House scores win for Economy Minister, but it won’t come cheap

. Feb 11, 2021
house agenda economy ministry House Speaker Arthur Lira. Photo: Michel Jesus/CD/CC-BY

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Today, lawmakers make progress on the Economy Ministry’s agenda. Retail posts poor end-of-year results, spurning hope for recovery. Health Minister Pazuello to be grilled by senators.

House pushes forward on Economy Ministry agenda

On Wednesday, the House voted on two bills that are very dear to Economy Minister Paulo Guedes and his team:

one establishing the formal independence of the Central Bank, and another making changes to the currency exchange market in Brazil — which would allow for local bank accounts to be held in U.S. Dollars.</p> <p><strong>Central Bank.</strong> The proposal to make the bank autonomous had already been approved by the Senate and will come into force after it is ratified by President Jair Bolsonaro. Here are the core points of the bill:</p> <ul><li><strong>Terms.</strong> The Central Bank&#8217;s nine-member board will continue to be appointed by the president, but they will have fixed four-year terms and will be able to extend those terms by another four years. After leaving the bank, they will have to respect a six-month quarantine period during which they cannot have any links — formal or otherwise —&nbsp;with any financial institution.</li><li><strong>Goals.</strong> Besides pursuing targets for inflation rates, the Central Bank will be responsible for &#8220;softening the fluctuations of the level of economic activity&#8221; and &#8220;fostering full employment.&#8221;</li><li><strong>Pros and cons.</strong> While the move could shield decisions on monetary policy from the electoral interests of the Executive branch, critics of the bill fear the change could weaken governments&#8217; ability to engage in redistribution. A January 2021 <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/35069/Does-Central-Bank-Independence-Increase-Inequality.pdf?sequence=1&amp;isAllowed=y">working paper</a> published by the World Bank agrees with this opinion, saying that independent central banks tend to deregulate financial markets, &#8220;which generates a boom in [the value of assets] predominantly in the hands of wealthier segments&#8221; and increases inequality levels.</li></ul> <p><strong>Foreign exchange.</strong> Lawmakers approved another bill granting more independence to the Central Bank to regulate the foreign exchange market and update Brazil&#8217;s disperse legislation on the matter. Central Bank Chairman Roberto Campos Neto said he plans to allow Brazilians to hold bank accounts in foreign currency —&nbsp;and claims the bill will make it easier for the Brazilian Real to be used abroad.</p> <ul><li>The bill now goes to the Senate for approval.</li></ul> <p><strong>What&#8217;s behind.</strong> Passing these bills should be interpreted as a token of confidence by new Speaker Arthur Lira in President Jair Bolsonaro — who is now expected to retribute with a heavy dose of horse-trading politics.</p> <hr class="wp-block-separator"/> <h2>Retail sales bury dreams of V-shaped economy</h2> <p>Back in May 2020, we at <strong>The Brazilian Report</strong> explained <a href="https://brazilian.report/newsletters/brazil-daily/2020/05/14/high-debt-levels-prevent-v-shaped-recovery-for-brazil/">why the Brazilian economy would not be able to pull off a V-shaped recovery</a> following the coronavirus crisis. The high debt levels of both companies and the government would prevent the massive inflow of investment needed for such a rally. Still, economic agents — especially Economy Minister Paulo Guedes — continue to bang the drum of optimism.</p> <ul><li>Retail results for December 2020 make any talk of a V-shaped recovery no more than wishful thinking. Sales dropped 6.1 percent from November in what was the <a href="https://brazilian.report/newsletters/brazil-daily/2020/12/11/brazil-retail-recovery-loses-steam-ahead-of-holidays/">worst end-of-year period</a> since the turn of the century.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/5265025"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>What is behind.</strong> The pandemic alone cannot be blamed for the drop, as overall sales for 2020 actually rose 1.2 percent from the previous year. What prevented Brazilian consumers from spending during the holiday season was the <a href="https://brazilian.report/business/2020/09/09/food-inflation-triggers-warning-for-brazil-bolsonaro/">continuous spike in food prices</a>, the expiry of the coronavirus emergency salary program, and a new surge of infections (which began in November).</p> <p><strong>Why it matters.</strong> Without the same stimulus packages that were in place last year — and with the <a href="https://brazilian.report/coronavirus-brazil-live-blog/2021/02/05/rio-de-janeiro-overtakes-sao-paulo-in-covid-19-deaths/">pandemic spreading faster</a> in January — Q1 2021 results are expected to be very negative indeed.</p> <p><strong>Long recovery.</strong> The International Monetary Fund believes that the Latin American economy will only return to pre-pandemic levels by 2023. In terms of GDP per capita, the recovery will take even longer — lasting until 2025.</p> <hr class="wp-block-separator"/> <h2>D-day for Pazuello</h2> <p>Health Minister Eduardo Pazuello is set to appear before the Senate today, answering questions about the government&#8217;s coronavirus pandemic response. The minister is already under investigation by the Federal Police for alleged omission in failing to prevent a health collapse in Manaus —&nbsp;and opposition senators have gathered enough support to launch a hearings committee to scrutinize his actions.