Moody’s threatens to downgrade Brazil

said on Wednesday that Brazil&#8217;s sovereign debt could be downgraded further into junk territory unless the government managed to advance its agenda of reforms this year or, at the latest, early in 2021. &#8220;If the support for reforms dwindle, it will have a negative impact on our outlook [for the country],&#8221; said Ms. Maziad during an event.</p> <ul><li>Moody&#8217;s currently gives Brazil a Ba2 rating, two tiers below investment grade, with a &#8220;stable&#8221; outlook.</li></ul> <p><strong>Why it matters.</strong> The path of austerity is by no means an obvious choice. With record-high unemployment rates and an uncertain recovery from the pandemic crisis — which no one knows how long will last — the government has been faced with the challenge of creating a new cash-transfer program that is bigger than Bolsa Família.</p> <ul><li>There is also the political element: the coronavirus emergency salary has pushed President Jair Bolsonaro&#8217;s approval ratings to their highest levels since his inauguration. Data published just hours ago by pollster PoderData shows the <a href="https://www.poder360.com.br/poderdata/governo-bolsonaro-e-aprovado-por-52-e-desaprovado-por-41-mostra-poderdata/">government&#8217;s approval ratings</a> at 52 percent.&nbsp;</li><li>&#8220;If Mr. Bolsonaro is able to combine his socially conservative agenda with a broad social protection network, his re-election bid shall become unbeatable in 2022,&#8221; said Pablo Ortellado, a public policy professor at the University of São Paulo, speaking to <strong>The Brazilian Report</strong>.</li></ul> <p><strong>What is the plan?</strong> It is hard to know what the government has in store for taming the debt <em>and</em> preventing millions of people from dropping below the poverty line once the coronavirus aid ends in December. The latest plan being discussed within the Economy Minister would reduce the number of families benefited by the federal cash-transfer program to around 20 million. But with a divided cabinet, the administration has struggled to settle on a single plan.</p> <ul><li>Interestingly, it&#8217;s not only the federal government that is <a href="https://www1.folha.uol.com.br/colunas/painel/2020/10/covas-reage-a-russomanno-e-diz-que-sancionara-programa-de-renda-basica-de-eduardo-suplicy.shtml">discussing cash transfers</a>. In São Paulo, the two leading mayoral candidates — incumbent Bruno Covas and the Bolsonaro-backed Congressman Celso Russomano — have proposed emergency aid or basic income programs for São Paulo residents.&nbsp;</li></ul> <p><strong>State of the debt.</strong> According to the latest forecasts by the International Monetary Fund, Brazil&#8217;s debt-to-GDP ratio could top the 100-percent mark this year. Among emerging economies, only Angola would have a bigger deficit. The IMF also believes that Brazil is unlikely to record a primary surplus before 2025.</p> <p><strong>Bright-ish spot.</strong> The <a href="https://agenciadenoticias.ibge.gov.br/agencia-noticias/2012-agencia-de-noticias/noticias/29159-setor-de-servicos-avanca-2-9-em-agosto-terceira-alta-seguida">services sector</a> — the backbone of the Brazilian economy —&nbsp;grew 2.9 percent in August when compared to July, recording a third consecutive month of growth. Even bars and restaurants are performing better than expected, with revenue at around 60 percent of pre-pandemic levels.</p> <hr class="wp-block-separator"/> <h2>Meat kingpins under fire</h2> <p>On Wednesday, federal prosecutors indicted Mato Grosso do Sul Governor Reinaldo Azambuja and businessmen Joesley and Wesley Batista for corruption, money laundering, and criminal association. The Batista brothers — who control the world&#8217;s largest meatpacking company, JBS — are accused of paying BRL 67 million (USD 12 million) in kickbacks to the governor and his allies, in exchange for not paying state-level taxes. JBS allegedly gained BRL 209 million with the scheme.</p> <ul><li>On the same day, the <a href="https://brazilian.report/newsletters/brazil-daily/2020/06/04/more-legal-beef-for-brazilian-meat-producer-jbs/">Pilgrim&#8217;s Pride Corporation</a> — a U.S.