A Senate crisis cracking the president’s party

. Sep 16, 2019
senate flavio bolsonaro Senator Flávio Bolsonaro

This newsletter is for PREMIUM and STANDARD subscribers only. Become one now!

Good morning! Today, we explain the Senate crisis within the president’s party. Plus, the government’s silent move on environmental reserves. How Brazilian markets performed. And Brazil’s unpaid dues to the UN. (This newsletter is for platinum and gold subscribers only. Become one now!)

A Senate crisis cracking the president’s party

As early as this week, the Senate could

create a parliamentary investigation committee (CPI) to scrutinize members of high courts in Brazil. The move has received widespread support among President Jair Bolsonaro&#8217;s voters—as well as from Senate members of his Social Liberal Party. With one exception, though: Senator Flávio Bolsonaro, the eldest. Currently under investigation for money laundering, Flávio is worried that the CPI would spark the wrath of Supreme Court Justices—and that he could be the target of their retaliation.</p> <p><strong>Why it matters.</strong> While the president&#8217;s son is under investigation, the wives of two Supreme Court Justices, including the Chief Justice, have had their financial statements scrutinized by tax authorities. This confluence of interests made Chief Justice Dias Toffoli and President Bolsonaro agree on a &#8220;non-aggression pact.&#8221;&nbsp;</p> <p>Justice Toffoli ordered the suspension of any investigation using financial statements flagged by money laundering activities which does not have a court order to lift banking secrecy, which gave Flávio Bolsonaro some relief. Now, a CPI could put that pact at risk.</p> <p><strong>Whipping votes. </strong>Last Friday, the party&#8217;s division was made explicit by Senators Selma Arruda and Major Olímpio, who both signed on the request to creating the CPI in the Senate. They claimed to the press that Flávio Bolsonaro called them saying: &#8220;Do you want to f&#8212; me and the government?&#8221; After the exchange, Ms. Arruda announced she is leaving the party. And Major Olímpio now wants Flávio Bolsonaro out. &#8220;We represent the president&#8217;s fight against corruption. [Selma Arruda] shouldn&#8217;t have to leave the party—[Flávio] does. I want him out right away,&#8221; he said.</p> <p><strong>Dilemma.</strong> Mr. Bolsonaro has two unappealing choices before him. If he sides with his son (and the interests of his own administration), he might lose credit from his anti-corruption platform. But if he stays true to his campaign promises, he might unleash a series of probes against his inner circle.</p> <ul><li><em><strong>Remember:</strong> <a href="https://brazilian.report/power/2019/04/15/brazil-supreme-court-censorship-crusoe/">Brazil’s Supreme Court censors damaging report on Chief Justice</a></em></li></ul> <hr class="wp-block-separator"/> <h2>How the government is silently moving against environmental reserves</h2> <p>Last week, the federal government issued a series of normative instructions that will allow for protected land to be used for tourism. According to the new rules, the Tourism Ministry will be responsible for evaluating the use of federal land for tourism ventures—and would be able to issue permits for hotels and resorts to operate in protected environmental reserves. Decisions will be made taking into consideration the following criteria: potential increase in tourist inflow, job creation, and the viability of the project for long-term regional development.</p> <p>The criteria makes no mention of environmental protections.</p> <p><strong>Why it matters.</strong> Since the presidential campaign, President Jair Bolsonaro has been a harsh critic of environmental agencies, which he sees as an obstacle to development. His government plan includes using tourism to boost the Brazilian economy—to the detriment of protected reserves, if necessary. Recently, Mr. Bolsonaro proposed the dismantling of an ecological reserve in Angra dos Reis (Rio de Janeiro) to create a &#8220;Brazilian Cancún.&#8221;</p> <p><strong>Money first.</strong> The plan for Brazil&#8217;s own Cancún is currently valued at BRL 1bn, and Mr. Bolsonaro announced that he has already contacted investors from Israel, Japan, and the United Arab Emirates. “Cancún generates USD 12bn per year. What does Angra generate? It only makes money from selling [traditional Brazilian foods] <em>cuscuz</em>, <em>cocoroca</em>, and coconut water,” said Mr. Bolsonaro.