Budget changes give Congress rule of the roost

. Feb 12, 2020
Congress to get unprecedented powers over Brazil's budget House Speaker Rodrigo Maia (front, center) opens the legislative year. Photo: Geraldo Magela/Ag.Senado

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We’re covering Congress gets more budget control in latest win over the Bolsonaro administration. The new (yet empty) Amazon Council. And the possibility for improved relations between Brazil and Argentina.

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Congress to get unprecedented powers over Brazil’s budget

Brazilian lawmakers are set to strike down a presidential veto today

—changing the rules of how the federal budget is executed. Members of Congress will give themselves powers to dictate the order of priority for carrying out parliamentary grants. These are provisions in the Constitution that prevent the Executive branch from having monopoly control over the federal budget. Legislators may allocate parts of the budget to projects of their interest—usually infrastructure or healthcare ventures in their constituencies.</p> <p><strong>Losing the whip? </strong>Until today, the sitting government decided when these grants would be granted and to whom. That power turned the grants into a bargaining chip administrations used to whip votes for approving bills of their interest.</p> <p><strong>Why it matters. </strong>The change drastically reduces the <a href="https://brazilian.report/newsletters/brazil-weekly/2019/07/13/budget-legislation-passed-brazil-congress/">government&#8217;s control over the budget</a> and grants Congress unprecedented powers. But it was only possible because the current administration has no presidential coalition to back up its interests.</p> <p><strong>Give and take.</strong> In exchange for its enhanced control over budgetary grants, Congress agreed to slash a provision forcing the government to execute them within 90 days. It also reduced the total budget for these grants from BRL 46 to 35 billion—giving the administration an extra BRL 11 billion to work with.</p> <p><strong>Reforms.</strong> House Speaker Rodrigo Maia conditioned the approval of the tax and administrative reforms to this deal. While it is unlikely that Congress approves both this year, receiving these powers could spur some goodwill from lawmakers towards the government&#8217;s agenda. The administrative reform—which would overhaul public service in Brazil—will be a particularly tough nut to crack, especially after Economy Minister Paulo Guedes called federal servants &#8220;parasites of the state,&#8221; sparking outrage from one of the biggest lobbies in Brasília and even from the government&#8217;s allies.</p> <hr class="wp-block-separator"/> <h2>Amazon Council created—with no goals, deadlines … or funds</h2> <p>In January, President Jair Bolsonaro announced the creation of an &#8220;Amazon Council&#8221; and of special forces determined to &#8220;protect the rainforest.&#8221; Speaking at the World Economic Forum in Davos, Switzerland, Economy Minister Paulo Guedes presented the initiative as proof of the government&#8217;s awareness toward environmental issues. On Tuesday, the council was effectively created—but it still lacks a clear agenda.</p> <p><strong>Why it matters.</strong> Brazil has become a global pariah on environmental issues, and some international investment funds have already started to <a href="https://www.ft.com/content/6e8c91b6-e46a-11e9-b8e0-026e07cbe5b4">boycott the country</a> for its lack of concern for environmental, social, and governance (ESG) matters.</p> <p><strong>Not inclusive.</strong> A similar council had been created in the 1990s by former President Fernando Henrique Cardoso. It included governors of Amazon states, as well as members of civil society, such as experts and NGOs. President Bolsonaro, however, chose only to appoint 14 members of his cabinet for the council—to be led by Vice President Hamilton Mourão.</p> <p><strong>Threat.</strong> While it creates this Amazon Council, the government simultaneously sponsors a bill allowing mining activities in indigenous lands—called by federal prosecutors &#8220;a grave transgression of human rights.&#8221; Mr. Bolsonaro claims Brazil must capitalize on &#8220;this rich piece of land,&#8221; but <a href="https://brazilian.report/environment/2020/01/29/why-indigenous-lands-are-pivotal-against-climate-change/">indigenous reserves are pivotal for the preservation of the rainforest</a> and to contain the effects of climate change.