Brazil’s half-hearted plan to reform civil service

. Sep 04, 2020
Brazil's half-hearted plan to reform civil service President Jair Bolsonaro. Photo: Marcos Corrêa/PR

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Today, we break down Bolsonaro’s administrative reform — and its shortcomings. Brazil’s industry recovers slightly. Embraer announces layoffs. And Brazil reaches 4 million coronavirus cases.

Breaking down Brazil’s administrative reform proposal

In yesterday’s Daily Briefing, we anticipated that the government’s proposed administrative reform would be anything but bold.

Instead of a detailed plan to overhaul the rules of Brazil&#8217;s public service, the administration instead presented broad principles&nbsp;— trusting a Congress that is highly sensitive to the civil servants&#8217; lobby to fill in the gaps and decide on the specifics.</p> <ul><li>More than that, it was underwhelming to see that a reform supposedly aimed at curbing spending on wages and pensions would not affect members of Congress, judges, prosecutors, or the military — the <em>crème de la crème</em> of Brazil&#8217;s public service.</li></ul> <h3><strong>What changes if the reform passes as is:</strong></h3> <ul><li>Rock-solid job stability for civil servants would be drastically reduced. Only &#8220;typical careers of state&#8221; would be entitled to this benefit, and only after a three-year probation period. Today, only a court order or strict disciplinary procedure can remove a public service worker from his/her post. Since 2003, just over 7,500 civil servants have lost their jobs, mainly due to involvement with corruption.&nbsp;</li><li>The proposal also curbs many of the perks servants are allowed to incorporate into their salaries — adding up to what the Economy Ministry called &#8220;super salaries.&#8221;</li><li>The president would have enhanced powers over the government&#8217;s structure and wouldn&#8217;t need congressional approval to enact changes that don&#8217;t raise public spending. The head of state would be allowed to slash positions, reshuffle vacancies, and reorganize job descriptions.</li></ul> <p><strong>Yes, but … </strong>In a move to make the reform more palatable to Congress, President Jair Bolsonaro stated that current servants won&#8217;t be affected. This means that the reform would only have a significant impact on public spending after around ten years. While the government claims it wants to trim spending on servants, it also changed a report restricting the recruitment of new ones.</p> <ul><li>By all means, some areas of the government do need more staffers, but the government&#8217;s lack of transparency and coordination makes one think that the right hand doesn&#8217;t know what the left is doing.</li></ul> <p><strong>The size of the problem.</strong> According to a <a href="">2019 World Bank</a> report, Brazil spends 15 percent of its GDP on wages and pensions. In some states, it takes up almost 80 percent of total revenue.</p> <div class="flourish-embed flourish-map" data-src="visualisation/3653623" data-url="" aria-label=""><script src=""></script></div> <div class="flourish-embed flourish-chart" data-src="visualisation/3653604" data-url="" aria-label=""><script src=""></script></div> <div class="flourish-embed flourish-scatter" data-src="visualisation/3653183" data-url="" aria-label=""><script src=""></script></div> <hr class="wp-block-separator"/> <h2>Brazilian industry improves, but loses worldwide importance</h2> <p>For the third consecutive month, Brazil&#8217;s industrial output rose in July, increasing 8 percent. Data suggests a widespread improvement, with 25 of 26 surveyed segments showing positive results. However, calling this a &#8220;recovery&#8221; would be a stretch, as output remains 6 percent below February levels, after dropping 9.3 and 19.5 percent in March and April, respectively.</p> <p><strong>Why it matters.</strong> Longer comparisons are negative for the Brazilian industry, but there is one major silver lining: the sector has initiated a recovery (albeit a slow and long one) before services companies and will help the country post better GDP results in Q3.</p> <p><strong>Yes, but … </strong>Brazilian industry has lost its importance in terms of worldwide output. In 2019, it accounted for 1.24 percent of global industrial production — a rate that dropped to 1.19 percent over the past year. Brazil is now the 16th-largest industry in the world —&nbsp;behind countries such as Mexico, Indonesia, Russia, Taiwan, Turkey, or Spain.</p> <ul><li>Brazil&#8217;s share of the global industrial output has declined since the mid-1990s, according to the National Confederation of Industry, a process that was intensified by the 2014-2016 recession.