</p> <p><strong>Government property.</strong> One section of the new rules is set to rub private tourism players up the wrong way: it is determined that all works done on federal premises will be incorporated by the government once the lease is up. However, companies will be able to sublet parts of the land for other ventures, if they wish.</p> <p><strong>Under the radar.</strong> While Mr. Bolsonaro&#8217;s environmental policies have been the focus of much criticism and controversy, these new rules flew under the radar, and were not picked up by the Brazilian press.</p> <ul><li><em><strong>Go deeper:</strong> <a href="https://brazilian.report/power/2019/08/24/jair-bolsonaro-protected-brazilian-cancun/">Jair Bolsonaro wants this protected area to be a “Brazilian Cancún”</a></em></li></ul> <hr class="wp-block-separator"/> <h2>Markets</h2> <p>Shares of giant retailer Magazine Luiza (<a href="https://www.investing.com/equities/magaz-luiza-on-nm">MGLU3</a>) dropped 5.51 percent this past week, after the launch of Amazon Prime in Brazil. Analysts have been split on the long-term prospects for the company. Henrique Bredda, of Alaska Asset Management, believes Amazon will be a niche player targeting the upper class, posing no threat to Magazine Luiza&#8217;s results. Bruce Barbosa, of Nord Research, however, says investors expect scalable growth from the retailer which may not be possible with stronger competition.</p> <p style="text-align:center"><em><strong>Natália Scalzaretto, TBR markets reporter</strong></em></p> <hr class="wp-block-separator"/> <h2>The UN General Assembly</h2> <p>The 74th UN General Assembly starts on September 17, with diplomats meeting to discuss pressing global issues. Brazil has, for decades, fought for a permanent seat on the UN Security Council. However, as we discussed in our <em>Explaining Brazil</em> podcast, the country is accused by global players of wanting to have a bigger stake on the global scene—but does not want the onus of such prominence. For instance, Brazil has failed to pay its UN dues in full.</p> <figure class="wp-block-image"><img loading="lazy" width="960" height="684" src="https://brazilian.report/wp-content/uploads/2019/09/chartoftheday_15628_un_budget_who_has_paid_their_dues_n.jpg" alt="" class="wp-image-24147" srcset="https://brazilian.report/wp-content/uploads/2019/09/chartoftheday_15628_un_budget_who_has_paid_their_dues_n.jpg 960w, https://brazilian.report/wp-content/uploads/2019/09/chartoftheday_15628_un_budget_who_has_paid_their_dues_n-300x214.jpg 300w, https://brazilian.report/wp-content/uploads/2019/09/chartoftheday_15628_un_budget_who_has_paid_their_dues_n-768x547.jpg 768w, https://brazilian.report/wp-content/uploads/2019/09/chartoftheday_15628_un_budget_who_has_paid_their_dues_n-610x435.jpg 610w" sizes="(max-width: 960px) 100vw, 960px" /></figure> <hr class="wp-block-separator"/> <h2>Looking ahead</h2> <p><strong>Volatility. </strong>A massive drone strike on the world&#8217;s largest crude processing facility, operated by Saudi Arabia&#8217;s Aramco, has caused the biggest Brent oil intraday price hike on record this morning. According to Petrobras&#8217; pricing policy, the increases should be passed on to consumers. That should mean more expensive fuel, which could spark reactions from already-disgruntled truck drivers, as well as market volatility this week.</p> <p><strong>Interest rates.</strong> On Wednesday, the Central Bank&#8217;s Monetary Policy Committee will set Brazil&#8217;s benchmark interest rates for the next 45 days. It is a consensus among analysts that the rate will be cut down from 6 to 5.5 percent (which would be a new all-time low), in a scenario of low inflation and sluggish economic activity (despite some indicators giving positive signs). On the same day, the U.S. Federal Reserve is expected to promote a 0.25-percent cut in interest rates.&nbsp;</p> <p><strong>Prosecutor general.</strong> On Tuesday, Raquel Dodge finishes her two-year term at the head of the Federal Prosecution Office—a stint marked by internal divisions, with many criticizing her handling of Operation Car Wash-related cases, with which she was considered to be &#8220;too slow-paced.