The Supreme Court is gearing up … for war?

. Aug 16, 2019
Brazil's Supreme Court prepares for violence. In 2013, demonstrators threw molotov cocktails at the Foreign Affairs Ministry Brazil's Supreme Court prepares for violence. In 2013, demonstrators threw molotov cocktails at the Foreign Affairs Ministry

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Good morning! The end of Mercosur? The Brazilian Supreme Court preparing for … war? The flight of foreign investors from the Brazilian market. The latest political challenge before Jair Bolsonaro. Enjoy your read! (This newsletter is for platinum subscribers only. Become one now!)

Brazil’s Supreme Court is gearing up … for war?

“Si vis pacem, para bellum” (If you want peace, prepare for war). The Brazilian Supreme Court seems to have followed the adage to the letter.

In August, the court launched a procurement process for anti-riot kits—which include 15 sets of body armor. &#8220;[The armor must protect one] against strong impacts [&#8230;] caused by materials such as rocks, bricks, and sharp objects.&#8221; Oh, and the gear must come with flame-resistant material, in the case of a molotov cocktail attack.</p> <p><strong>Why it matters.</strong> The move illustrates just how much polarized Brazil has become. On social media, calls for demonstrations against the court are frequent. Last year, Congressman Eduardo Bolsonaro (who is now set to be named ambassador to the U.S.) said it would take only a private and a corporal to shut down the court. While many observers dismissed that as bravado, the court shows it is taking threats seriously.</p> <p><strong>Not only gear.</strong> More than buying anti-riot gear, the Supreme Court is also investing in its investigative powers (the court is the only jurisdiction allowed to prosecute and trial politicians who commit crimes related to their office), shopping for digital forensic equipment. Earlier this year, the court opened an investigation into attacks on social media against its members.</p> <p><strong>Zeitgeist.</strong> In times past, the Supreme Court discussed principles such as &#8220;self-restraint.&#8221; This has now changed to &#8220;self-defense.&#8221;</p> <hr class="wp-block-separator"/> <h2>The end of Mercosur as we know it?</h2> <p>Following President Jair Bolsonaro&#8217;s attacks against the Kirchnerist candidate in Argentina&#8217;s presidential election, it was time for Economy Minister Paulo Guedes to <a href="">make his own threat</a>. If the leftist opposition wins and starts using protectionist measures to close down its economy, said Mr. Guedes, Brazil will pull out of the Mercosur trade bloc. He is worried the Alberto Fernández-Cristina Kirchner ticket (which is close to a victory in October) might jeopardize the Mercosur-EU deal, recently signed after 20 years of negotiations.</p> <p><strong>Why it matters.</strong> Since its inception, Mercosur has failed to be a true free trade zone, which is unlikely to change any time soon. The problem is that, according to the bloc&#8217;s rules, no country can sign trade deals without the remaining members getting onboard. Upon Jair Bolsonaro&#8217;s election, Mr. Guedes said that &#8220;Mercosur was not a priority&#8221; for this administration.</p> <p><strong>Glass half full.</strong> Some government officials believe that Mr. Fernández will be a pragmatist, should his win be confirmed. This despite his VP nominee, former President Cristina Kirchner, saying that the trade deal with the EU would be a &#8220;death blow&#8221; to Argentina&#8217;s industrial sector. Analysts believe this is more election rhetoric than an actual intention to boycott the deal.&nbsp;</p> <script src="" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <h2>Foreign investors leaving Brazil</h2> <p>As fears of a global recession grow, investors flee emerging, volatile markets. That movement is clear when looking to Brazil. Foreign investors have already pulled around BRL 17bn in investments from Brazil this year. The trend is not only observed in the stock market. Currency flows show that the net amount of foreign currencies injected in Brazil is negative USD 2bn this year (at the same time in 2018, the net amount was a positive USD 28bn).</p> <div class="flourish-embed" data-src="visualisation/599441"></div><script src=""></script> <p><strong>Why it matters.</strong> The worsening global scenario could lead the Central Bank to rethink further cuts to the benchmark interest rate—currently at 6%. Economists say if the world economy continues to slow down, that could add pressure to the Brazilian currency. This week, the Central Bank announced the sale of part of its international reserves on the spot market to tame the U.S. Dollar—the first time it has done so since the 2009 crisis.</p> <p><strong>Guedes.</strong> In an event with investors, Economy Minister Paulo Guedes tried to show optimism. However, all indicators show that the possibility of a technical recession is very real. Moreover, the government&#8217;s radical budget freezes risk forcing a shutdown of several areas in the federal administration.</p> <ul><li><strong><em>Go deeper:</em></strong><em> </em><a href=""><em>Why is Brazilian Central Bank selling dollars after ten years?</em></a></li></ul> <hr class="wp-block-separator"/> <h2>What else you should know today</h2> <p><strong>Division.</strong> Congress&#8217; approval of a bill to punish excesses committed by prosecutors and investigators could divide the government&#8217;s already cracked support base. President Bolsonaro has two options, neither of them appealing. He can veto the bill, which would make his supporters happy but could trigger a revolt in Congress. Or he could sanction the bill, risking a loss of support.</p> <p><strong>Corruption.</strong> Contents of testimony made by Antonio Palocci, Lula&#8217;s former Finance Minister, were leaked to the press. Mr. Palocci struck a plea deal with the Federal Police, after serving two years in jail for corruption and money laundering. He mentioned numerous illicit deals with private companies, with bribes to the Workers&#8217; Party reaching over BRL 333m between 2002 and 2014. The party says Mr. Palocci has no credibility.</p> <p><strong>Cyberattack. </strong>Hackers tried to break into the system of Caixa, Brazil&#8217;s largest entirely government-owned bank. Caixa manages the payment of social benefits, such as Bolsa Família, and the FGTS severance fund (which every formal worker is entitled to). To avoid a breach, the bank shut down the system containing customers&#8217; private data.</p> <p><strong>Telecom.</strong> Oi&#8217;s financial situation has continued to deteriorate and a possible intervention by regulators is on the horizon. Under court-supervised recovery since 2017, Oi has consistently overspent in recent months, which could jeopardize the company&#8217;s viability as soon as next year. That could leave tens of millions of people without fixed-telephony services.</p> <p><strong>Amazon.</strong> Norway announced it will freeze BRL 133m destined to finance projects to curb deforestation in the rainforest. The Nordic country follows Germany, which also stopped sending money to the Amazon Fund—created in 2008. Together, the two countries account for 90% of the fund&#8217;s resources. In response, President Jair Bolsonaro chose sarcasm: &#8220;Norway, you mean [the country] that kills whales and drills oil in the North Pole?&#8221;</p> <p><strong>Terrorism.</strong> Mohamed Ahmed Elsayed Ahmed Ibrahim, an Egyptian man accused by the FBI of being a member of Al-Qaeda, has reported to the Federal Police office at Guarulhos International Airport, in São Paulo. He challenged U.S. authorities to present any evidence linking him to the terrorist organization.

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