to indigenous tribes. The president’s denial of Emyra Wajãpi’s assassination can be interpreted as a green light for the invasion of indigenous lands—which are often rich in minerals and precious stones. Proved mineral reserves in indigenous lands amount to an area of the size of Paraguay. Wajãpi. The abundance of minerals such as gold in the Wajãpi land is subject to much speculation—but the soil of the region—declared as protected indigenous land in 1996—was never truly studied. What has been proven, however, is the presence of tantalum and niobium (used in electronics and glass production).  Fear. Leader Jawaruwa Wajãpi, to <a href="https://www.terra.com.br/noticias/brasil/quem-sao-os-wajapi-guardioes-de-terra-cobicada-por-garimpeiros-ilegais-e-mineradoras,abff0af0487b03d417edb64d543eb77fxezkditi.html">DW</a>: “All Wajãpi families are scared to go out and hunt, fish, or seek supplies. The invaders are still hiding somewhere out there.” <figure class="wp-block-image"><img src="https://brazilian.report/wp-content/uploads/2019/07/Screen-Shot-2019-07-30-at-06.55.12-1024x917.png" alt="" class="wp-image-21480" srcset="https://brazilian.report/wp-content/uploads/2019/07/Screen-Shot-2019-07-30-at-06.55.12-1024x917.png 1024w, https://brazilian.report/wp-content/uploads/2019/07/Screen-Shot-2019-07-30-at-06.55.12-300x269.png 300w, https://brazilian.report/wp-content/uploads/2019/07/Screen-Shot-2019-07-30-at-06.55.12-768x688.png 768w, https://brazilian.report/wp-content/uploads/2019/07/Screen-Shot-2019-07-30-at-06.55.12-610x546.png 610w, https://brazilian.report/wp-content/uploads/2019/07/Screen-Shot-2019-07-30-at-06.55.12.png 1594w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure> <hr class="wp-block-separator"/> <h2>Despite slow economy, taxes break record</h2> Though Brazil’s economy remains sluggish, the country’s tax burden reached the historic peak of 35% of GDP in 2018—or BRL 2.39tr. In Latin America, only socialist Cuba has a higher tax bill. On average, each Brazilian resident contributed BRL 11,949 in tax last year, some 12 times the minimum wage. This means that Brazilians must work for 128 days just to pay their dues to the government. No wonder the country’s tax authorities are nicknamed “the lion,” due to its ferocious pursuit of tax dodgers. Why it matters. Taxation is very unequal in Brazil—being more concentrated on consumption rather than income. As consumption taxes have the same nominal impact on everyone, it takes a heavier toll on those with lower incomes. Also, a significant part of wealthy Brazilians’ income originates from dividends, which are not taxed at all. Congress. Following the approval of the pension reform in the House—a second roll call vote is scheduled for next week—Congress aims at passing a tax reform. But if overhauling pensions were hard, changing the current tax system will be even harder. It will place states and municipalities at odds with the federal government. <hr class="wp-block-separator"/> <h2>Also noteworthy</h2> Bolsonaro. On the same day he belittled the assassination of the Wajãpi leader, the president joked about political killings during the dictatorship. When criticizing the Brazilian bar association (OAB), he said: “If the OAB chairman wants to know how his dad died during the military period, I’ll tell him.” Fernando Santa Cruz, father of OAB chairman Felipe Santa Cruz, disappeared after being arrested by the government’s political police. The president’s “joke” sparked outrage,  even among allies of the administration. Firings. Itáu, Brazil’s largest private bank, announced a voluntary redundancy program—but without informing how many positions it expects to close. The move runs in line with the bank’s transition to a more digital outlook, with 212 branches being closed this year alone. Itaú’s profits rose 10% in Q2 2019—less than its competitors, due to its elevated costs on personnel (around BRL 5.5bn—which includes severance packages and labor lawsuits). Avianca. Three of the five members of a bankruptcy court in São Paulo have voted in favor of declaring airline Avianca Brasil bankrupt. The company had been in court-supervised recovery since December 2018 and was grounded by regulators due to plane safety issues. Once Brazil’s 4th-largest carrier, Avianca has accumulated over BRL 3bn in debt. The trial is set to end on August 27, in which might very well be the final chapter of the company. WTO. India has moved to veto a Brazilian nominee to preside over a committee to negotiate fishing subsidies. The Asian country is disgruntled with Brazil’s decision to waive differential treatment for developing countries following a request from the White House. India fears other developing nations will be forced to do so. The Brazilian government, however, claims its special status has never helped to improve trade.

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