</p> <ul><li>Mr. Pazuello should not expect many softball questions from senators, many of whom are disgruntled with the slow pace of vaccinations, especially after the death of a <a href="https://brazilian.report/coronavirus-brazil-live-blog/2021/02/09/brazilian-senator-jose-maranhao-dies-from-covid-19/">fellow lawmaker</a> this week.</li></ul> <p><strong>Why it matters. </strong>Brasília correspondent Débora Álvares reports that the success of the hearings committee to scrutinize the government&#8217;s pandemic response hinges on the Health Minister&#8217;s performance today. If he has a poor outing, consensus among government officials is that the momentum for a thorough investigation will be too large for newly-elected Senate President Ricardo Pacheco to ignore.</p> <ul><li>The Health Minister has a poor track record in these situations. After Brazil began vaccination on January 17 —when São Paulo Governor João Doria managed to administer the first jabs and steal a photo op from the federal government — Mr. Pazuello issued a press conference treating the event as a crisis, severely misreading the room at a time of celebration and optimism for the population.</li></ul> <p><strong>Media training.</strong> With his perceived lack of experience in dealing with these situations, Mr. Pazuello spent all day yesterday being prepped for the questions he may face.</p> <p><strong>By the numbers. </strong>So far, Brazil has confirmed 9.6 million coronavirus cases and 235,000 deaths. A total of 4.2 million Brazilians have received vaccines.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Budget. </strong>Brazilian lawmakers finally set up the <a href="https://brazilian.report/newsletters/brazil-weekly/2021/02/09/brazil-budget-talks-stall-again-despite-new-speaker/">committee</a> which will analyze the 2021 federal budget proposal. So far this year, the government has only been able to spend one-twelfth of its 2020 budget and investment has been frozen. Congresswoman Flávia Arruda — an ally of House Speaker Arthur Lira — was chosen to head the committee and said &#8220;the top priority is making vaccines available.&#8221;</li><li><strong>New data leak.</strong> It seems like groundhog day, but yes, another massive data breach has been identified in Brazil. Just last week, we explained that a database of <a href="https://brazilian.report/newsletters/brazil-daily/2021/02/03/another-breach-exposes-data-of-millions-of-brazilians/">270 million Brazilians’ social security records</a> was put for sale on the dark web. Now, cybersecurity consultancy Psafe reports that a glitch on the systems of two undisclosed telecom operators allowed hackers to access the private data of 102.8 million people — including President Jair Bolsonaro.</li><li><strong>ESG.</strong> Mining giant Vale — which was involved in the <a href="https://brazilian.report/business/2020/03/10/mariana-brumadinho-mining-remains-unsafe-brazil/">two biggest environmental disasters</a> in Brazilian recent history — has <a href="http://www.vale.com/brasil/EN/aboutvale/news/Pages/vale-invests-in-boston-metal-to-foster-carbon-free-steel-production.aspx">invested USD 6 million</a> in Boston Metal, a pre-operating company founded in 2012 by Massachusetts Institute of Technology (MIT). The company aims at converting iron ore into steel without creating carbon dioxide emissions.</li><li><strong>Vaccines. </strong>The state government of São Paulo <a href="https://g1.globo.com/sp/sao-paulo/noticia/2021/02/10/sp-suspende-envio-de-50-mil-doses-da-coronavac-ao-amazonas-apos-vacinacao-ser-interrompida.ghtml">suspended</a> the shipment of 50,000 doses of the Chinese-made CoronaVac to the state of Amazonas. The decision was due to Amazonas&#8217; &#8220;lack of control and planning&#8221; in its vaccination effort — as courts suspended immunizations following multiple reports of officials and wealthy business owners cutting in line. The shipment will be sent after a statewide plan is elaborated. The case of Amazonas, however, is not isolated —&nbsp;over 3,000 incidents of individuals skipping the vaccine queue have been reported countrywide.</li><li><strong>Health.</strong> A <a href="https://saude.estadao.com.br/noticias/geral,oito-em-cada-dez-pacientes-apresentam-disfuncoes-cognitivas-pos-covid-aponta-estudo-do-incor,70003611277?utm_source=meio&amp;utm_medium=email">study</a> by the University of São Paulo on recovered Covid-19 patients gives an indication of the lingering effects the virus can cause: 8 out of 10 patients experienced cognitive problems after being contaminated. Symptoms include memory loss, lack of concentration, mental confusion, and damaged visual perception, among others.</li><li><strong>Right to be forgotten.</strong> The Supreme Court resumed its trial about whether the <a href="https://brazilian.report/tech/2021/02/05/tech-roundup-the-next-frontier-for-brazilian-fintechs/">right to be forgotten</a> — that is, the right to have private information about a person be removed from internet searches and other directories under specific circumstances — should be introduced into Brazilian law. So far, five of the 11 justices have voted on the case, with four stating that introducing this right could curb access to information and enhance the risk of censorship. The trial is expected to be concluded today.

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