Brazil’s Central Bank nears independence

. Feb 19, 2020
Central Bank chairman Roberto Campos Neto Central Bank chairman Roberto Campos Neto. Photo: Raphael Ribeiro/BCB

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We’re covering today the bill to protect the Brazilian Central Bank from political interference. An exclusive interview with the head of Brazil’s telecoms watchdog. And a risky move that could put Jair Bolsonaro at odds with the Senate President. 

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Central Bank finally to be shielded from political interference?

The Senate’s Economic Affairs Committee passed a bill granting autonomy to the Central Bank. Here are the key points approved by senators:

</p> <ul><li>The bill establishes that the Central Bank chairman and its nine board members will have four-year terms, with the possibility of a second term. Their stints will not coincide with presidential terms, and will all end at staggered points to avoid having one administration controlling the entire board of directors;</li><li>The bill sets the bank&#8217;s goals as ensuring inflation control, softening the effects of fluctuations in economic activity levels, and protecting the solidity and efficiency of the financial system.</li></ul> <p><strong>Why it matters. </strong>The project aims at preventing the federal government from using monetary policy for political gain—and to the detriment of long-term effects on the economy. A recent example of this occurred in the Dilma Rousseff years, when the government strongarmed the bank to keep interest rates low, which made inflation balloon.&nbsp;&nbsp;</p> <p><strong>Importance.</strong> Central Bank chairman Roberto Campos Neto told lawmakers that legal autonomy will increase the bank&#8217;s ability to control inflation by 50 percent, reducing risks to the economy.&nbsp;</p> <p><strong>Yes, but … </strong>There is still some way to go before the bill becomes law. There is some discord between the two chambers of Congress, with the lower house believing a new bill, submitted by the federal government, should be approved instead. This would stall its progress, however there is much goodwill toward the proposal in Congress and there&#8217;s a chance it could go through before the second half of the year.&nbsp;</p> <p><em>— with Natália Scalzaretto</em></p> <hr class="wp-block-separator"/> <h2>3 questions to the head of Brazil&#8217;s telecoms watchdog</h2> <p><strong>The Brazilian Report</strong>&#8216;s Brasília correspondent Brenno Grillo sat down with Leonardo Euler de Morais, president of Brazil&#8217;s National Telecommunications Agency (Anatel). Here are the main takeaways from their conversation:</p> <p><strong>Anatel has recently triggered the process that will allow the auction of 5G frequencies. Do you have a timetable already?</strong></p> <blockquote class="wp-block-quote"><p>I believe it will take place between November and December this year, but there are several deadlines still to be met. The proposed invitation for bids will be open for public consultation for 45 days, postponable for an additional 15. Then, the agency will submit its final proposal, which must be analyzed by the Solicitor General&#8217;s office. With the final invitation for bids in hand, the hypothetical business plan—involving estimating the opportunity cost of the frequencies—will be drafted and submitted.</p></blockquote> <p><strong>Will China&#8217;s Huawei be allowed to bid without restrictions?</strong></p> <blockquote class="wp-block-quote"><p>Cybersecurity issues are beyond our remit. The president&#8217;s Institutional Security Department will address this matter.</p></blockquote> <p><strong>Brazilians are highly dissatisfied with telecom services. How can we improve them?</strong></p> <blockquote class="wp-block-quote"><p>Many measures are not in the regulators&#8217; control. There is a public fund that was supposed to finance the expansion of telephony networks—but governments have used it to generate fiscal surpluses. In the U.S., on the other hand, USD 8.5 billion was invested to expand infrastructure in less economically attractive areas. We are seeking options to impose investment obligations in more remote areas. Anatel has also replaced fines with investment commitments—pushing for an infrastructure update in the sector.</p></blockquote> <hr class="wp-block-separator"/> <h2>The risks of poking the wrong bear</h2> <p>Ultra-conservative bloggers directed their social media guns at Senate President Davi Alcolumbre. The blog <a href=";"><em>Terça Livre</em></a>, a notorious spreader of fake news, published a video of him dancing with another man (his father)—and questioning his sexuality.