For how long can Brazilian small companies hold out against Covid-19?

. Mar 31, 2020
For how long can Brazilian small companies hold out against Covid-19? Store in Paraná. Photo: Arnaldo Alves/ANPr

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We’re covering today the difficult scenario for small and medium-sized companies. The government’s decision to suspend employment data. And the possible use of national security forces to avoid unrest in Brazil.

How long can Brazilian companies wait for normalcy?

A study among 245 publicly-listed Brazilian companies

showed that half of them could last for three months without revenue —&nbsp;while the other half could survive longer. With the cash saved and on hand, plus their accounts and financial investments, they would be able to pay suppliers, their payroll, and other operational costs.</p> <ul><li>But for small and medium-sized businesses, the outlook is grim. Most of them can withstand a downturn of business for about 27 days, on average. Besides having less of a cushion, these companies have less favorable conditions to obtain credit.</li></ul> <p><strong>Red flags.</strong> It&#8217;s not as if things were rosy before the coronavirus. Default rates among Brazilian companies have been rising for 11 straight months. In January, 6.2 million companies were behind on their dues, 94 percent of them were small or medium-sized. And there&#8217;s an additional problem: a third of their debts are not to banks, but to other companies —&nbsp;which creates a ripple effect on the economy.</p> <p><strong>Why it matters.</strong> Small companies account for 99 percent of all businesses in Brazil. They are responsible for one-quarter of the Brazilian GDP and employ 52 percent of the registered workforce.</p> <p><strong>What the government will do.</strong> On Friday, the Central Bank announced a credit line for companies that need help to keep paying their employees. The idea is to guarantee salaries for two months with cheap credit (mostly from the government) and long payment delays.</p> <p><strong>Yes, but … </strong>No timetable has been announced for the money to be released. Moreover, the measures announced have been criticized for not ensuring that the money will effectively get to the companies. Despite moves to improve bank liquidity, most financial institutions have played hardball with companies, foreseeing higher risk in releasing credit.</p> <hr class="wp-block-separator"/> <h2>Economy Ministry won&#8217;t release employment data</h2> <p>Brazil’s Economy Ministry <a href="https://static.poder360.com.br/2020/03/Nota-a-Imprensa_-Divulgacao-do-Caged.pdf">announced</a> on Monday it has suspended the disclosure of employment data for the time being. The General Register of Employed and Unemployed Persons (Caged) is a database updated monthly with information on all workers under formal employment contracts. Companies are obligated to inform the government about all of their regular workers — including information such as gender, age, ethnicity, role, salary, and paid leave — under the penalty of being fined.</p> <p><strong>What the government says.</strong> The official explanation is that 2.6 percent of companies haven&#8217;t provided enough data about layoffs, which would skew the numbers.</p> <p><strong>Why it matters.</strong> Caged is one of Brazil&#8217;s most reliable employment indicators. It is a sort of work census — while other indicators are based on samples — and without it, the country is stripped of a tool to know the true extent of the crisis we&#8217;re heading into.</p> <p><strong>Transparency.</strong> Some economists voiced their concerns about whether the government is deliberately concealing information that could be damaging to the administration. Last week, the U.S. Department of Labor reported a <a href="https://time.com/5809596/coronavirus-recession-jobs/">record 3.2 million people</a> applying for new unemployment benefits —&nbsp;which obliterated previous records of 1982 and 2009.</p> <hr class="wp-block-separator"/> <h2>National Security Force can be used against Covid-19</h2> <p>Justice Minister Sergio Moro signed an ordinance on Monday allowing for the use of the National Security Force to support the Health Ministry&#8217;s efforts to contain Covid-19 in Brazil. The permission runs at least through May 28.</p> <p><strong>What the ordinance says.</strong> Mr. Moro&#8217;s decision says the National Security Force can be used to help healthcare professionals perform their duties, ensure that medical supplies are effectively distributed, and help with sanitary controls in ports and airports. Moreover, it talks about possible &#8220;patrolling to avoid looting and vandalism&#8221; and using troops to enforce mandatory quarantine measures.</p> <ul><li>The decree says all actions must be coordinated with state governments.</li></ul> <p><strong>Why it matters.</strong> President Jair Bolsonaro has already shown concerns for the possibility of social unrest and looting in urban centers if the economy grinds to a halt and people are deprived of basic necessities.</p> <p><strong>Alert.</strong> Military officers in the federal government are equally unsettled by this possibility. Some intelligence briefs predict that, should state quarantines last through May, Brazil should see a sharp increase in theft and violence — reversing a downwards trend that had been observed for the past couple of years.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Emergency.</strong> In a unanimous vote, the Senate approved an emergency salary of BRL 600 a month for informal workers —&nbsp;and BRL 1,200 for single mothers. The benefit will be distributed for three months, but the government still needs to figure out how people will receive the money, as many of the beneficiaries do not have bank accounts. Senators also approved the distribution of school lunches to 39 million children who had their classes suspended. Free school lunches are often what keep many children in Brazil from hunger. Both bills must be sanctioned by President Bolsonaro before becoming laws.</li><li><strong>Minister.</strong> The government has changed how it communicates about Covid-19. The Health Ministry is no longer at the helm, with the Chief of Staff&#8217;s office in charge instead. When asked whether or not Health Minister Luiz Henrique Mandetta might be fired soon, Chief of Staff Walter Braga Netto said: &#8220;That&#8217;s not being considered. Not at the moment.&#8221; President Bolsonaro has grown fed up with Mr. Mandetta&#8217;s defense of isolation measures — in contrast with the head of state&#8217;s pleas for people to go back to work as normal.</li><li><strong>Left.</strong> Three left-leaning presidential candidates from 2018 — Fernando Haddad, Ciro Gomes, Guilherme Boulos — signed a joint manifesto asking for Jair Bolsonaro ro resign, due to his inability to deal with the Covid-19 crisis. At first glance, the document seems like further proof of Mr. Bolsonaro&#8217;s isolation and soon-to-happen demise. But the left could be playing into the president&#8217;s hand. As a politician who thrives in conflict, Mr. Bolsonaro will certainly use the manifesto to galvanize sectors of society who, more than his supporters, are <a href="https://brazilian.report/opinion/2020/03/30/coronavirus-pandemic-changes-brazilian-politics-bolsonaro/">anti-left-wing</a>.</li><li><strong>Removal.</strong> Supreme Court Justice Marco Aurélio Mello has asked the Prosecutor General&#8217;s Office to analyze a report about the commission of a crime by President Bolsonaro, filed by a Workers&#8217; Party congressman on March 25 and accusing him of &#8220;repeated irresponsible statements&#8221; about the coronavirus. Justice Mello could have shelved the case, but his move will force Prosecutor General Augusto Aras to publicly issue an opinion. It won&#8217;t amount to anything, of course, but it creates an uncomfortable situation for Mr. Aras.

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