&#8221; Ms. Dodge&#8217;s replacement should be Augusto Aras, nominated for the job by President Bolsonaro—but who still needs to be confirmed by the Senate. A hearing session is scheduled for September 25, and Mr. Aras&#8217; name should be pushed through without any hiccups.</p> <p><strong>Bolsonaro. </strong>After undergoing surgery on September 8 to remove an abdominal hernia (caused by other surgeries that followed a 2018 stabbing), President Jair Bolsonaro should resume his work routine this week. He was expected to be released on Thursday, but doctors decided he needed more rest. The big question is whether he will be able to deliver the UN General Assembly&#8217;s opening speech next week. Mr. Bolsonaro said he would, even if he was &#8220;on crutches or a wheelchair.&#8221;</p> <p><strong>Pension reform. </strong>The Senate will hold its final deliberative sitting on the pension reform bill today, after which amendments to the text will be voted on by the upper house&#8217;s Constitution and Justice Committee. The bill&#8217;s rapporteur, Senator Tasso Jereissati, said that if President Bolsonaro names his son to be Brazil&#8217;s ambassador to Washington, it could split the Senate and make the reform&#8217;s approval less likely. Most political observers, however, consider it a done deal.</p> <p><strong>Fake news.</strong> Senator Renan Calheiros will have a seat on the parliamentary investigation committee set up to probe the spreading of false information on social media and WhatsApp for political gain. President Bolsonaro&#8217;s campaign was accused last year of using illegal services of mass distribution of messages to help his election bid. Mr. Calheiros&#8217; actions in the committee will be closely monitored by the president&#8217;s office. In February, President Bolsonaro did everything in his power to implode Mr. Calheiros&#8217; bid for the Senate presidency—and the senator is known for his taste for revenge.</p> <hr class="wp-block-separator"/> <h2>In case you missed</h2> <p><strong>Telecom.</strong> Congress approved a new legal framework for telecom companies, updating a 20-year-old piece of legislation which had landline telephony at its core, and didn&#8217;t take internet services into account. The new law lifts outdated requirements on companies and could unclog BRL 34bn in investments. Moreover, it could attract foreign players such as AT&amp;T and Chinese companies. Anatel, the sector&#8217;s regulating body, now has to set new ground rules for operators.&nbsp;</p> <p><strong>Taxes.</strong> President Jair Bolsonaro fired his tax secretary after the government&#8217;s wishes to create a new tax on financial operations became public. Mr. Bolsonaro didn&#8217;t like how former Tax Secretary Marcos Cintra dealt with the issue, and killed the new tax before it was even formally presented. A tax on financial operations is criticized by economists as it stimulates informal cash transactions and raises inflation in the long-term. It also goes against the Central Bank&#8217;s efforts to digitize transfers and move away from cash.</p> <p><strong>Trade.</strong> The Economy Ministry announced that Brazil formally started trade talks with Mexico, the latest chapter of Brazil&#8217;s efforts to open up its insular economy to the rest of the world. Earlier this year, the Bolsonaro administration announced similar talks with the U.S. Also, it oversaw the conclusion of 20 years of negotiations on the Mercosur-EU trade deal (which is still to be ratified). Since 2016, Brazil has placed more importance on bilateral trade, after signing only three trade deals in 20 years.</p> <p><strong>Cultural wars.</strong> The federal National Cinema Agency (Ancine) has made life difficult for the producers of &#8220;Marighella,&#8221; a biopic of guerrilla fighter Carlos Marighella—one of the most prominent insurgents against the military dictatorship, being assassinated by state agents in 1969. The producers claim the agency has blocked funding applications for the distribution of the movie, delaying its launch nationwide. Carlos Bolsonaro, one of the president&#8217;s sons, tweeted about it, leading director Wagner Moura to accuse the government of trying to censor his movie.

Read the full story NOW!

Our content is protected by copyright. Want to republish The Brazilian Report? Email us at contact@brazilian.report