Shutdown on the horizon as politicians squabble over 2021 budget

. Oct 30, 2020
budget brazil shutdown politics Brazil's Congress building. Photo: R.M. Nunes/Shutterstock

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Without approving a 2021 budget, Brazil risks a government shutdown. The grim expectations for the Christmas season. And what you need to know this week about the 2020 municipal elections.

Congress stalemate could cause a shutdown in Brazil

With October practically over, the risk of the government entering 2021 without approving

a <a href="">federal budget</a> is becoming very real. According to Brasília correspondent Débora Álvares, numerous party squabbles have stalled the works of the Congressional Budget Committee (which must vote on the budget before taking it to the rest of the lawmakers). Here is the current state of play:</p> <ul><li>Since March, there has been an ongoing feud between some of the key political parties in the country. It began as the so-called &#8220;<a href="">Big Center</a>&#8221; (an amalgam of ideology-free groups) joined the government coalition and left the group of the majority, led by the right-wing Democratas party of House Speaker Rodrigo Maia and Senate President Davi Alcolumbre.</li><li>The Big Center now wants all previous arrangements over control of the budget committee to be voided —&nbsp;and is demanding more power, something that the Speaker has adamantly opposed. Without a resolution, approving a budget before the end of the year is highly unlikely.</li><li>Congress has yet to even approve the Budgetary Directives Law (LDO), which sets the government&#8217;s priorities for the following year.</li></ul> <p><strong>Why it matters.</strong> If a budget is not passed, Brazil&#8217;s federal government could realistically go into shutdown. That is bad in regular times, but could be catastrophic during a pandemic.</p> <p><strong>What could happen.</strong> If the LDO passes, but not the budget, the government will be allowed to spend one-twelfth of the 2020 budget every month (that has happened four times already — in 2006, 2008, 2013, and 2015).&nbsp;</p> <ul><li>But if the LDO is not approved, we would enter uncharted territory, and parts of the government — with the exception of wages and pensions — would likely shut down in 2021.</li></ul> <p><strong>It gets worse.</strong> The stalemate has thrown the Speaker and the Big Center into a highly consequential game of chicken.&nbsp;</p> <ul><li>Until they get their way, Big Center parties are obstructing all roll call votes. Indeed, it has been a month since the last bill passed in the House. For his part, Speaker Maia threatens to hold a vote on a priority project concerning the coronavirus emergency salary — giving the opposition the opportunity to bump the value of the benefit up to the original BRL 600 (USD 104) — which would blow up the debt. Government allies are ready to call Mr. Maia&#8217;s bluff, however, trusting he will stay true to his austerity-first ways.</li></ul> <p><strong>Nothing works.</strong> No House committee has convened since March 20: first due to the pandemic, and now because of the feud between parties. In that span, Congress has yet to discuss punishment for one congresswoman facing prosecution for <a href="">the murder of her husband</a>.&nbsp;</p> <hr class="wp-block-separator"/> <h2>Brazil expects a sluggish Christmas season</h2> <p>Christmas is usually a miraculous time for the Brazilian economy in terms of jobs, cash, and economic output. Workers get their hands on end-of-year bonuses — the so-called 13th salary — and are eager to spend them on gifts and clearing debts. According to finance reporter Natália Scalzaretto, however, things will be different in 2020, after months of suspended or reduced job contracts and wages, brought in by the government to delay a firing spree among companies due to the coronavirus crisis.</p> <ul><li>The National Confederation of Commerce estimates BRL 208 billion (USD 36 billion) will be paid in bonuses — a 3.5-percent reduction from 2019. Factoring in inflation, the drop reaches 5.4 percent, the biggest dip on record.</li><li>The average wage paid to Brazilian formal workers and civil servants has dropped 6.6 percent this year.</li></ul> <p><strong>Why it matters.</strong> Reality could be even worse than predictions, as a second coronavirus wave in Europe could spark even more fear into Brazilian consumers, leading them to <a href="">halt (or least drastically reduce) spending</a> in the holiday season.