Amid pandemic, Bolsonaro creates pandemonium

. Apr 27, 2020
bolsonaro pandemic pandemonium Jair Bolsonaro. Photo: Marcelo Camargo/ABr

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This week, the aftermath of the Bolsonaro v. Moro crisis. The failed deal between Embraer and Boeing. And why Brazil’s markets are suffering more than others.

Crisis upon crisis in the Bolsonaro government

If the worst pandemic in a century wasn’t enough to deal with,

Brazil is simultaneously heading into a full-scale institutional deadlock. On Friday, former judge Sergio Moro resigned from the Justice Ministry, but not before publicly accusing President Jair Bolsonaro of trying to meddle with Federal Police investigations and forging his signature on the Federal Register — the official gazette through which all government acts are published. </p> <ul><li>The president will make two new appointments this week: a replacement Justice Minister, and a new head of the Federal Police. Head and shoulders above other potential nominees are two friends of Mr. Bolsonaro&#8217;s sons: his current secretary-general Jorge Oliveira — the best man at Eduardo Bolsonaro&#8217;s wedding — and the head of Brazil&#8217;s Intelligence Agency Alexandre Ramagem, who celebrated New Year&#8217;s Eve in 2019 with Carlos Bolsonaro.</li></ul> <p><strong>Why it matters.</strong> Mr. Moro accused Mr. Bolsonaro of wanting “a Federal Police Chief that could give him information on investigation reports.” By naming his sons&#8217; chums, the president is doing nothing to allay those suspicions.</p> <p><strong>Legal battle.</strong> Opposition parties plan to take the matter to the Supreme Court. While cabinet nominations are of the president&#8217;s discretion, certain principles — such as impersonality and honesty — must be respected.&nbsp;</p> <ul><li>In 2016, for example, the Supreme Court nullified then-President Dilma Rousseff&#8217;s decision to name ex-president Lula as her Chief of Staff, when it became clear that the move aimed at shielding Lula from arrest.</li><li>Mr. Oliveira&#8217;s potential appointment as Justice Minister might pass unopposed. But the same cannot be said for Mr. Ramagem, as his friend Carlos Bolsonaro is knowingly under Federal Police investigation for his underground fake news operations and possible participation in last week&#8217;s anti-democratic protests.</li></ul> <p><strong>Political consequences.</strong> By losing Mr. Moro as ally, Mr. Bolsonaro also loses his anti-corruption credentials, while planning an alliance with parties that are literally run by convicted felons. At this point, the administration is focusing all of its efforts on avoiding impeachment — that is, it does daily whip counts to make sure it has at least 171 House votes to bar an ousting.</p> <p><strong>What to look out for.</strong> Mr. Bolsonaro has been able to sustain his core of supporters at around 30 percent of the electorate. That will be crucial for him moving forward, but this institutional crisis comes amid a pandemic that will scrap millions of jobs and halt the economy for months, if not years. A Saturday poll by XP/Ipespe says 49 percent of voters believe the Bolsonaro administration will be bad or terrible from now on. Only 18 percent are optimistic.</p> <p><strong>Meanwhile … </strong>Federal prosecutors opened two investigations into the president&#8217;s possible interference with Army rules, ordering the Armed Forces to lift monitoring controls over guns and ammunition. This obtrusion could be deemed illegal.</p> <hr class="wp-block-separator"/> <h2>Why the Boeing-Embraer deal failed</h2> <figure class="wp-block-image"><img loading="lazy" width="1024" height="682" src="" alt="embraer boeing" class="wp-image-37290" srcset=" 1024w, 300w, 768w, 610w, 2048w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Embraer&#8217;s KC-390. Photo: Sgt. Bianca/Brazilian Air Force</figcaption></figure> <p>Plane manufacturer Boeing terminated its USD 4.2-billion purchase of the commercial jet division of Brazilian planemaker Embraer on Saturday. In a press release, the Chicago-based giant cited &#8220;unsuccessful negotiations about unsatisfied [terms]&#8221; doomed the deal, claiming that Embraer failed to separate the production lines of divisions not included in the agreement. In response, the Brazilian company accused Boeing of &#8220;fabricating false allegations as a pretext to avoid fulfilling its commitments.&#8221;</p> <ul><li>&#8220;Boeing adopted a systematic pattern of delays and repeatedly violated the agreement due to its unwillingness to conclude the transaction,&#8221; said the Brazilian manufacturer, which plans to seek damages from Boeing.</li></ul> <p><strong>Context.</strong> Signed two years ago, a deal between Boeing and Embraer began making sense after European planemaker Airbus teamed up with Canada&#8217;s Bombardier to produce medium-range aircraft. Embraer agreed to split its commercial jet line — of which the ownership of 80 percent would go to Boeing —&nbsp;from its defense and executive divisions. The deal was important for Boeing as it gave it the tools to compete toe-to-toe with Airbus. For Embraer, it gave the company strength to negotiate contracts and increase its research and development budget.</p> <ul><li>Things began turning sour for Boeing after security malfunctions in its <a href="">737 Max planes</a> caused two fatal crashes, killing 346 people. By January, the disasters had cost Boeing <a href="">USD 19 billion</a>, not to mention the significant blow to the firm&#8217;s reputation. The coronavirus crisis only made things worse, as the pandemic has all but halted aviation and crippled the global economy.</li></ul> <p><strong>Why it matters. </strong>The failed deal casts Embraer into uncertainty. Moreover, the company spent USD 86 million to split its most-profitable division&nbsp;—&nbsp;which contributed to its USD 232 million in losses in 2019. Now, it will spend even more to reunify its operations.