The state of Brazil’s public finances

. Jan 30, 2020
deficit paulo guedes brazil Economy Minister Paulo Guedes had promised to end the budget deficit within one year. Photo: Marcos Corrêa/PR

The smaller (but still big) public deficit in Brazil. The latest court development in the case that culminated in Dilma Rousseff’s impeachment. An update of the coronavirus situation in Brazil.

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Brazil’s deficit smaller but far from ideal

The Brazilian government

published its financial results for 2019, posting the best results in six years. Still, the budget deficit was at BRL 95 billion—or 1.31 percent of the GDP. There is little chance that Brazil&#8217;s public accounts will get back to black before 2022.</p> <div class="flourish-embed" data-src="visualisation/1302427"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <div class="flourish-embed" data-src="visualisation/1302108"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Silver lining.</strong> The 2019 deficit was significantly lower than the government&#8217;s BRL 139-billion target, showing signs of the country&#8217;s commitment to tame its debt.</p> <p><strong>Why it matters.</strong> Brazil&#8217;s public <a href="https://brazilian.report/power/2020/01/28/brazilian-politicians-debt-federal-government/">debt</a> soared to BRL 4.2 trillion (USD 992 million) in 2019, the highest ever recorded. Budget surpluses are important because they allow the government to reduce indebtment levels—freeing up space for more investments.</p> <p><strong>Bottom line.</strong> Before taking office, Economy Minister Paulo Guedes promised to end the budget deficit within one year. But, as market analyst Ilan Arbetman points out, &#8220;the deficit remains as a structural matter.&#8221; During an event with investors, former Central Bank President Armínio Fraga called the Brazilian state &#8220;fat, broken, and inefficient.&#8221;</p> <p><strong>Half-empty.</strong> Pensions ate up 8.6 percent of the GDP, or almost half of the government&#8217;s spending. Moreover, the pension system deficit sat at BRL 317 billion, considering both civil servants&#8217; pensions and private workers&#8217; benefits. Meanwhile, so-called &#8220;non-mandatory&#8221; expenses, which include investments, have fallen to 2010 levels.</p> <p><strong>Noteworthy.</strong> Federal revenue grew 6.1 percent in 2019, to BRL 1.66 trillion. Dividends paid by state-owned companies played an important role, as did privatization programs. Mr. Arbetman points out that “the money from the <a href="https://brazilian.report/business/2019/11/06/world-biggest-oil-auction-flops-leaving-brazil-hot-water/">Transfer of Rights oil reserves auction</a> provided short-term relief, but exposed the struggles between the federal administration and states and municipalities [on how to share the revenue].&#8221;</p> <p>—<em>with Natália Scalzaretto</em></p> <hr class="wp-block-separator"/> <h2>Former Finance Minister off the hook in &#8220;fiscal pedaling&#8221; case</h2> <p>A federal court has <a href="https://vortex.media/justica/30090/apos-dilma-ex-ministro-guido-mantega-se-livra-de-processo-por-pedaladas/">voided a criminal case</a> against former Finance Minister Guido Mantega, as defendants over 70 years old—as is Mr. Mantega&#8217;s case—have their statute of limitations cut in half. Alongside former President Dilma Rousseff, former National Development Bank President Luciano Coutinho, former Banco do Brasil Chair Aldemir Bendine, and two former top executives at the Treasury Department, Mr. Mantega was accused of crimes against public finances for having doctored the federal budget to conceal the public deficit before the 2014 election.</p> <p><strong>Context.</strong> Ms. Rousseff, along with some of her most-trusted aides, was accused of using illegal credit maneuvers between public banks and the federal government. She used state-owned banks to front funds required for paying general government obligations without officially declaring a loan, thus hiding these transfers from public scrutiny.</p> <p><strong>Why it matters.</strong> The case, known is Brazil&#8217;s as &#8220;fiscal pedaling,&#8221; culminated in Ms. Rousseff&#8217;s impeachment in 2016. Fiscal pedaling under Ms. Rousseff was 35 times bigger than during all previous administrations combined.</p> <div class="flourish-embed" data-src="visualisation/1305498"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Trial. </strong>Mr. Mantega became the third person to escape prosecution thanks to their age, after Ms. Rousseff and Mr. Coutinho, who were over 70 when the prosecution presented its charges. The case resumes against four other defendants.</p> <p><strong>To monitor.</strong> Ms. Rousseff, Mr. Mantega, and other former government officials continue to face a case of misconduct in office in relation to the &#8220;fiscal pedaling.&#8221; If convicted, they can temporarily lose their political rights and have to pay hefty fines to be decided by courts.