Government sweating over next year’s budget

. Aug 04, 2020
Government running out of time (and money) to draw up 2021 budget Image: André Chiavassa/TBR

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Today we’re covering the government’s 2021 budget quagmire. Renewed hope for WhatsApp Pay. And Facebook’s move into e-commerce in Latin America.

Government running out of time (and money) to draw up 2021 budget

To deal with the coronavirus, Congress declared a state of public calamity — which lifts several controls on public spending

—&nbsp;and approved the so-called &#8220;<a href="https://brazilian.report/coronavirus-brazil-live-blog/2020/04/04/brazilian-lower-house-passes-war-budget-bill-against-covid-19/">War Budget</a>,&#8221; essentially creating a separate budget for expenditure on measures to counter the effects of the pandemic, both in economic and health terms. These moves were key for the federal government, as it allowed it to disregard fiscal caps in order to enhance the public debt and inject money into the <a href="https://brazilian.report/society/2020/07/31/brazilians-return-to-work-but-how-many-stayed-away-in-the-first-place/">economy</a>.</p> <ul><li>But these instruments expire on December 31, 2020 — and the government must already figure out what it will do in 2021, a year that is likely to be another one of crisis. According to the World Health Organization, Brazil is still a &#8220;long way&#8221; from beating the coronavirus.</li></ul> <p><strong>Why it matters.</strong> The federal government must present its budget proposal for next year by&nbsp; August 31. Figuring out how to stimulate the economy will be a tough nut to crack, considering that the federal spending cap is set to kick in.</p> <p><strong>Key factor. </strong>The War Budget and the state of calamity made it possible for the government to pay out the BRL 600 emergency salary — which pushed <a href="https://brazilian.report/society/2020/07/30/coronavirus-aid-brazil-poverty-rates-drop-lowest-level-since-2004/">extreme poverty rates to their lowest level on record</a>. But at a cost of roughly BRL 50 billion <em>per month</em>, the country simply cannot afford it. But if the benefit is halted, poverty rates will climb and the government&#8217;s popularity will plummet.&nbsp;</p> <ul><li>Officials at the Economy Ministry admit to the possibility of extending the aid, but at a lower value, perhaps one-third of the current stipend.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/3374311" data-url="https://flo.uri.sh/visualisation/3374311/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Post-pandemic. </strong>The government is thinking about replacing the emergency salary with a more modest cash-transfer program, the so-called &#8220;Renda Brasil&#8221; initiative (or Income Brazil). But this move reportedly depends on the creation of a new tax on financial transactions — which is highly unpopular in Congress.</p> <p><strong>Meanwhile … </strong>State governments are in a dire situation. In H1 2020, they lost a combined BRL 16 billion in tax revenue. The word in Congress is that we could see states run completely out of money as early as October.</p> <div class="flourish-embed flourish-map" data-src="visualisation/3373346" data-url="https://flo.uri.sh/visualisation/3373346/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Solution?</strong> At this point, even orthodox economists agree that the state will have to play a role in stimulating the economy in the near future. So the discussion is not <em>if</em> public spending will be massive, but <em>how</em> and <em>where</em> the government should spend. And the highly complex and disorganized Brazilian public administration certainly has a lot of fat to trim.</p> <ul><li>Brasília correspondent Renato Alves is conducting an investigation into head-scratching positions on the taxpayer&#8217;s dime. A sneak peek: of the list includes typists (which were kept even after computers became universal), locksmiths, VCR and telex operators (hello, 1980s), and even DJs.</li></ul> <hr class="wp-block-separator"/> <h2>After Central Bank suspension, Visa and Mastercard to test WhatsApp Pay</h2> <p>Visa and Mastercard are moving ahead with tests on <a href="https://brazilian.report/tech/2020/06/16/how-disruptive-will-whatsapp-pay-be-in-brazil/">WhatsApp Pay</a>, the peer-to-peer money transfer system that was <a href="https://brazilian.report/newsletters/brazil-daily/2020/06/24/whatsapp-payment-system-blocked-by-brazils-central-bank/">suspended</a> by the Brazilian Central Bank just a week after its launch, independent from the monetary authority&#8217;s ongoing analysis process, economics reporter Laís Martins explains.</p> <p><strong>Why it matters.</strong> WhatsApp is installed on 99 percent of Brazilian smartphones — and 93 percent of netizens use the app every day, according to a survey Panorama Mobile Time/Opinion Box.