</p> <hr class="wp-block-separator"/> <h2>Brazil hosts Argentina&#8217;s foreign minister, but rapprochement feels unlikely</h2> <p>Felipe Solá, Argentina&#8217;s foreign minister, is set to meet today with Brazilian government officials—including a 30-minute sitdown with President Bolsonaro at 3 pm. The visit comes after months of rising tensions between Mr. Bolsonaro and Argentina&#8217;s newly-empowered left-wing President Alberto Fernández.</p> <p><strong>Why it matters.</strong> Despite Argentina being Brazil&#8217;s third-largest trading partner, the Brazilian government wants to keep the country at arm&#8217;s length. The Fernández administration has positioned itself against the Mercosur-EU trade deal and is opposed to lowering Mercosur&#8217;s import tariffs. Unless there is a U-turn from Buenos Aires, relations are expected to remain cold.</p> <p><strong>Interdependent.</strong> It would be advisable for Buenos Aires and Brasília to remain close, as the most recent financial crisis across the Rio de la Plata has been felt hard by the Brazilian industry. In 2018, the Brazilian economy registered 1.1-percent growth—but that rate could have been of 1.3 percent, had Argentinian exports stayed constant in that year.</p> <p><strong>OECD.</strong> The Brazilian government considers rapprochement with Argentina as bad publicity. The neighboring country is trying to renegotiate its debt with the <a href="https://brazilian.report/latin-america/2020/02/05/argentina-plan-climb-out-debt-sinkhole-imf/">International Monetary Fund</a>, and could come close to default. Meanwhile, Brazil bids for a seat at the Organization for Economic Co-operation and Development (OECD)—which would be a sign to validate Brazil is employing suitable fiscal practices.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <p><strong>Trade.</strong> Brazil and Paraguay signed a free trade deal on cars and auto parts—making official an <a href="https://brazilian.report/newsletters/brazil-daily/2019/12/04/optimistic-brazil-gdp-numbers-industry/">agreement reached during the last Mercosur Summit</a>. Brazil will grant free tariffs for all automotive <a href="https://brazilian.report/latin-america/2019/09/28/paraguay-brazil-maquilas-foreign-investment/">products from Paraguay</a>—in turn, it gets immediate exemptions on goods currently under the 0-to-2-percent tariff band, until complete free trade by the end of 2022. Paraguay also agreed to revisit its policy of importing used cars—which will now follow Mercosur rules and take environmental issues into account.</p> <p><strong>Coronavirus. </strong>All 58 Brazilian nationals in quarantine—34 people who were in the Chinese city of Wuhan and the 24 military troops who rescued them—have tested negative for the novel coronavirus (now named Covid-19). The government cut the 18-day quarantine short and allowed the members of the Armed Forces and medical staff to return home to complete their period of isolation. Brazil is still investigating eight suspected cases of Covid-19—having discarded another 33—but remains free of the disease that has killed over 1,100 people, all but two in mainland China.</p> <p><strong>Investments.</strong> Brazil&#8217;s Securities Commission (CVM) reached a deal with investment research firm Empiricus to end a long judicial battle between both parties. Accused of misleading advertising by pushing <a href="https://brazilian.report/society/2019/05/10/get-rich-quick-culture-brazil/">get-rich-quick strategies</a> and offering investment tips by non-accredited market operators, Empiricus agreed to pay a BRL 4.25-million fine and properly license its analysts with the CVM. The company spurred a debate on misleading advertising after an ad campaign featuring a 22-year-old woman promising to reveal how she had made <a href="https://brazilian.report/business/2019/03/23/empiricus-bettina-misleading-ad/">BRL 1 million from an initial investment of just BRL 1,500</a>—thanks to Empiricus&#8217; advice. Of course, the real story was quite different than what was advertised.</p> <p><strong>Corruption.</strong> Inaugurated as Brazil&#8217;s new minister of Regional Development, Rogério Marinho will face trial for allegedly embezzling BRL 149,700 during his tenure as a council member of the city of Natal, the capital of Rio Grande do Norte state. According to prosecutors, between 2005 and 2006, Mr. Marinho pocketed part of the salaries of six dummy workers registered to his office. He denies any wrongdoing.

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