-based subsidiary of JBS —&nbsp;agreed to pay USD 110.5 million to settle federal charges that it <a href="https://www.nytimes.com/2020/10/14/business/pilgrims-pride-price-fixing.html">fixed chicken prices for years</a>, passing on higher costs to consumers, restaurants, and supermarkets.</li><li>Also on Wednesday, JBS&#8217; parent company, holding firm J&amp;F, pleaded guilty to U.S. foreign bribery charges, agreeing to pay USD 128 million in fines. The settlement refers to the company&#8217;s role in corruption scandals that nearly brought down the Michel Temer administration in 2017.</li></ul> <p><strong>Rap sheet.</strong> Top executives of the J&amp;F group admitted having bribed more than 1,900 politicians to advance their business interests — particularly regarding the expansion of JBS from a regional player to an international behemoth.</p> <p><strong>Stocks, stakes … </strong>Shares of JBS closed the day up 9.2 percent, following the news of the settlements —&nbsp;which investors hope will help turn a new leaf on JBS&#8217; laundry list of scandals. The indictment, however, became known after market hours.&nbsp;</p> <hr class="wp-block-separator"/> <h2>A new meaning for the term &#8220;dirty money&#8221;</h2> <p>Just days after President Jair Bolsonaro stated that he had ended Operation Car Wash due to there being &#8220;no more corruption within the government,&#8221; his administration was rattled by an awkward — and frankly disgusting —&nbsp;scandal. Senator Chico Rodrigues of Roraima, the government&#8217;s deputy whip in the Senate, was targeted by a Federal Police investigation into the embezzlement of BRL 15 million earmarked for the fight against Covid-19 by members of Congress.</p> <ul><li>The Feds found around BRL 30,000 in cash in the senator&#8217;s home, with part of the money being stashed — we kid you not — &#8220;between his buttocks,&#8221; as reported by online magazine Crusoé, and confirmed by newspaper Folha de S.Paulo. As many of our subscribers read this newsletter during breakfast, we will spare you the gory details.</li></ul> <figure class="wp-block-image size-large"><img loading="lazy" width="1024" height="1024" src="https://brazilian.report/wp-content/uploads/2020/10/corruption-federal-police-1024x1024.jpeg" alt="corruption federal police" class="wp-image-51123" srcset="https://brazilian.report/wp-content/uploads/2020/10/corruption-federal-police-1024x1024.jpeg 1024w, https://brazilian.report/wp-content/uploads/2020/10/corruption-federal-police-300x300.jpeg 300w, https://brazilian.report/wp-content/uploads/2020/10/corruption-federal-police-150x150.jpeg 150w, https://brazilian.report/wp-content/uploads/2020/10/corruption-federal-police-768x768.jpeg 768w, https://brazilian.report/wp-content/uploads/2020/10/corruption-federal-police-1536x1536.jpeg 1536w, https://brazilian.report/wp-content/uploads/2020/10/corruption-federal-police-610x610.jpeg 610w, https://brazilian.report/wp-content/uploads/2020/10/corruption-federal-police-210x210.jpeg 210w, https://brazilian.report/wp-content/uploads/2020/10/corruption-federal-police-375x375.jpeg 375w, https://brazilian.report/wp-content/uploads/2020/10/corruption-federal-police-600x600.jpeg 600w, https://brazilian.report/wp-content/uploads/2020/10/corruption-federal-police-100x100.jpeg 100w, https://brazilian.report/wp-content/uploads/2020/10/corruption-federal-police.jpeg 1600w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Illustration by Jika</figcaption></figure> <p><strong>Why it matters.</strong> Few times have Brazilians been faced with such a ridiculous and graphic scandal — which can certainly do no good for the government&#8217;s image, especially as Jair Bolsonaro clashes with his core supporters, who oppose his pandering to establishment politicians.</p> <ul><li>The case also continues to shed light on how corrupt officials are using the emergency situation created by Covid-19 to fill their pockets — and underwear, apparently&nbsp;— with public money.</li></ul> <p><strong>What they are saying.