Dummy candidate scandal opens can of illegally funded worms

. Oct 07, 2019
tourism minister president jair bolsonaro dummy candidates Tourism Minister Marcelo Antônio and President Bolsonaro

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Good morning! This week, we are covering Brazil’s new Telecom Law, recently sanctioned by the president. Plus, a campaign financing scandal involving dummy candidates and the Tourism Ministry which could have negative consequences for Jair Bolsonaro, and how Brazilian markets performed. Also, what you should be looking out for this week—and the most important facts of the previous seven days. (This newsletter is for platinum and gold subscribers only. Become one now!)

Brazil’s new Telecom Law

After three years of hemming and hawing,

Brazil has finally approved a new legal framework for telecoms companies. The previous law dated back to 1997 and was overly focused on landline telephony, a form of communications which is largely obsolete in the country.</p> <p>The main change involves moving away from a concession model for telecommunications services to one open to the private sector and based on operating licenses, giving companies more freedom in setting prices. In exchange, companies will have to pledge investments toward expanding access to broadband internet around the country.</p> <p><strong>Why it matters. </strong>The previous framework came at a time when the internet was only an embryonic idea in Brazil, while it is now the central focus the brand-new law. The legislation also heats up competition for the auction of 5G frequencies, set to take place next year.</p> <p><strong>Concessions. </strong>The new law has scrapped the need for landline telephone services to be provided via public concessions, meaning that now, private companies operating in this sector will no longer have to put up with additional costs such as maintaining public phone booths or meeting goals of universalization of services.</p> <p><strong>Reversible assets. </strong>Under previous legislation, the infrastructure used by telecom companies to provide services (phone towers, fiber optic cables, etc.) was established as being government property, being handed back by telecom companies at the end of concessions. This has now changed, handing over these assets to the telecom firms.</p> <p><strong>Oi. </strong>The new telecom law has been seen as something of a life preserver for mobile operator Oi, which has been under court-supervised administration since 2016. Being the largest operator of fixed telephony in Brazil, the previous telecom framework severely hindered any chance of recovery for Oi, being forced to maintain investments in its nationwide network of public phone booths, which it can now begin to move away from. Despite the breathing room offered by the new legislation, the president of Brazil&#8217;s telecom agency believes the new law alone is not enough to save Oi.&nbsp;</p> <hr class="wp-block-separator"/> <h2>Dummy candidate scandal opens can of illegally funded worms</h2> <p>Indicted for his suspected involvement in a <a href="https://brazilian.report/power/2019/02/13/dummy-candidate-scandal-cabinet/">dummy candidate scheme</a> within Jair Bolsonaro&#8217;s Social Liberal Party in Minas Gerais, the investigation into Tourism Minister Marcelo Álvaro Antônio has taken a twist which could throw the funding of Mr. Bolsonaro&#8217;s victorious 2018 election campaign into doubt.</p> <p><strong>Why it matters.</strong> On Sunday, newspaper <em><a href="https://folha.uol.com.br">Folha de S. Paulo</a></em> revealed that testimony given to the police from one of Mr. Álvaro Antônio&#8217;s former advisors and a spreadsheet seized at a Minas Gerais printing shop have pointed toward the proceeds of the dummy candidate scheme being used to fund the campaigns of the Tourism Minister and President Jair Bolsonaro.</p> <p><strong>Testimony. </strong>Haissander Souza de Paula, a former advisor to the Tourism Minister and the coordinator of his campaign last year, told Federal Police that he believes part of the amounts embezzled by the dummy candidate scheme &#8220;were used to purchase materials for the campaigns of Marcelo Álvaro Antônio and Jair Bolsonaro.