</p> <hr class="wp-block-separator"/> <h2>Coronavirus: suspected cases rise to 9</h2> <p>The Health Ministry has raised the number of suspected coronavirus infections in Brazil to nine. Patients are located in six different states: São Paulo (3), Santa Catarina (2), Minas Gerais, Rio de Janeiro, Paraná, and Ceará (1 each). Meanwhile, the World Health Organization is set to reconvene its emergency committee to decide whether or not to declare a global emergency.</p> <p><strong>Why it matters.</strong> In previous years, Brazil was spared from the outbreaks of similar viruses SARS and MERS, but the coronavirus seems to be more contagious—and the fact that Brazil&#8217;s population is overly concentrated in few urban centers creates an added risk factor.</p> <div class="flourish-embed" data-src="visualisation/1303394"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Pandemic?</strong> In a press conference, University of Hong Kong&#8217;s Gabriel Leung said that without “substantial, draconian measures limiting population mobility” epidemics outside China “may become inevitable.”</p> <p><strong>Yes, but … </strong>Summer plays into Brazil&#8217;s favor. &#8220;Respiratory infections are more easily transmitted in cold weather. Brazil&#8217;s current high temperatures create an inhospitable environment for the coronavirus,&#8221; explained infectious disease expert Rosana Richtmann, speaking to our <em>Explaining Brazil</em> podcast.</p> <p><strong>Risks.</strong> So far, the <a href="https://brazilian.report/newsletters/brazil-daily/2020/01/28/brazilian-markets-suffer-coronavirus-frenzy/">risks for Brazil are mainly economical</a>. &#8220;[Coronavirus] is likely to cause some disruption to growth in China, and globally,&#8221; said U.S. Federal Reserve Chair Jerome Powell. China is, of course, Brazil&#8217;s main trading partner, and any disturbance with the Asian giant has major repercussions here.</p> <div id="buzzsprout-player-2608606"></div> <script src="https://www.buzzsprout.com/299876/2608606-93-coronavirus-the-real-risks-for-brazil.js?container_id=buzzsprout-player-2608606&amp;player=small" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <p><strong>Tourism. </strong>Rio de Janeiro has hosted more tourists in January 2020 than in the same month of last year. Hotel occupancy rates are at 82 percent, against 79 percent a year ago. On Airbnb, the five most sought-after Brazilian neighborhoods are all in Rio. Sector experts say the bump is linked to a drop in the number of murders—as <a href="https://brazilian.report/tourism/2017/11/13/tourists-brazil-crisis/">violence has always been a major deterrent for tourism</a>.</p> <p><strong>Crisis.</strong> On Friday, the São Paulo city council will publish its first-ever Street Population Census, an attempt to map the city&#8217;s homeless population. Some figures have already been made available. Between 2015 and 2019, the number of people living on the streets of Brazil&#8217;s biggest metropolis jumped 60 percent, to 24,300 people. In that same span, unemployment in the city rose from 13.2 to 16.6 percent. The São Paulo street population is mostly black or mixed-race (46%) and between 31 and 49 years old (46%).</p> <p><strong>Immoral. </strong>When news broke that the president&#8217;s Deputy Chief of Staff Vicente Santini used an Air Force plane to travel to Switzerland and India—while cabinet members took charter flights—Jair Bolsonaro called the act &#8220;immoral&#8221; and announced Mr. Santini&#8217;s firing. However, almost immediately, the president&#8217;s two eldest sons—Senator Flavio and Congressman Eduardo Bolsonaro—intervened on behalf of Mr. Santini, who is a close friend of theirs. The former Deputy Chief of Staff quickly got a new job at the presidential palace—earning just BRL 382 (USD 90) less per month than before. (<em><strong>UPDATE: </strong></em>After only 12 hours, Jair Bolsonaro announced this morning that he had canceled the re-hiring of Vicente Santini. The decision was published on Thursday&#8217;s edition of the Federal Register.)</p> <p><strong>Culture.</strong> After almost two weeks of dramatic suspense, actress Regina Duarte has finally confirmed she will take office as Brazil&#8217;s new Culture Secretary. Ms. Duarte replaces Roberto Alvim, who was fired after posting a video with Nazi aesthetics—and <a href="https://brazilian.report/power/2020/01/17/brazilian-culture-secretary-roberto-alvim-goebbels-nazi/">paraphrasing Hitler&#8217;s Propaganda Minister Joseph Goebbels</a>.</p> <p><strong>Human rights.</strong> In 2019, 124 murders of transgender people were recorded in Brazil, according to a study by the National Travesti and Transgender Association (Antra). While the number shows a 24-percent reduction from 2018, Brazil remains the deadliest country in the world for these groups—a position it has had since 2008, according to NGO Transgender Europe.

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