</strong> &#8220;I am relaxed about what happened in my home. I trust the justice system and know I will be able to prove my innocence,&#8221; said Mr. Rodrigues, in a statement.</p> <ul><li>&#8220;Ah, Car Wash is over, folks? The Feds are in Roraima today,&#8221; said Mr. Bolsonaro, on Twitter.</li><li>&#8220;Money laundering will be key in this case,&#8221; joked Federal Prosecutor Vladimir Aras, brother of Prosecutor General Augusto Aras.</li></ul> <p><strong>Off you go.</strong> Government officials agree that either Mr. Rodrigues resigns as deputy whip, or he will be demoted.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Deceleration.</strong> The Central Bank publishes the latest update to its Economic Activity Index (IBC-Br) today, considered to be a predictor of the official GDP rate. Analysts expect the index to show a 1.6-percent expansion of the Brazilian economy in August — which would mean a deceleration of the economic rebound after months of stricter social distancing. In June, the index was at +5.32 percent, and reached +2.15 percent in July.</li><li><strong>Crisis.</strong> Ricardo Eletro, one of Brazil&#8217;s biggest retail groups, has filed for bankruptcy protection. In what will be the biggest court-supervised recovery plan in Brazilian history, the group is set to split its assets into multiple companies in order to divest and be able to pay its BRL 4-billion debt to 20,000 creditors. </li><li><strong>Environment.</strong> A federal court denied a request to suspend Environment Minister Ricardo Salles from office. In their lawsuit, federal prosecutors say Mr. Salles is <a href="https://brazilian.report/environment/2020/05/28/environment-minister-really-running-cattle-herd-through-amazon/">deliberately depleting Brazil&#8217;s environmental controls</a> — which could allow Amazon deforestation to reach a point of no return (after which the rainforest could, according to scientists, become a savannah-like biome) and bring &#8220;tragic effects on environmental protection frameworks.&#8221; A panel of judges will trial the case on October 27.</li><li><strong>Supreme Court. </strong>Allegations of plagiarism might have tarnished Federal Judge Kássio Nunes Marques&#8217; academic résumé, but they have not dented his chances to be confirmed as <a href="https://brazilian.report/power/2020/10/13/who-is-kassio-nunes-brazils-new-supreme-court-justice/">Brazil&#8217;s next Supreme Court justice</a>. Senator Eduardo Braga, the rapporteur of his confirmation proceedings, has recommended that the Senate&#8217;s Constitution and Justice Committee approves the nomination, saying the inconsistencies on Mr. Nunes Marques&#8217; CV do not qualify as &#8220;relevant facts&#8221; against the judge.</li><li><strong>This time&#8217;s the charm? </strong>The government intends on presenting its plan to privatize Correios — the state-owned postal company — &#8220;at the beginning of next year,&#8221; according to the Communications Ministry. Privatizing Correios has been listed as a priority since President Jair Bolsonaro took office in January 2019 — but <a href="https://brazilian.report/power/2020/02/04/jair-bolsonaro-privatization-plan/">no progress has been made since</a>.</li><li><strong>Drug boss.</strong> The Supreme Court is set to end a trial today on whether or not to jail a leader of the São Paulo-based First Command of the Capital (PCC), arguably Brazil&#8217;s most powerful criminal organization. He was <a href="https://brazilian.report/society/2020/10/14/brazil-captured-a-notorious-drug-boss-then-let-him-go/">set loose</a> by Justice Marco Aurélio Mello last weekend due to a technicality — and a majority of justices (6 out of 6) have voted to overturn his decision. But the outcome of the trial should matter little: the drug boss, called André do Rap, is already at large.</li><li><strong>Science.</strong> The Health Ministry has launched a BRL 600-million (USD 107-million) program to create a national database with mapped <a href="https://brazilian.report/podcast/2020/06/10/explaining-brazil-podcast-lifting-lid-brazil-divided-race/">genomes of 100,000 Brazilians</a>. The initiative could help anticipate disease diagnostics.