&#8221; A spreadsheet apprehended from one of the printing shops involved in the scandal includes a reference to 2,000 campaign materials for Jair Bolsonaro, with some 20 percent of the cost indicated as &#8220;invoice,&#8221; and the other 80 percent as &#8220;out,&#8221; which law enforcement believes to be evidence of illegal campaign financing.</p> <p><strong>Dummy candidates.</strong> Marcelo Álvaro Antônio is suspected to have been involved in a scheme to siphon money from a public electoral fund through a series of false female candidates in Minas Gerais. Some BRL 279,000 were transferred to four women candidates, of which at least BRL 85,000 was paid to companies linked to Mr. Álvaro Antônio. These four candidates ended up with a combined total of 2,074 votes, suggesting they were never genuine candidates in the first place.</p> <p><strong>Federal Police. </strong>There are now suggestions that the Federal Police will open up a new investigation focused specifically on the Tourism Minister&#8217;s campaign accounts. Whether President Jair Bolsonaro will be directly implicated in this new probe remains to be seen. Spokespeople for the president say Mr. Álvaro Antônio will not be relieved of his cabinet seat.</p> <hr class="wp-block-separator"/> <h2>Markets</h2> <p>Could mining giant Vale become an “eco-friendly” company, even after the disasters in Brumadinho and Mariana? Investors seem to think so. VALE3 shares rose 2.7 percent on Friday after a presentation on how the company plans to address climate change. Moreover, Reuters reported that if Brazil cuts gas prices by 60 percent, Vale could invest in HBI, a highly concentrated iron-ore “brick” that doesn’t require coal in steel-making. HBI is worth almost three times more than iron ore.&nbsp;</p> <p style="text-align:center"><em><strong>Natália Scalzaretto</strong></em></p> <hr class="wp-block-separator"/> <h2>Risks for 2020</h2> <p>The Brazilian economy is showing some signs of recovery, which has increased optimism around what 2020 will look like for the Brazilian economy. The international scenario, however, is a major risk factor. Brazil&#8217;s top trading partners—China, U.S., Argentina, and the European Union—are all showing signs of a slowdown. The Chinese economy grew at its slowest pace in almost 30 years in Q2 2019, with the U.S. trade war taking its toll. And while an American recession is unlikely for next year, the country&#8217;s growth will lose steam. In Argentina, things are about to get much worse before they get any better, while major EU countries could all enter technical recession by year-end.</p> <p>This means that Brazil will have to swim against the international tide if it is to gain any economic momentum.</p> <div class="flourish-embed" data-src="visualisation/745305"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <hr class="wp-block-separator"/> <h2>Looking ahead</h2> <p><strong>Pension reform. </strong>After the long-awaited pension reform was approved in a first-round Senate vote last week, the second round is unlikely to take place this week, partly due to the canonization of Brazilian Catholic sister Irmã Dulce Pontes in the Vatican next Sunday. Several senators are set to make the trip to the Holy See for the ceremony, making it difficult to have a quorum for important votes.</p> <p><strong>The Golden Rule.</strong> Jair Bolsonaro is expected to send a bill to Congress this week altering the so-called &#8220;Golden Rule,&#8221; which prohibits the government from taking on debt to pay for regular expenses, such as public servants&#8217; salaries. In order to violate the Golden Rule, the administration needs to pass an amendment to the Constitution. The proposal foresees increasing tax on public servants and reducing their working hours and salaries, saving some BRL 102 billion for the federal government in one year.</p> <p><strong>Sanitation.</strong> The bill to update Brazil&#8217;s <a href="https://brazilian.report/society/2017/11/26/brazils-sanitation-water-supply-problem/">basic sanitation</a> framework is set to see progress this week, as rapporteur Geninho Zuliani will submit his report to the House committee on Wednesday. The bill is set to <a href="https://brazilian.report/power/2019/05/21/bolsonaro-brazil-congress/">open up the sanitation sector</a> to the private sector. Currently, municipalities grant sanitation licenses to state-owned companies without bidding processes, which would become mandatory with the new legislation. Mr. Zuliani&#8217;s report is set to be attractive to private sanitation companies, scrapping a demand for state-owned firms to renew their existing concessions with municipalities. The House plans to approve the proposal before the end of the year.