Senators unfreeze civil servants’ pay. Guedes calls it a “crime”

. Aug 20, 2020
Senate unfreezes civil servant salaries in bad omen for government's cost-cutting plan Image: Wan Wei/Shutterstock

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We’re covering a Senate decision on civil servant salaries that is set to affect the government’s austerity platform. Projections for Brazil’s economy improve, but the population is still pessimistic. And the government threatens to postpone the census for another year.

Senate unfreezes civil servant salaries in bad omen for government’s cost-cutting plan

The Brazilian Senate struck down

a presidential veto that blocked pay raises for civil servants in 2020 and 2021. The move broke with a <a href="">deal struck between Congress and the government</a> back in April: lawmakers agreed to freeze public servants&#8217; salaries in exchange for a BRL 125-billion plan of financial aid for state and municipal governments.</p> <p><strong>Why it matters.</strong> Unfreezing salaries would generate extra costs of BRL 98 billion according to government experts. And it spells a bad omen, as Congress is prepared to vote on other presidential vetoes that, if struck down, will create a major fiscal impact to an <a href="">already cash-strapped administration</a>.</p> <figure class="wp-block-image size-large"><img loading="lazy" width="1024" height="577" src="" alt="Senate President Davi Alcolumbre and Economy Minister Paulo Guedes. Photo: Pedro França/Ag.Senado" class="wp-image-48100" srcset=" 1024w, 300w, 768w, 1536w, 610w, 600w, 2022w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Senate President Davi Alcolumbre and Economy Minister Paulo Guedes. Photo: Pedro França/Ag.Senado</figcaption></figure> <p><strong>How it happened in the Senate.</strong> We explain how this entire process unfolded:</p> <ul><li>At odds with the speaker of the lower house, Rodrigo Maia, Economy Minister Paulo Guedes made sure the agreement over a bailout to states and cities would be drafted in the Senate. But without the backing of the speaker, the sole condition for the aid — freezing public servants&#8217; pay — was met with resistance when it reached the House.</li><li>At that point, government whip Major Vitor Hugo proposed an amendment creating several exceptions to the freeze. President Bolsonaro, however, vetoed that change and the bill was approved as Mr. Guedes had intended.</li><li>On Wednesday, the government was &#8220;blindsided&#8221; by the Senate, in a move a furious Mr. Guedes called a &#8220;crime against the people.&#8221;</li><li>“Let’s hope the House saves the day,” said the Economy Minister —&nbsp;who now depends on the efforts of Speaker Rodrigo Maia, the very man he tried to undermine in April.</li></ul> <p><strong>Bottom line. </strong>From start to finish, this episode is a textbook example of how the government is incapable of pushing its own agenda in Congress, despite Jair Bolsonaro having recently applied a heavy dose of horse-trading in his administration. Moreover, it shows that the massive administrative reform Paulo Guedes defends is a dream distant from reality.&nbsp;</p> <hr class="wp-block-separator"/> <h2>Investors are growing more optimistic about the economy. Workers are not</h2> <p>As we showed in <a href="">yesterday&#8217;s Daily Briefing</a>, Brazilians are growing more optimistic about the pandemic, with more people saying they believe the coronavirus spread is improving rather than getting worse. However, this optimism has yet to spread to the economy.&nbsp;</p> <p><strong>By the numbers. </strong>According to pollster Datafolha, 4 in 10 Brazilians believe the country&#8217;s economic scenario will get worse in the near future, expecting a rise in unemployment, inflation rates, and a steep loss in purchasing power.&nbsp;</p> <ul><li>Only 29 percent believe in an improvement of economic conditions. In December 2019, that rate was at 43 percent.</li><li>Pessimism is more common among populations with more precarious positions in the job market: women (46%), 16-to-24-year-olds (45%), low-income workers (42%) —&nbsp;but also among those with a college education (46%).</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/3521576"><script src=""></script></div> <p><strong>Meanwhile … </strong>Investors and market analysts are <a href="">improving their forecasts for Brazil</a>. The Central Bank&#8217;s Focus Report —&nbsp;a weekly survey among top-rated investment firms — showed an improvement in GDP growth predictions for the seventh straight week: from -6.54 percent late in June to -5.52 percent now.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/1733972"><script src=""></script></div> <ul><li>Credit Suisse changed its projection for Brazil, forecasting a -5.2 percent growth rate for 2020 (previously at -6.5 percent). &#8220;We have argued that economic activity might be positively surprising thanks to the high level of fiscal and monetary stimuli and the flexibilization of social distancing measures,&#8221; wrote economists Leonardo Fonseca and Lucas Vilela.