Covid-19 reaches the favela, where social isolation is nearly impossible
This newsletter is for PREMIUM and STANDARD subscribers only. Become one now!
This week, we talk about how the coronavirus chips away at Bolsonaro’s legitimacy among voters. The arrival of Covid-19 to Rio’s favelas and the risk that poses.
Bolsonaro’s legitimacy crisis
Few governments have been so timid in their reaction to the novel coronavirus than Brazil’s. President Jair Bolsonaro has proved to be a skeptic, calling the disease—which has infected 343,000 and killed 15,000 people worldwide—a “little flu.” His son is picking fights with China, Brazil’s top trading partner. And his Economy Minister continues to resist spending any money to prevent a full-scale economic—and social—collapse.
Why it matters. In our March 20 Daily Briefing, we brought you a terrible forecast: Brazil could have a 20-percent unemployment rate by the end of this crisis. Turns out that might be the best-case scenario. During a live Facebook broadcast with other business leaders, Guilherme Benchimol, chief operating officer of brokerage XP, said he expects unemployment figures to hit as high as 40 percent.
Too small to fail. Mr. Benchimol—alongside leaders of other major corporations—urged the government to launch a “true plan of economic rescue, like the Marshall Plan,” targeting small and medium-sized companies which have much less cushion against a crisis of this magnitude.
- Small companies account for 99 percent of businesses in Brazil. They are responsible for one-quarter of the Brazilian GDP and employ 52 percent of the registered workforce. Letting these businesses fail cannot be an option.
Leading to a crisis. While leaders around the globe are concerned with preserving people’s income in this time of distress—the contrary could lead to social eruptions, worsening the pandemic—the Brazilian government is going in the opposite direction. On Sunday night, Jair Bolsonaro signed a provisional decree authorizing companies to suspend workers’ salaries for up to four months, maintaining certain workers’ benefits and sending them home to do online courses.
- In a country where most workers live paycheck to paycheck, the move could have immensely negative consequences. Economist and philosopher Eduardo Giannetti, who has researched social movements, fears that such a severe material deprivation could lead Brazil to conflict.
Polls. In 15 months in office, Mr. Bolsonaro has shown that he worries first and foremost about his image. And that has taken a hit. Opinion polls show that most Brazilians disapprove of his approach to the pandemic.
- The House of Representatives currently has 17 impeachment requests pending against Jair Bolsonaro. Speaker Rodrigo Maia—who has the power to start or shelve proceedings—said he will not take any action that could hamper how Brazil deals with the coronavirus outbreak. But what if the major obstacle in dealing with the pandemic becomes the president himself?
Covid-19 reaches the favela, where social isolation is nearly impossible
The novel coronavirus has its first confirmed case within a Rio de Janeiro favela. The first recorded infection came in Cidade de Deus, the 40,000-people community to the west of Rio, made famous as the set of a 2002 Oscar-nominated film. Favelas are densely packed neighborhoods, with flimsy sanitation infrastructure and virtually no possibility of social isolation for many families. Often, houses have only one room in which all family members have to live.
Besides the impossibility of keeping a safe distance from potentially infected people, these areas suffer from high levels of poverty. Many families simply can’t afford products such as hand sanitizer, face masks, or even soap, in some cases.
Why it matters. Lower-income populations rely entirely on the public healthcare system. If the virus spread like wildfire in these communities, it could speed up a process leading to the collapse of the country’s hospitals.
- Rio alone has 763 favelas, where over 2 million people live.
Counter-measures. NGO Cufa (Central Única das Favelas) has presented a list with 14 recommendations for authorities to avoid this doomsday scenario. They include the free distribution of personal care items and access to Wi-Fi internet connections to allow people to inform themselves about Covid-19.
- Last week, Rio state lawmakers passed a bill authorizing the state government to request private properties such as hotels, inns, and motels to be used for quarantine purposes—with compensation for business owners in the future.