</p> <p><strong>Context. </strong>The system was launched in Brazil mid-June and involved state-owned bank Banco do Brasil, fintech Nubank, and credit cooperative Sicredi. Cielo, Brazil’s largest payment company, was also the only firm responsible for processing the transactions. But just a few days later, the Brazilian Central Bank suspended the system, claiming that it required further scrutiny, notably on three areas: competition, efficiency, and data privacy.</p> <ul><li>Reuters reported the Central Bank had authorized Visa and Mastercard to move ahead with tests, which was confirmed by a statement sent to <strong>The Brazilian Report</strong> by Visa. Mastercard has yet to comment.</li><li>On Monday, the Brazilian Central Bank said it welcomed the initiative, but added that the tests taking place do not require authorization. Visa was informed by the authority there were no constraints to conducting such tests.</li></ul> <p><strong>Hold the champagne. </strong>The Central Bank stated that the tests being conducted should not be seen as an indication of a final decision by the authority on the matter, which shall be taken at the end of the authorization process. The tests, which cannot involve the transfer of actual values, are not part of the companies&#8217; formal requests to operate WhatsApp Pay, which are still under analysis, said the bank.</p> <p><strong>What they are saying. </strong>&#8220;The Central Bank expects to conclude this analysis as soon as possible, seeking to welcome new participants in the payments system with due security, healthy competition, and user data safety,&#8221; said the authority, in a statement.</p> <hr class="wp-block-separator"/> <h2>Facebook launches incubator focused on connectivity and e-commerce</h2> <p>Driven by the surge in online sales during the pandemic, Facebook announced two accelerator programs on Monday for startups focused on building solutions for connectivity and <a href="https://labs.ebanx.com/en/keywords/ecommerce/" target="_blank" aria-label="undefined (opens in a new tab)" rel="noreferrer noopener">e-commerce</a> in Brazil, Mexico, Colombia, Peru, and Argentina.</p> <p><strong>How it will work. </strong>Over 12 weeks, these initiatives will benefit 50 Latin American startups, offering guidance and helping the selected projects to connect with global players. The first program focuses on startups seeking to improve connectivity in the region, and the second is centered around startups that develop e-commerce solutions.&nbsp;</p> <p><strong>Why it matters. </strong>In the first five months of the year, <a href="https://brazilian.report/coronavirus-brazil-live-blog/2020/06/16/retail-trends-e-commerce-revenues-double-sweethearts-day/">e-commerce surged</a> 57 percent in Brazil, surpassing BRL 105 billion.</p> <p><strong>Disparity. </strong>In a statement, Facebook highlights that, while the pandemic has sped up digitization processes, it has also shed light on the digital abyss, as many around the region still lack internet access. These initiatives seek to address this gap.&nbsp;</p> <ul><li>Brazil occupies the 34th position out of 100 in a ranking of internet inclusiveness put together by The Economist. Among the Latin-American countries, it holds the second position, behind Chile.</li></ul> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Tragedy.</strong> Mining giant Vale has agreed on a deal with the National Social Security Institute to pay BRL 129.5 million in compensation to workers who were affected by last year&#8217;s <a href="https://brazilian.report/society/2019/01/26/brumadinho-dam-collapse/">Brumadinho dam collapse</a>&nbsp;—&nbsp;which killed 270 people.</li><li><strong>Coronavirus. </strong>General Walter Braga Netto, the president&#8217;s Chief of Staff, contracted <a href="https://brazilian.report/coronavirus-brazil-live-blog/">coronavirus</a> —&nbsp;being the seventh minister to test positive. Mr. Braga Netto is reportedly feeling well and in self-isolation. Earlier this month, <a href="https://brazilian.report/podcast/2020/07/08/explaining-brazil-podcast-bolsonaro-is-one-in-a-1-6-million/">President Jair Bolsonaro caught Covid-19</a>, and last week, his wife, First Lady Michelle Bolsonaro, did so too. In Brazil, over 2.7 million people have been infected with the coronavirus — and almost 95,000 died from it.</li><li><strong>Telecoms.</strong> Even the pandemic, which held millions at home, wasn&#8217;t enough to stop Pay TV services losing clients: in June 2020, 67,300 boxes were deactivated according to new data published by Anatel. Meanwhile, the mobile telephony market lost 179,000 lines in the same month.</li><li><strong>IPO. </strong>Investment bank BR Partners has filed a request to hold its initial public offering, hoping to raise BRL 600 million, according to newspaper Valor. According to a report, BR Partners earned BRL 70.5 million in Q1 2020, from BRL 113.4 million in Q1 2019. Its net profits, however, increased from BRL 33.4 to 45.4 million.

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