</li><li>Consultancy Capital Economics also revised its projections upward for Brazil, from -7 to -5 percent in 2020. It projects a 10-percent retraction for Q2, followed by a 7-percent expansion in Q3 to offset some of the losses. &#8220;Recent data — such as surveys and energy generation numbers —&nbsp;suggest the recovery continued in July and August,&#8221; wrote William Jackson, the consultancy&#8217;s chief economist for emerging markets.</li></ul> <hr class="wp-block-separator"/> <h2>Government&#8217;s plan makes no census</h2> <p>The pandemic has made the 2020 census impossible —&nbsp;and it was pushed back to 2021. Now, however, the federal administration is willing to postpone for yet another year and use the money (around BRL 2.3 billion —&nbsp;USD 414,000) to beef up Brazil&#8217;s defense budget.</p> <p><strong>Why it matters.</strong> The census is much more than just a headcount. It represents the best source of data to assess how Brazilians live, being particularly important to municipalities, which rely on the data for everything from health planning to districting — and determining the allocation of federal funding.</p> <ul><li>It is also used by investors and international agencies to assess Brazil in comparison to other countries.</li></ul> <p><strong>What they are saying.</strong> The government is using the pandemic card to call for the postponement, an argument that does hold water. Data collection relies almost entirely on in-person interviews, with 180,000-plus pollsters expected to visit 71 million households.</p> <p><strong>Yes, but … </strong>Members of the Brazilian Institute of Geography and Statistics warn that the move would waste the money that has already been spent in preparation for the upcoming census. Temporary workers who have already been trained will have to be demobilized and the database of addresses to be visited will have to be updated again.</p> <ul><li>More importantly, though, is the fact that this postponement would leave Brazil relying on outdated numbers from 2010 to draft public policies.</li></ul> <p><strong>Problems.</strong> The next census has already been surrounded by controversy, after the government decided to trim down the questionnaire in order to make it more cost-effective.</p> <iframe src="" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Oil and gas 1. </strong>In July, deepwater pre-salt oil reserves accounted for over 70 percent of Brazil&#8217;s overall oil and gas production for the first time ever. Per the country&#8217;s National Petroleum Agency (ANP), Brazil produced 3.89 million barrels per day.</li><li><strong>Oil and gas 2. </strong>Brazil&#8217;s Securities Commission will <a href="">decide</a> on a case next week involving state-controlled giant Petrobras, dating back to 2016. Former President Dilma Rousseff, her then-Finance Minister Guido Mantega, and several other board members are accused of not observing their fiduciary duties with investors in their handling of the Abreu e Lima oil refinery. Due to incompetence and corruption, it ended up costing the company eight times more than its initial USD 2.3 billion budget.</li><li><strong>Labor. </strong>The government is expected to issue a decree extending the possibility of companies suspending workers&#8217; contracts or slashing their hours and salaries for another two months. The rule aims at reducing layoffs and preserving some form of stability in the job market. According to the Economy Ministry, 16.2 million settlements between professionals and companies have been reached.</li><li><strong>Layoffs.</strong> Volkswagen plans to cut 35 percent of its workforce in Brazil, amounting to layoffs of 5,000 people, including workers on production lines and in administrative offices.</li><li><strong>Stimulus.</strong> The government has issued a three-month extension to an aid program to help small companies to weather the crisis, and President Jair Bolsonaro has signed a law earmarking an extra BRL 12 billion for it.</li><li><strong>Diplomacy.</strong> Argentinian Ambassador to Brazil Daniel Scioli said that his boss, President Alberto Fernández, is ready to bury the hatchet with his Brazilian counterpart Jair Bolsonaro. The two have not seen eye to eye in many issues, and have exchanged <a href="">harsh words</a> in the press in the past. Mr. Scioli says Buenos Aires wants a direct line with the Brazilian government in order to push for a common agenda in infrastructure and winemaking regulations.</li><li><strong>(No) Transparency.</strong> Just two days after recording the highest amount of new daily <a href="">coronavirus deaths</a>, the government of Brasília has decided to change its data disclosure proceedings. Authorities say that, in order to &#8220;avoid uneasiness&#8221; among citizens, their daily reports will only include the number of deaths that occurred over the previous 24 hours —&nbsp;not the entire count of deaths confirmed on a given day, including those that occurred before. This is expected to significantly skew the data, artificially lowering death tolls. The federal government <a href="">tried to pull the same move</a> in June, but the Supreme Court forced it into making all data public.

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