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/3653670" data-url="" aria-label=""><script src=""></script></div> <hr class="wp-block-separator"/> <h2>Embraer announces massive layoffs</h2> <p>Brazilian jet-maker Embraer announced on Thursday that it will be cutting 2,500 jobs — 1,600 of which will happen through a voluntary redundancy program. The company claims the move is a direct consequence of the aviation crisis sparked by the coronavirus — as well as of the failure of a USD 4.2-billion merger deal with Boeing, the completion of which was also affected by the pandemic.</p> <p><strong>Why it matters.</strong> In Q2 2020, Embraer posted its worst financial results in 20 years, with BRL 1.6 billion in losses. In that period, the company delivered only four commercial planes and 13 executive jets, against 26 and 25, respectively, in Q2 2019.</p> <p><strong>Boeing.</strong> The São José dos Campos-based company spent BRL 485,000 toward integration with Boeing — money that was lost after the U.S. planemaker pulled out of the deal, claiming Embraer failed to meet requirements. The Brazilian manufacturer disputes that claim and has filed a lawsuit in the U.S., seeking compensation.</p> <p><strong>Labor issues.</strong> Unions initiated a strike after saying the decision was unexpected and uncalled for. However, layoffs have been on the cards for Embraer for years. In 2017, consultancy firm McKinsey drew up a restructuring plan to simplify the planemaker’s structure for better financial results. The plan was only partially followed at first, but should now be resumed.</p> <ul><li>Embraer was the sole major planemaker not to have announced major cuts. Boeing and Airbus, for instance, announced they will each slash over 15,000 jobs.</li></ul> <hr class="wp-block-separator"/> <h2>Gaslighting as Brazil reaches 4 million coronavirus infections</h2> <p>Brazil has become only the second country to surpass the mark of 4 million confirmed Covid-19 cases. Meanwhile, 124,614 people have died of the disease. Only the U.S. has worse tallies than Brazil — and even so, Brazil&#8217;s testing data is low and inaccurate, which has led most scientists to state that the true totals are much bigger.&nbsp;</p> <ul><li>Still, President Jair Bolsonaro once again patted himself on the back, saying his response to the pandemic was &#8220;unparalleled.&#8221; He mentioned the use of hydroxychloroquine as a testament to his success in dealing with the coronavirus. The antimalarial drug, however, has no proven positive effect on Covid-19 patients.</li></ul> <p><strong>Slowing down.</strong> Recent data suggest that the spread could be slowing down. It took Brazil 25 days to go from 3 to 4 million cases — two days longer than its transition from 2 to 3 million. Moreover, new deaths and infections saw a slight drop in August. While experts celebrate the positive numbers, they warn that the curves are still plateaued at a high level.&nbsp;</p> <p><strong>Diplomatic defeat.</strong> Former Health Minister Nelson Teich was reportedly not selected as one of the Latin American representatives in the <a href="">investigation</a> into the World Health Organization&#8217;s response to the pandemic. Instead, Colombia and Mexico will represent the region.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3653759" data-url="" aria-label=""><script src=""></script></div> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Rio. </strong>After the Superior Court of Justice confirmed the suspension of Governor Wilson Witzel, his understudy, Cláudio Castro, has pleaded with the Economy Ministry for an extension of federal aid to the state. Rio was granted six additional months, during which the government will analyze the request. Until then, one should expect Mr. Castro to bend over backward to please Jair Bolsonaro&#8217;s political group in the state.</li><li><strong>Economy. </strong>The <a href="">Economic Activity Indicator</a> by think tank Fundação Getulio Vargas (IAE-FGV) — an index that seeks to anticipate economic trends based on official data — suggests the Brazilian economy grew 1.4 percent in July. In the three-month period ending in June, IAE-FGV shows a 4.4-percent drop when compared to the three months ending in April. &#8220;Despite the numbers being very negative, they show improvement from the changes observed in June,&#8221; said the think tank, in a statement.</li><li><strong>Impeachment.</strong> Rio de Janeiro Mayor Marcello Crivella managed to escape a fourth attempt to open impeachment proceedings against him. In a tight 25-23 vote, the City Council voted against the request, keeping the mayor&#8217;s job safe. Mr. Crivella is accused of hiring civil servants with the sole purpose of preventing journalists from exposing the city&#8217;s health crisis. These workers, nicknamed &#8220;Crivella&#8217;s Guardians,&#8221; have been shown to bully citizens who choose to speak with reporters.

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