The Maia game for 2022

. Nov 20, 2019
Brazilian House Speaker Rodrigo Maia Brazilian House Speaker Rodrigo Maia. Photo: Marcelo Camargo/ABr

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Good morning! We’re covering the latest move by Speaker Rodrigo Maia on Brazil’s political chessboard. Another important trial in the Supreme Court. And the hiccups with the Brazilian currency. (This newsletter is for platinum subscribers only. Become one now!)

The Maia game for 2022

Flanked by what has been

known as the &#8220;modern wing&#8221; of Congress, House Speaker Rodrigo Maia launched his own anti-poverty agenda on Tuesday. The set of proposals has five fundamental axes, aimed at curbing the rise of poverty levels—but &#8220;within the limits of what the federal budget allows.&#8221; Here are the pillars of the project:</p> <ul><li>Raises to Bolsa Família payments, including an extra stipend for kids up to 6 years old, based on recommendations from the World Bank;</li><li>Allowing people to access their compulsory severance fund—as long as they keep at least the equivalent of 12 times the minimum wage;</li><li>Universalization of basic sanitation services, which only reach half of the population;</li><li>Subsidized loans to an endowment fund for low-income families who want to open their own businesses—even if informally;</li><li>Incentives for states and municipalities that lower poverty rates.</li></ul> <p><strong>Agenda-setting.</strong> &#8220;I consider this project as essential as the structural reforms,&#8221; said Mr. Maia. That is an important statement, considering that, as the speaker, he controls the agenda of votes in the House.</p> <p><strong>U-turn.</strong> During a 2018 roadshow through the U.S. East coast, Mr. Maia said that the Bolsa Família program “turns people into slaves.”</p> <p><strong>Why it matters.</strong> The Jair Bolsonaro government is being perceived—by allies, included—as not giving enough importance to social programs that could reduce inequality levels. By taking that initiative on his own, Speaker Maia hopes to set himself apart and become a leading voice among the moderate right.</p> <p><strong>2022?</strong> When asked by reporters if the anti-poverty project makes him as a viable presidential candidate in 2022, Rodrigo Maia simply smirked.</p> <p><strong>Yes, but …</strong> Mr. Maia is certainly one of the <a href="">biggest power brokers</a> in Brazilian politics today. However, his popularity ends as soon as he leaves parliament. In 2018, he was re-elected as representative for Rio de Janeiro after receiving only 75,000 votes—less than one percent of the total vote share.</p> <p><strong>Meanwhile … </strong>President Jair Bolsonaro promised a <a href="">13th monthly payment</a> of cash transfer program Bolsa Família. However, economic analysts in Congress say the program&#8217;s budget is BRL 759 million short. Unless the government reshuffles the federal budget, 4 million people could end up not receiving the money. The announcement of a Christmas bonus to Bolsa Familia was a strategy to improve the president&#8217;s approval ratings in the Northeast—which remains a stronghold of the Workers&#8217; Party—but the move could backfire.</p> <hr class="wp-block-separator"/> <h2>The cost of protecting the president&#8217;s son</h2> <p>The Supreme Court will begin a trial today to decide whether financial institutions are allowed to flag suspicious transactions to law enforcement prior to receiving a court order.&nbsp;</p> <p><strong>Context. </strong>The question was raised after Senator Flávio Bolsonaro, the president&#8217;s eldest son, was placed under investigation after anti-money laundering authorities found &#8220;atypical transactions&#8221; which are &#8220;consistent&#8221; with money laundering schemes. Mr. Bolsonaro claims that his banking secrecy was broken. However, such red flags are internationally accepted as the starting point of investigations—without them, law enforcement would have no means to map shady transactions.</p> <p><strong>Why it matters.</strong> If the ruling goes Mr. Bolsonaro&#8217;s way, the Supreme Court would <a href="">roll back years of anti-corruption efforts</a>. Brazil could distance itself from international standards, which would affect international financial cooperation deals with foreign nations.</p> <p><strong>Implications.