Gangs. Even vicious drug gangs have apparently become aware of the problem. Rio’s Comando Vermelho (“Red Command”), one of the deadliest drug cartels in South America, has begun employing curfews in some of its territories. A flyer shared on WhatsApp warns residents of Rocinha—Brazil’s biggest favela—that those who are caught on the street after 8 pm will “learn how to respect others.” And it adds: “If the government has no capacity to handle this, organized crime will.”
In quarantine, nearly all non-essential shops in the state of São Paulo will be closed this week. Other states are expected to follow suit. The move, while in line with health experts’ recommendations, will take a toll on most retailers, according to brokerage Guide Investimentos: “We believe that companies’ earnings will be severely hit in Q2, except for online operations, which could bring some relief,” wrote analyst Luís Sales.
The Brazilian curve
The government has admitted that Covid-19 cases in the country have been massively underreported. And that the Brazilian epidemic curve will continue to go up—peaking at mid- to late-April. That is if all containing measures work. Health Minister Luiz Henrique Mandetta predicts a collapse of the public healthcare system within a month.
- Central Bank. After cutting Brazil’s benchmark interest rate by 0.50 percentage points to 3.75 percent a year, the Central Bank will today publish the minutes from the last Monetary Policy Committee meeting. Markets are keen to see whether or not the bank is leaning toward more interest cuts.
- 2020 elections. The Health Ministry argued in favor of postponing the 2020 municipal elections, scheduled for October. Minister Luiz Henrique Mandetta fears that incumbent mayors will put their electoral goals before public health when acting amid the pandemic—and that challengers might boycott measures to erode trust in sitting administrations. One conservative senator is already seeking co-sponsors for an amendment proposal pushing the election to 2022, when elections to federal government are set to take place. For the moment, however, congressional leaders such as House Speaker Rodrigo Maia have discarded the possibility, as has Supreme Court Justice Luís Roberto Barroso, the deputy chief justice at the Superior Electoral Court.
- Stock market. The São Paulo stock exchange crashed by 18.8 percent last week—its worst performance since the 2008 financial crisis. This week should be bumpy, too. After the number of Covid-19 deaths in Spain and Italy rose and the U.S. Senate rejected a USD 1-trillion-plus coronavirus response bill, markets around the world have taken a nosedive. In Asia-Pacific, only Tokyo closed in the black. In Europe, markets have opened on a downward curve, with the pan-European Stoxx 600 falling 4.5 percent in early trading.
In case you missed it
- Rescue. On Sunday, the National Development Bank (BNDES) announced a BRL 55 billion plan to support small and medium-sized companies and refinance debts. However, BRL 20 billion of that money had already been announced, coming from the mandatory severance fund FGTS to support workers. Once again, the Jair Bolsonaro administration has been less than completely honest when announcing measures to curb the effects of the Covid-19 pandemic.
- Aviation. Brazilian carriers have posted huge market cap losses in 2020—more than their international peers. According to a ranking by consultancy Economatica, Gol and Azul lost 86 and 83 percent of value since January. Latam, a Brazilian-Chilean company, comes in third (down 79 percent). The top 20, however, is mostly filled by U.S. carriers.
- Tests. The Health Ministry said Brazil will adopt the so-called ‘point-of-care’ tests, which use a drop of blood to detect the novel coronavirus. The new tests will be produced by a Chinese company, and have been approved by Chinese and European regulators—but not yet by the World Health Organization. The goal is to distribute at least 10 million tests to state governments within the next few days—and 50 million within the next couple of months.
- Borders. On Sunday night, Brazil announced it will shut down its border with Uruguay—the last land connection which still remained open. The decision is valid for at least 30 days. Cargo transportation, however, remains permissible. Brazil opted for a specific decision concerning Uruguay after a request from Montevideo, as the shared border region is heavily inhabited.
- Say what? In a press conference on Sunday, Health Minister Luiz Henrique Mandetta said “half of the population won’t be infected with the coronavirus. And from those, half won’t show any symptoms.” That is hardly an uplifting quote, as Brazil has a total population of roughly 210 million.