The latest scandal in Bolsonaro’s cabinet

. Jan 16, 2020
scandal Press Secretary Fabio Wajngarten. Photo: Isac Nóbrega/PR Press Secretary Fabio Wajngarten. Photo: Isac Nóbrega/PR

Good morning! We’re analyzing today the latest scandal in Jair Bolsonaro’s cabinet. The imminent departure from Brazil of China’s biggest private conglomerate. And how inflation hits different social classes differently. (This newsletter is for premium subscribers only. Become one now!)

Latest scandal could topple Bolsonaro’s press secretary

President Jair Bolsonaro is reportedly

mulling over whether to fire press secretary Fabio Wajngarten after newspaper <em>Folha de S.Paulo</em> revealed he takes money from the TV stations and ad agencies that have contracts with the federal government.&nbsp;</p> <p><strong>The case, explained.</strong> Mr. Wajngarten owns 95 percent of shares in a company that offers media consulting services, with his mother owning the remaining 5 percent. At least five of his clients are outlets which depend on his office as press secretary to get ad money from governmental agencies—in 2019, the government spent BRL 197 million in ads.&nbsp;</p> <p>Mr. Wajngarten denied any wrongdoing and accused the press of publishing falsehoods about him.</p> <p><strong>Why it matters.</strong> Since 2013, Brazil has a law explicitly prohibiting conflicts of interest by government officials. Moreover, the Bolsonaro administration has been accused of using ad money to try and squeeze media outlets into supporting the government.&nbsp;</p> <div class="flourish-embed" data-src="visualisation/913629"></div><script src=""></script> <p>TV stations such as Record and SBT, which draw much smaller audiences than TV Globo—but have been more docile and open to government propaganda—are receiving a bigger share of the government&#8217;s budget for ads.</p> <p><strong>Investigation.</strong> The presidency&#8217;s Ethics Committee will analyze the case in a meeting scheduled for January 28. The board can only recommend punishment, but has no power to enforce it. Meanwhile, federal prosecutors at the Federal Accounts Court say they will file a complaint to force the government to observe audience criteria in ad spending.</p> <hr class="wp-block-separator"/> <h2>Chinese company bailing on Brazil</h2> <p>Large-cap Chinese group Fosun International has put its Brazilian assets—investment platform Guide and asset management firm Rio Bravo—up for sale. Known for its flashy acquisitions, Fosun arrived in Brazil four years ago showing a great appetite for investing in multiple areas, from mining to tourism.</p> <p><strong>Strategy.</strong> Sources familiar with Fosun told <strong>The Brazilian Report</strong> the company needs cash quickly, after major investments—such as <a href="">European tourism company Thomas Cook</a>—flopped. It wants to capitalize on the momentum for Brazilian asset management firms created by the <a href="">initial public offering of XP Investimentos</a> at Nasdaq. Yesterday, Suno Research broke that investment bank BTG Pactual is interested in the assets.</p> <figure class="wp-block-image"><img src="" alt="fosun china" class="wp-image-30305" srcset=" 1000w, 300w, 768w, 610w" sizes="(max-width: 1000px) 100vw, 1000px" /></figure> <p><strong>Why it matters.</strong> Most Chinese investors in Brazil are state-run. But Fosun is China&#8217;s biggest private conglomerate. Upon its arrival, the mega investor used to be called Asia&#8217;s Berkshire—a nod to Warren Buffett&#8217;s Berkshire Hathaway.</p> <p><strong>Not all that glitters is gold.</strong> As <a href="">pointed out</a> by <em>The Economist</em>, similarities between Fosun and Berkshire are superficial. The latter has been able to finance most investments with cash flow from its operations—while the Chinese firm has been overly reliant on debt.</p> <hr class="wp-block-separator"/> <h2>2019 inflation hit the poor the hardest</h2> <p>Recent food price hikes in December (4.69 percent) were responsible for making <a href="">inflation rates</a> harsher on poor families, according to a <a href="">study</a> by Brazil&#8217;s Institute of Applied Economic Research. Among families with revenue of up to BRL 1,643 (USD 393.66) per month, prices rose 1.19 percent last month—while overall inflation was of only 0.99 percent for those with monthly earnings above BRL 16,442.</p> <p><strong>Why it matters.</strong> Over the past two years, lower-income families have been hit the hardest by <a href="">inflation rates</a>—which makes their already reduced purchasing power even lower.</p> <p><strong>Different kinds of basket.</strong> For poorer families, the main products with weight on the inflation rate were: food and beverages (7.8%), electricity (5%), and bus fares (6.6%). For richer families, that basket of goods was made up of fuels (5.2%), private healthcare plans (8.2%), and school fees (5%).</p> <div class="flourish-embed" data-src="visualisation/1238523"></div><script src=""></script> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <p><strong>Justice. </strong>Supreme Court Chief Justice Dias Toffoli has postponed for six months the implementation of the so-called &#8220;<a href="">guarantees judge</a>&#8220;—a judge who will act in the pre-procedural phase to ensure that the acts of the police and prosecutors during investigations comply with Brazilian laws. This new type of judge was supposed to be implemented on January 23. The chief justice also decided that the creation of the &#8220;guarantees judge&#8221; will not happen in cases that are already underway, nor (at least for now) in cases under the jurisdiction of superior courts.</p> <p><strong>Industry. </strong>A study by the National Confederation of Commerce gives the dimension of how much the Brazilian industrial sector shrunk during the 2014-2016 recession (the worst on record): an average of 17 factories closed every day between 2015 and 2018. Despite projections of a 2-percent growth for the manufacturing sector in 2020, experts say there is little chance it will spur the opening of new factories.</p> <p><strong>Corruption.</strong> According to news website <em>Crusoé</em>, a former executive of Banco Paulista says the bank paid roughly BRL 20 million in bribes to Central Bank executives between 2008 and 2015, to speed up processes for importing cash from Paraguay. The information was given during statements that are part of the executive&#8217;s plea bargain deal with the Federal Police, and was accepted by Operation Car Wash judges last Friday.</p> <p><strong>Olympics.</strong> Less than four years after Rio hosted the Olympic Games, the city&#8217;s Olympic Park was closed by authorities—who claim the venues cannot be used due to a lack of licenses, such as a safety license from the fire brigade, and an occupancy license from the city government.</p> <p><strong>Luxury.</strong> Launched today, the Global Wealth and Lifestyle Report 2020 shows that Rio de Janeiro is the most expensive place in Brazil for buying luxury items such as jewelry, women&#8217;s purses, watches, whiskey, and wine—mainly due to taxes of up to 300 percent. However, Rio is cheaper than other urban centers when it comes to weddings (which cost an average of USD 38,200—against New York&#8217;s USD 218,000), and being fit (gym subscriptions and personal trainer fees included).

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