Jair Bolsonaro’s “super ministers” get deflated after just 6 months

. Jul 06, 2019
sergio moro paulo guedes

Hello, you’re reading The Brazilian Report‘s Weekly Report. Our featured story today is about how the government’s two “super ministers” Moro and Guedes have lost power and prestige—managing to do very little of what they were set out to do.

The week in review

Pension reform. The House’s pension reform

special committee finally approved the reform bill on Thursday (more below). Despite heavy lobbying from organized groups—and even the president—to water down the pension reform, its core was preserved, though some changes catering to rural producers reduced savings to just short of the psychological BRL 1 trillion milestone. The challenge now is approving the bill in a two-round roll call vote that needs the support of at least 60% of seats within the next two weeks, when Congress goes on its mid-year recess.</span></p> <p><b>Scandal. </b><span style="font-weight: 400;">Former Rio de Janeiro Governor Sérgio Cabral (who is in prison for multiple corruption convictions) admitted to leading a cash-for-votes scheme within the International Olympic Committee to guarantee that Rio would be chosen as the host city for the 2016 games. Per Mr. Cabral, USD 2m were paid to Lamine Diack, who headed the governing body on athletics, by way of shell companies. Mr. Diack is expected to face trial in France next year.</span></p> <p><b>Brumadinho. </b><span style="font-weight: 400;">A Senate investigation committee (CPI) on the Brumadinho dam collapse approved its final report, recommending Vale (the owner of the dam) and German consultancy Tüd Süv (which attested to the dam&#8217;s safety, despite glaring structural issues) be liable for the disaster, as well as 14 individuals—including Vale&#8217;s former CEO. On January 25, 2019, a tailings dam collapsed in the town of Brumadinho, spilling billions of liters of mud—which killed 247 people and left 23 missing.</span></p> <p><b>Data privacy.</b><span style="font-weight: 400;"> The Senate voted in favor of the inclusion of the right to data protection as a basic right protected by the Constitution. This piece of legislation falls in line with a larger move towards giving citizens more data privacy. In August 2018, Brazil passed its General Data Protection Law, modeled after the European Data Protection Regulation (GDPR). The law gives citizens more control over their own data and imposes a series of obligations on companies which hold the personal information of their clients.</span></p> <p><b>Amazon Fund. </b><span style="font-weight: 400;">Brazil&#8217;s Environment Minister Ricardo Salles met with diplomats from Norway and Germany to discuss the Amazon Fund. Set up in 2008, the fund is the largest project of its kind to help preserve the Amazon rainforest. The two countries are the main donors, and they wanted to discuss the standoff created by the Brazilian government&#8217;s decision to change how the fund is run—a stalemate that could lead to the end of the fund altogether.</span></p> <p><b>5G. </b><span style="font-weight: 400;">The government has kicked off its plan for implementing 5G technology in Brazil. Stage 1 is all about holding public hearings to map opportunities and, by March 2020, have a base document containing its strategy for 5G. The National Telecommunications Agency is preparing the auction of 5G frequencies for next year.</span></p> <hr> <h2>Mapping support for pension reform in the House</h2> <p><span style="font-weight: 400;">The pension reform bill got massive support in the House&#8217;s Special Committee—proof of the effectiveness of Speaker Rodrigo Maia&#8217;s vote-whipping strategy. Even the president&#8217;s Social Liberal Party (PSL) voted with the government, after leaders threatened not to, as they wanted more favorable retirement conditions for law enforcement agents, which were not given.