</p> <p><strong>Rupture?</strong> The attacks come after Mr. Alcolumbre defended new legislation limiting the president&#8217;s powers to pick Supreme Court justices. Moreover, <em>Terça Livre</em> has been adamantly faithful to President Jair Bolsonaro—its owner has direct links to Mr. Bolsonaro&#8217;s family and press advisors. His actions raised questions about whether the attack was in some way ordered or validated by the president.</p> <p><strong>Reaction.</strong> Mr. Alcolumbre was outraged by the remarks and promised to fight for legislation that punishes hate speech online.&nbsp;</p> <p><strong>Why it matters.</strong> While the president&#8217;s relationship with House Speaker Rodrigo Maia has been rocky at times, Davi Alcolumbre was nothing but a reliable ally during Jair Bolsonaro&#8217;s first year in office. Losing his support could be terrible for the economic agenda.</p> <p><strong>History.</strong> In 2019, the Senate President rejected an investigation hearings committee into the activities of Supreme Court justices. He also did not reject the idea of the president&#8217;s son Eduardo Bolsonaro being named ambassador to Washington D.C.—unlike most lawmakers who spoke about it—and has built bridges between the Senate and the government.</p> <p><strong>On the docket.</strong> This year, Mr. Alcolumbre&#8217;s support will continue to be important. Three proposals to amend the constitution presented by the government are currently pending before the Senate.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Guedes.</strong> Over the past few days, Economy Minister Paulo Guedes has given some politically disastrous statements. Last week he called public servants &#8220;parasites&#8221; and then welcomed the weakening of the Brazilian Real, saying that a strong currency meant that even &#8220;<a href="">domestic workers were going to Disneyland</a>.&#8221; But on Tuesday, the minister was publicly backed by President Bolsonaro, who said there is no way he could leave the administration. Despite Mr. Guedes&#8217; lack of political tact, he has become indispensable for the government to obtain investors&#8217; trust. </li><li><strong>Crime.</strong> President Bolsonaro once again talked about the death of crime boss Adriano de Nóbrega—<a href="">killed last week in an operation</a> by military police in the state of Bahia—calling for an &#8220;independent examination&#8221; into the cause of death. Mr. Bolsonaro and his eldest son, Senator Flávio Bolsonaro, have suggested that the police executed Mr. Nóbrega—who was a pivotal character in two criminal cases and had ties with the Bolsonaro family. Flávio Bolsonaro even tweeted an alleged video of Mr. Nóbrega&#8217;s autopsy yesterday, which, beyond being extremely graphic, was also labeled potentially false by the medical examiner&#8217;s office.</li><li><strong>Pessimism. </strong>After the Central Bank&#8217;s Focus Report showed slashed growth projections for 2020, as covered in yesterday&#8217;s <a href="">Daily Briefing</a>, another two financial institutions cut their estimates for GDP increases throughout this year. BNP Paribas reduced its projection from 2 percent to 1.5 percent, before Citibank dropped its estimates from 2.2 percent to 2 percent.</li><li><strong>Oil strike. </strong>As we move into the 19th day of a nationwide oil workers strike, an appellate labor court has ruled that state-owned oil and gas company Petrobras may not lay off the hundreds of employees from its subsidiary fertilizer plant in Paraná, which sparked the industrial action in the first place. Simultaneously, the Superior Labor Court ruled the strike illegal, meaning that with both court decisions, oil unions are likely to announce a return to work this week.</li><li><strong>Pension reform. </strong>With the federal pension reform finally approved last year after many comings and goings, Brazil&#8217;s states are now trying to pass their own social security overhauls as a means of balancing their books. São Paulo is likely to finally approve its reform today, after a preliminary vote on Tuesday evening. The bill had been stalled after an appellate judge issued an injunction ordering the process to be suspended, but this rule was recently overruled by the Supreme Court. São Paulo&#8217;s proposal involves the introduction of minimum retirement ages—62 for women and 65 for men—and an increase to the social security contribution rate. State governor João Doria hopes to save BRL 32 billion over ten years with the changes.

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