</p> <p><strong>Nobel Prize. </strong>On Friday, the Swedish Academy will announce the winner of the Nobel Peace Prize. While 16-year-old climate activist Greta Thunberg is the clear favorite for the award, Brazilian indigenous chief Raoni Metuktire is firmly in the running and is currently bookmakers&#8217; third choice. At 89 years old, <a href="https://brazilian.report/society/2019/09/30/indigenous-leader-raoni-nobel-peace-prize/">Chief Raoni</a> could become the first Brazilian ever to win a Nobel Prize, celebrating a lifetime of activism for the indigenous cause, which has often seen him hold meetings with world leaders. It is a near guarantee that this year&#8217;s prize will go to an environmental activist, with climate change atop the international agenda and this year&#8217;s<a href="https://brazilian.report/power/2019/08/22/amazon-deforestation-bolsonaro-fires/"> Amazon fire crisis</a> causing global outrage.</p> <hr class="wp-block-separator"/> <h2>In case you missed it</h2> <p><strong>Pension reform. </strong>The Senate successfully approved the pension reform in a first-round vote last week, passing by a comfortable 56-19 majority. However, senators approved an amendment to remove one of the government&#8217;s reform proposals, altering requirements for salary bonuses for low-income workers. Removing this measure caused the overall savings of the pension reform to fall by BRL 76.4 billion over ten years. In response to the government defeat, Economy Minister Paulo Guedes decided to reconsider a proposal for a federal pact that would allocate more funds to states and municipalities.</p> <p><strong>Marielle Franco. </strong>Rio de Janeiro police made <a href="https://brazilian.report/power/2019/10/04/arrests-marielle-franco-case-jair-bolsonaro/">four new arrests</a> in the case of the assassination of left-wing councillor Marielle Franco in March 2018. The quartet were taken in under suspicion of smuggling firearms out of an apartment belonging to retired military policeman <a href="https://brazilian.report/power/2019/03/12/arrests-marielle-franco-murder/">Ronnie Lessa</a>, currently in custody for murdering Ms. Franco. It is believed that among the guns disposed of was the HK MP5 submachine gun used to assassinate the city councilor.</p> <p><strong>Banks in the spotlight. </strong>Operation Car Wash prosecutors have revealed that they identified at least BRL 1.3 billion was <a href="https://brazilian.report/power/2019/10/03/major-brazilian-banks-car-wash/">laundered through Brazil&#8217;s five biggest banks</a> as part of corruption schemes. Prosecutors are attempting to determine whether failures in control systems at these financial institutions could lead to holding these banks criminally liable. Some BRL 989.6 million is suspected to have been laundered through accounts at Bradesco.</p> <p><strong>Insider trading. </strong>Feds carried out search and seizure operations at the headquarters of leading investment bank BTG Pactual, suspected of receiving privileged information from the Central Bank’s Monetary Policy Committee (Copom). It is alleged that the bank was informed in advance of changes to Brazil&#8217;s benchmark interest rate, giving it a major head start over its competitors. The suspicions came from plea-bargain testimony of Antonio Palocci, a former finance minister under the Lula administration. Prosecutors did not accept Mr. Palocci&#8217;s testimony, which made dozens of mentions of Brazil&#8217;s major banks and offered little proof to back up his allegations.</p> <p><strong>Supreme Court.</strong> By a 7-4 majority, the Federal Supreme Court (STF) ruled in favor of giving different treatment defendants and those who turn state&#8217;s evidence, in a move which may benefit dozens of Operation Car Wash convicts. The court ruled that defendants who are cited by plea-bargain testimony must be given more time to make their closing arguments in criminal cases. In theory, former President Lula could see one of his corruption sentences annulled. The case has yet to have been concluded, however, as justices are still to decide when the new understanding will come into effect.

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