</strong> The Federal Prosecution Office asked the Supreme Court to continue to allow anti-money laundering authorities to flag suspicious transactions. It listed possible setbacks:</p> <ul><li>Obstacles to getting international credit for infrastructure projects;</li><li>Restrictions on Brazilian financial institutions in international deals;</li><li>A possible downgrading of Brazil&#8217;s risk level by rating agencies;</li><li>More hardships for Brazilian exporters in international transactions.</li></ul> <hr class="wp-block-separator"/> <h2>What is going on with the Brazilian currency?</h2> <p>The USD-BRL currency exchange rate continues to break nominal records. On Tuesday, the rate closed at USD 1: BRL 4.2180, raising speculation about a possible intervention of the Central Bank. But Roberto Campos Neto, the bank&#8217;s chairman, told Congress that will only be the case if a drop of the Brazilian currency impacts inflation rates—which hasn&#8217;t been the case &#8220;thanks&#8221; to a sluggish economy, weak in demand.</p> <p><strong>Why it matters.</strong> 2019 hasn&#8217;t been kind to emerging currencies—and the Brazilian Real is among the worst-performing examples around the world.</p> <div class="flourish-embed" data-src="visualisation/960816"></div><script src=""></script> <p><strong>Diagnosis.</strong> Mr. Campos Neto says the problem lies in the flopped November 6 oil auction. It was expected to be &#8220;the biggest oil auction on earth,&#8221; but raised only two-thirds of the funds forecast, and 90 percent of the money came from Petrobras—with international competitors staying away from the tender. &#8220;With a lower inflow of dollars, we see agents reassessing their positions,&#8221; said Mr. Campos Neto.</p> <p><strong>Not the worst.</strong> Discounting for inflation, the current exchange rate doesn’t come anywhere near the hikes we observed in September 2002, when Luiz Inácio Lula da Silva was on the cusp of a first presidential win. In today&#8217;s values, the exchange rate back then was north of USD 1: BRL 10.00.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <p><strong>Earnings. </strong>Consultancy Economática showed that Brazil&#8217;s 309 Brazilian listed companies registered combined Q3 profits of BRL 59.7 billion. That is a 10.6-percent hike from one year ago. Banking remains the country&#8217;s most profitable sector (BRL 21.6 billion), while Petrobras, Brazil&#8217;s state-controlled oil and gas firm, was the most profitable company (BRL 9 billion). Pulp and paper producer Suzano registered the biggest losses in Q3—pressured by high cellulose stocks and weak demand from China.</p> <p><strong>Embassy.</strong> The U.S. government green-lit the nomination of diplomat Nestor Forster as the Brazilian ambassador to Washington D.C. Mr. Forster had been in charge of the embassy on an interim basis since June, and was chosen when Brazil&#8217;s Congress decided against appointing Eduardo Bolsonaro, the president&#8217;s own son, to the job. With the go-ahead from the White House, the government now can formally name Mr. Forster—who must be confirmed by the Senate.</p> <p><strong>Bolsonaro.</strong> President Bolsonaro signed his formal disaffiliation from the Social Liberal Party, in which he was followed by his eldest son, Senator Flávio Bolsonaro. The plan now is to create their own far-right party—but the electoral calendar could pose a problem. To be on the ballot come the 2020 municipal elections, Mr. Bolsonaro&#8217;s party would have to be created by April—which would require the president breaking all speed records in the creation of his new political group. And his former party has already promised to challenge the party&#8217;s creation every step of the way in court, to make sure that won&#8217;t be possible.</p> <p><strong>Security.</strong> House Speaker Rodrigo Maia said he intends to schedule a vote on the so-called &#8220;<a href="">anti-crime bill</a>&#8221; next week. The project was submitted over seven months ago by Justice Minister Sergio Moro and has since been heavily watered down.</p> <p><strong>Racism.</strong> Today is Black Consciousness Day in Brazil, a holiday in over 800 municipalities. Despite undeniable improvements in recent decades, the color of a person&#8217;s skin remains a determining factor for their future. In nearly every single indicator, black Brazilians have worse living conditions. Data published yesterday by the government showed that, in Q3 2019, unemployment only rose among blacks.

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