</p> <p><strong>Jobs. </strong>Brazil created 313,500 net jobs in September, according to data from the Economy Ministry. Since January, a net 560,000 jobs have disappeared in the country.&nbsp;</p> <ul><li>Later today, the government&#8217;s official statistics agency releases <a href="">unemployment data</a> — which has broken records week after week, as Brazilian unemployed workers leave self-confinement and start looking for work again.</li></ul> <hr class="wp-block-separator"/> <h2>2020 Election roundup</h2> <p>Here are the most important takes from Brazil&#8217;s municipal races this week:</p> <ul><li><strong>Left rising in São Paulo.</strong> Two weeks before <a href="">Election Day</a>, São Paulo Mayor Bruno Covas continues to rise in the polls, consolidating himself as the frontrunner with 27 percent of voting intentions. But the most-noteworthy oscillation comes from leftist candidate Guilherme Boulos, from the Socialism and Freedom Party. Over the past month, his poll numbers rose from 10 to 16 percent — making him a legitimate threat to conservative Congressman Celso Russomano for a spot in the runoff stage. Mr. Russomano peaked at 28 percent earlier this month, but his support is hemorrhaging, now sitting at 22 percent.</li><li><strong>Fraudulent donations.</strong> The Superior Electoral Court&#8217;s intelligence unit has found evidence of political parties disguising the use of <a href="">dirty money</a> in their campaigns. Around BRL 22 million were donated to candidates by voters who are deceased or unemployed. Also, millions have been spent on contracts with campaign material suppliers that simply do not exist.</li><li><strong>Covid-campaigning.</strong> Many candidates, particularly in small towns — where meet-and-greets remain the name of the game — have completely disregarded social isolation norms in their campaigns. But as coronavirus cases grow in the northeastern state of Pernambuco, electoral courts banned all forms of in-person rallies. Similar restrictions have been enacted in at least 11 states.</li></ul> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Vaccine.</strong> We showed in <strong>The Brazilian Report</strong> that <a href="">pro-Bolsonaro online troll armies</a> have launched a campaign to discredit the Chinese-made coronavirus vaccine. Polls suggest that the effort has been <a href="">successful</a>, with Brazilians eagerness for inoculation dropping from 85 percent in July to just 63 percent on October 28. Women, young adults, residents of rural states, and people with no steady income are the most skeptical about a coronavirus vaccine.</li><li><strong>Privatization.</strong> The government is weighing up a solution to privatize Correios, Brazil&#8217;s federally-owned postal service. The company would be split into regional units, with the most lucrative ones auctioned alongside post offices in more remote locations. Backers of the privatization say this move would keep the universality of access to postal services even as Correios goes to private control. A final decision on the privatization model, however, should come only in 2021.</li><li><strong>Guedes v. banks.</strong> Of all the political twists and turns we have observed in the Bolsonaro administration, one has been particularly unexpected: on Thursday, Economy Minister Paulo Guedes called out banks for supposedly defending public overspending. Mr. Guedes said that Febraban, the Brazilian Bank Federation, is a lobbying institution aimed at ousting him to break with the federal spending cap.</li><li><strong>Environment.</strong> The Supreme Court issued an injunction temporarily striking down an ordinance passed by the Environment Ministry that <a href="">lifted protections</a> for tropical mangroves and other vulnerable ecosystems, catering to real estate groups who want to develop projects along the Brazilian coastline.</li><li><strong>Tourism.</strong> Starting today, Argentina opens its aerial borders to foreign visitors, including Brazil, as long as they enter the country through Buenos Aires&#8217; Ezeiza Airport or via a ferry from Uruguay. One of the first Latin American countries to <a href="">go into lockdown</a> back in March, Argentina has become a textbook example of how lockdowns are not enough to prevent the coronavirus outbreak from <a href="">spiraling out of control</a> in places defined by structural inequality and informal labor.

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