</span></p> <hr> <p><img class="alignnone size-full wp-image-20261" src="https://brazilian.report/wp-content/uploads/2019/07/export-fOVdt.png" alt="pension reform" width="1200" height="800" srcset="https://brazilian.report/wp-content/uploads/2019/07/export-fOVdt.png 1200w, https://brazilian.report/wp-content/uploads/2019/07/export-fOVdt-300x200.png 300w, https://brazilian.report/wp-content/uploads/2019/07/export-fOVdt-768x512.png 768w, https://brazilian.report/wp-content/uploads/2019/07/export-fOVdt-1024x683.png 1024w, https://brazilian.report/wp-content/uploads/2019/07/export-fOVdt-610x407.png 610w" sizes="(max-width: 1200px) 100vw, 1200px" /></p> <hr> <p><img class="alignnone size-full wp-image-20260" src="https://brazilian.report/wp-content/uploads/2019/07/export-JWOcm.png" alt="pension reform" width="1200" height="800" srcset="https://brazilian.report/wp-content/uploads/2019/07/export-JWOcm.png 1200w, https://brazilian.report/wp-content/uploads/2019/07/export-JWOcm-300x200.png 300w, https://brazilian.report/wp-content/uploads/2019/07/export-JWOcm-768x512.png 768w, https://brazilian.report/wp-content/uploads/2019/07/export-JWOcm-1024x683.png 1024w, https://brazilian.report/wp-content/uploads/2019/07/export-JWOcm-610x407.png 610w" sizes="(max-width: 1200px) 100vw, 1200px" /></p> <hr> <h2>Markets</h2> <p><span style="font-weight: 400;">How much steam does Ibovespa have after reaching 104,000 base points? Well, that depends. Despite a steep recent rise, the index is still 50% below its peak in USD (a more reliable measure), per Eduardo Guimarães, analyst at Levante. As interest rates are set to fall and the pension reform&#8217;s approval may increase foreign investors&#8217; appetite for Brazilian equities, the scenario looks quite favorable for stocks. But that doesn&#8217;t mean the climb will be smooth and steady. Mirae Asset&#8217;s Pedro Galdi sees a positive trend, but with some profit taking along the way. To avoid volatility, keep an eye on sectors with extra momentum; this week, XP Investimentos highlighted aviation positively, as Gol and Azul carriers showed better than expected operational data, and Avianca&#8217;s bankruptcy reduces competition.</span></p> <p><b><i>Natália Scalzaretto, TBR markets reporter</i></b></p> <hr> <h2>Jair Bolsonaro&#8217;s &#8220;super ministers&#8221; get deflated after just 6 months</h2> <p><span style="font-weight: 400;">When Jair Bolsonaro assembled his cabinet after winning the 2018 presidential election, he gave special attention to two of his picks, dubbing them &#8220;super ministers.&#8221; The first was Sergio Moro, who was given the newly merged Justice and Public Security Ministry. Then came Paulo Guedes, who inherited the Ministries of Finance, Planning, Industry, Foreign Trade, and Services, which was melded into a financial Megazord titled the Ministry of the Economy.</span></p> <p><span style="font-weight: 400;">Six months into the administration, however, both Mr. Moro and Mr. Guedes have accomplished little and—albeit for different reasons—they can no longer be called &#8220;super.&#8221; We explain why.</span></p> <h4>Sergio Moro: from Superman to embattled right-wing icon</h4> <p><span style="font-weight: 400;">By picking Mr. Moro to be his Justice Minister, President Bolsonaro wanted to send a message that his administration would not tolerate corruption. Sergio Moro made his name as the presiding judge of Operation Car Wash-related cases in Curitiba, and was seen by many as a tough-on-crime character, an almost incorruptible force.&nbsp;</span></p> <p><span style="font-weight: 400;">Even before taking office, Mr. Moro was given a huge win: Brazil&#8217;s money laundering enforcement agency (Coaf) would be transferred from the Economy Ministry to go under his watch, as a matter of Justice. Then, early in February, Mr. Moro presented his </span><a href="https://brazilian.report/power/2019/02/04/brazil-anti-crime-plan-explained/"><span style="font-weight: 400;">anti-crime bill</span></a><span style="font-weight: 400;"> to Congress, promising tougher penalties on convicted felons, a crackdown on electoral crimes, and more liberty for law enforcement to use violent force.</span></p> <p><span style="font-weight: 400;">Politics, however, got the best of him. Congress put Coaf back to its original place, and Mr. Moro&#8217;s anti-crime bill is currently sitting on a shelf, somewhere in the lower house, gathering dust. It is as far from a priority to the lawmakers&#8217; agenda as any bill could be. And Mr. Moro&#8217;s situation is unlikely to improve.