</p> <p><strong>Half-full.</strong> At least one group rejoiced with the collapse of the deal: the government&#8217;s military wing, which was never sold on the deal and considers Embraer a strategic asset. For the generals in Jair Bolsonaro&#8217;s cabinet, now is the time to reassess the government&#8217;s stance on privatizations, giving them another opportunity to break from Economy Minister Paulo Guedes&#8217; liberalism and <a href="">take a more active role in the economy</a>.</p> <hr class="wp-block-separator"/> <h2>Markets</h2> <p>Analysts foresee brewing giant Ambev being hit hard by Covid-19, due to its dependence on in-person sales of beer and soft drinks in bars and restaurants. The coronavirus crisis comes as Ambev is already struggling with increasing competition and changes in consumer behavior, with the market now more favorable toward premium and craft beers. XP Research anticipates a 670-base-point drop in Ambev&#8217;s margins, to 33.8 percent in Q1 2020, and a 22-percent decrease in the company&#8217;s EBITDA (earnings before interest, tax, depreciation, and amortization). The company will publish its earnings on May 7.</p> <p style="text-align:center"><strong><em>Natália Scalzaretto</em></strong></p> <hr class="wp-block-separator"/> <h2>Don&#8217;t blame it (all) on the coronavirus</h2> <p>While the Covid-19 crisis has tanked financial markets across the globe and hit emerging currencies hard, Brazil seems to be suffering more than its counterparts. The fact that the main topics of today&#8217;s newsletter do not directly concern the coronavirus pandemic shows how Brazil, on top of a sanitary crisis, is forced to deal with all sorts of problems on the political end.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/2113248" data-url=""><script src=""></script></div> <div class="flourish-embed flourish-chart" data-src="visualisation/2114852" data-url=""><script src=""></script></div> <hr class="wp-block-separator"/> <h2>Looking ahead</h2> <ul><li><strong>Stay or go?</strong> While ex-Justice Minister Sergio Moro was still cleaning out his desk, rumors of another high-profile cabinet exit began circulating in Brasília. Insiders say Economy Minister Paulo Guedes could be on his way out sooner rather than later. Mr. Guedes has become more and more marginalized by the president&#8217;s new Chief of Staff, Army General Walter Braga Netto, and he opposes the government&#8217;s newly-announced stimulus plan of massive infrastructure investments, going as far as boycotting its launch.&nbsp;</li><li><strong>Aid to states.</strong> The Senate is expected to come up with a new financial aid plan to help the public accounts of Brazil&#8217;s states, after the House approved one that demanded nothing in return from governors. Senate President Davi Alcolumbre will draft the bill himself and will allow aid under the condition of freezing civil servants&#8217; salaries for two years. The only remaining question is whether the plan will favor states with more Covid-19 cases, or those with fewer resources to tackle the crisis on their own.</li><li><strong>Inflation.</strong> The IPCA-15 price index — considered to be a predictor of inflation — will be released on Tuesday, helping to calibrate analysts’ expectations around possible new cuts in the benchmark interest rate by the Central Bank.</li><li><strong>Labor.</strong> Besides not knowing how many people have contracted or been killed by Covid-19 due to a lack of testing, there is another area in which Brazil is flying blind: the labor market. On Thursday, new data from the Brazilian National Household Sample Survey (Pnad) will offer an idea of how many jobs have been obliterated by the pandemic —&nbsp;but the survey is now being held over the phone, which could skew the data. Meanwhile, the Economy Ministry has yet to publish any employment figures in 2020.</li></ul> <hr class="wp-block-separator"/> <h2>In case you missed it</h2> <ul><li><strong>Reopening.</strong> Despite the World Health Organization saying Latin America is about to face the worst stage of the pandemic, regions in Brazil have kicked off plans to reopen the economy. Santa Catarina has allowed shopping malls and street commerce to operate — which created <a href="">waves of masked people</a> agglomerating in commercial buildings. The state will be Brazil&#8217;s test case of what might happen if authorities decide to lift restrictive measures too soon.</li><li><strong>Deforestation.</strong> Amid the pandemic, Brazil&#8217;s Environment Ministry quietly granted amnesty to landowners who deforested fragile and important areas of the Atlantic Forest, Brazil&#8217;s most decimated biome. An order by Environment Minister Ricardo Salles was signed on April 6, but published over the weekend. It catered to the National Agricultural Confederation, one of Brazil&#8217;s most powerful lobbies.</li><li><strong>Trade.</strong> Argentina has announced its <a href="">withdrawal from all negotiations within Mercosur</a> — the trade bloc formed by Brazil, Argentina, Paraguay, and Uruguay. The decision affects only ongoing talks; previously approved deals — such as last year’s Mercosur free trade agreement with the European Union — will be preserved. However, the move upends trade deals currently under construction with South Korea, Lebanon, Canada, and India, as the bloc’s rules require unanimous agreement on trade issues.</li><li><strong>Numbers.</strong> According to the latest <a href="">update</a> by the Health Ministry released on Sunday evening, Brazil has recorded 61,888 Covid-19 cases and 4,205 deaths — from 40,581 infections and 2,462 deaths one week before.

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