</span></p> <p><span style="font-weight: 400;">Over the past month, news website </span><a href="https://theintercept.com/brasil/"><i><span style="font-weight: 400;">The Intercept</span></i></a><span style="font-weight: 400;"> has published a series of leaked messages between Mr. Moro and Car Wash prosecutors, from his time as a federal judge. The content shows Mr. Moro coaching prosecutors, instructing the use of evidence and how to conduct police operations—while his role was to act as a neutral umpire. On Friday, new leaks were published in partnership with </span><i><span style="font-weight: 400;">Veja</span></i><span style="font-weight: 400;">, a conservative magazine which has praised Mr. Moro on multiple occasions, but which this time accused him of foul play.</span></p> <p><span style="font-weight: 400;">Meanwhile, the Federal Police (controlled by the Justice Ministry) has reportedly asked for authorization to scrutinize the finances of Glenn Greenwald, the journalist behind the leaks. Mr. Moro has not denied this.</span></p> <p><span style="font-weight: 400;">Earlier this year, there were talks that Mr. Moro could stand as a powerful challenger for his boss&#8217; job in 2022. Now, political operators have started debating whether he will be able to hold on to the position he has now.</span></p> <p><span style="font-weight: 400;">(Click </span><a href="https://brazilian.report/power/2019/07/05/lava-jato-leaks-veja-sergio-moro-bolsonaro/"><span style="font-weight: 400;">here</span></a><span style="font-weight: 400;"> to read in detail about the latest batch of leaks. </span><a href="https://brazilian.report/opinion/2019/06/25/the-intercept-strategy-covering-car-wash-leaks/"><span style="font-weight: 400;">Here</span></a><span style="font-weight: 400;"> for </span><i><span style="font-weight: 400;">The Intercept</span></i><span style="font-weight: 400;">&#8216;s publishing strategy. And </span><a href="https://brazilian.report/opinion/2019/07/05/greenwald-harassment-worrying-press-freedoms/"><span style="font-weight: 400;">here</span></a><span style="font-weight: 400;"> for the menace to press freedoms Mr. Moro&#8217;s reported attack on </span><i><span style="font-weight: 400;">The Intercept</span></i><span style="font-weight: 400;"> represents).</span></p> <h4>Paulo Guedes: political ineptitude</h4> <p><span style="font-weight: 400;">Economy Minister Paulo Guedes is not suspected of wrongdoing. His loss of power has other reasons: (1) the ultra-liberal economist teamed up with a president historically fond of government interference in the economy; and (2) his lack of political skills to deal with Congress.</span></p> <p><span style="font-weight: 400;">In multiple occasions, Mr. Bolsonaro has sided with other power brokers within the administration when they clashed with the Economy Minister. On one occasion, he sent Mr. Guedes to visit Agriculture Minister Tereza Cristina and settle a dispute about tariffs on powdered milk. In Brasília language, the fact he had to go and meet Ms. Cristina, and not the other way around, is indicative of his standing within the administration.</span></p> <p><span style="font-weight: 400;">Moreover, ever since Mr. Guedes started talking about his plans for the economy, his erratic behavior rubbed lawmakers the wrong way. He expressed a desire to &#8220;corner&#8221; Congress into approving a pension reform last year, so the Jair Bolsonaro administration would dodge any political backlash for the unpopular bill.&nbsp;</span></p> <p><span style="font-weight: 400;">His successive episodes of political clumsiness have even prevented him from recognizing victory when he had it. Earlier this year, Mr. Guedes presented a pension reform proposal that would save BRL 1.2 trillion in ten years. Virtually no bill—let alone a reform of this magnitude—passes through Congress intact, without some form of dilution. Still, the reform passed a special committee vote relatively unchanged, with savings hovering around BRL 800-900bn.&nbsp;</span></p> <p><span style="font-weight: 400;">But Mr. Guedes has said, time and again, that anything short of a BRL 1 trillion would be an utter failure.</span></p> <p><span style="font-weight: 400;">For a brief moment, the Economy Minister tried to become the political liaison between the administration and Congress for all matters related to the reform. It didn&#8217;t last for long. Congress has kicked Mr. Guedes into touch—and House Speaker Rodrigo Maia emerged as the new poster boy for the austerity measures market operators are so eager for.</span></p> <p><span style="font-weight: 400;">Last year, Mr. Guedes was seen as the insurance that Mr. Bolsonaro&#8217;s administration would be fiscally responsible. He now seems like an afterthought.

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