River transfer is Bolsonaro’s ploy to gain support in Northeast

. Jun 29, 2020
Bolsonaro uses water diplomacy to gain support in Northeast Jair Bolsonaro in Penaforte, Ceará. Photo: Alan Santos/PR

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Jair Bolsonaro kicks off his strategy to gain support in the Northeast with a water infrastructure project. The new behavior of Brazilian investors. And just how important is the coronavirus stipend for families.

Bolsonaro uses water diplomacy to gain support in Northeast

President Jair Bolsonaro has inaugurated a stretch of the São Francisco river transfer project,

in the northeastern state of Ceará. Friday&#8217;s event kicked off a project to increase the government&#8217;s popularity in the region, where Mr. Bolsonaro has his lowest approval ratings in the entire country. Eyeing the 2022 re-election bid, the government plans to launch several development actions in the poor semi-arid region.</p> <p><strong>Infrastructure.</strong> The project to transfer the São Francisco River is the biggest hydric infrastructure project in Brazilian history. With 13 aqueducts, nine pumping stations, 27 reservoirs, and 270 kilometers of high-tension transmission lines, it plans to divert 1.4 percent of the river&#8217;s water to supply municipalities that have historically struggled with droughts.</p> <p><strong>History. </strong>The project was initially conceived by Emperor Dom Pedro II in the mid-1800s, but construction only started 150 years later, during the government of Luiz Inácio Lula da Silva. Last week, Mr. Bolsonaro became the fourth president to inaugurate a stretch of the project in the hopes of claiming ownership for its completion. His predecessors Michel Temer and Dilma Rousseff did the same.</p> <ul><li>The transfer is one of Brazil&#8217;s many hyperbolic projects that seem to never end. Other examples are the Trans-Amazonian Highway, which started in the 1970s, and the Trans-Northeastern Railroad, in the 1980s.</li></ul> <p><strong>Why it matters.</strong> If properly functioning, the river transfer will provide water security to 12 million people (more than the entire population of Portugal). The project is even more important if we consider that extreme climate events are becoming more and more frequent. Between 2012 and 2017, the semi-arid region faced the worst drought ever recorded in Brazil.</p> <p><strong>Northeast in the political chess.</strong> The Northeast remains a stronghold for the Workers&#8217; Party — it is the only region in which Mr. Bolsonaro did not win in the 2018 election, and where he still faces his highest rejection rates. With almost 40 million voters, the Northeast can never be ignored by politicians.&nbsp;</p> <ul><li>The president has dismissed the region on a few occasions, but his new congressional bedfellows, the so-called <a href="https://brazilian.report/power/2020/06/02/jair-bolsonaro-bedfellows-congress-deliver-results-how-long/">Big Center</a>, want him to develop a foothold in the area in order to galvanize a highly conservative electorate that could flip to their side.</li><li>The coronavirus emergency salary is expected to boost the president&#8217;s stock among lower-income voters —&nbsp;and no Brazilian region is poorer than the Northeast.</li></ul> <figure class="wp-block-image size-large"><img loading="lazy" width="1024" height="825" src="https://brazilian.report/wp-content/uploads/2020/06/Até-onde-essa-obra-chegou-1024x825.png" alt="São Francisco River transfer project" class="wp-image-43526" srcset="https://brazilian.report/wp-content/uploads/2020/06/Até-onde-essa-obra-chegou-1024x825.png 1024w, https://brazilian.report/wp-content/uploads/2020/06/Até-onde-essa-obra-chegou-300x242.png 300w, https://brazilian.report/wp-content/uploads/2020/06/Até-onde-essa-obra-chegou-768x619.png 768w, https://brazilian.report/wp-content/uploads/2020/06/Até-onde-essa-obra-chegou-1536x1238.png 1536w, https://brazilian.report/wp-content/uploads/2020/06/Até-onde-essa-obra-chegou-610x492.png 610w, https://brazilian.report/wp-content/uploads/2020/06/Até-onde-essa-obra-chegou.png 1800w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Development for the Northeast. Chart: Marcelo Anache/TBR</figcaption></figure> <hr class="wp-block-separator"/> <h2>Brazilian funds increasingly eager to invest abroad</h2> <p>A study by consultancy Economatica showed that Brazilian funds’ investments in international assets have reached historic highs. As of May, BRL 278.5 billion were invested abroad, a staggering 90-percent growth since the end of 2019. Now, this type of investment accounts for 5.6 percent of portfolios. Meanwhile, variable income assets, such as stocks, represent 8.5 percent of local funds’ investments.</p> <p><strong>Why it matters.</strong> Brazilian portfolios tend to be less diversified and overly exposed to fixed-income dynamics, especially for investors relying on government bonds. With Brazil&#8217;s benchmark interest rate at historic lows, the investment market in the country is shifting fast.</p> <p><strong>BDRs.</strong> Economatica also points out an increase in the investments in Brazilian Depositary Receipts — a tool used by local investors to buy stocks of U.S. companies in Brazil — has reached all-time highs, with almost BRL 4 billion invested.&nbsp;</p> <ul><li>This type of investment, however, is not for everyone. Only so-called &#8220;qualified investors&#8221; — that is, those with at least BRL 1 million in financial equity — can deal in BDRs.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/3013158" data-url="https://flo.uri.sh/visualisation/3013158/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Exposure.</strong> For Marco Harbich, a strategist at Terra Investimentos, it makes sense to pursue diversification while the so-called “risk premium” in Brazil is small, due to the country&#8217;s benchmark interest rate falling to its lowest level in history.</p> <ul><li>“These are ways to protect a portfolio with assets that are not related to Brazil. And you have the chance of enjoying a strong economy, as the recovery seems faster abroad than it looks here. Also, there is the fiscal side, which is very committed in Brazil,” he told <strong>The Brazilian Report</strong>.</li></ul> <p><em>— with Natália Scalzaretto</em></p> <hr class="wp-block-separator"/> <h2>Markets</h2> <p>With the sanitation bill approved by Congress, investment bank BTG Pactual lists water and waste management company Sabesp as its top pick in the sector, due to its higher probability of privatization. If that does happen, analysts project Sabesp share prices jumping from the current level of BRL 56.30 to as high as BRL 94. Investors should bear two things in mind: the São Paulo government has to choose a privatization model — and there is a long way ahead before the new regulatory framework is fully implemented.</p> <p class="has-text-align-center"><strong><em>Natália Scalzaretto</em></strong></p> <hr class="wp-block-separator"/> <h2>How important is the coronavirus emergency salary?</h2> <p>President Jair Bolsonaro announced that the coronavirus emergency salary may be extended to three extra installments. Each payment, however, will be lower than the current BRL 600 (USD 110) with the current plan being to pay BRL 500 in the first month, lowered to BRL 400 and 300 in the subsequent stipends. The benefit has been pivotal to preventing an even deeper crisis, with over one-third of the Brazilian adult population receiving the payments. In some states, over half of the population aged over 18 depends on that money.</p> <div class="flourish-embed flourish-map" data-src="visualisation/3007424" data-url="https://flo.uri.sh/visualisation/3007424/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <hr class="wp-block-separator"/> <h2>Looking ahead</h2> <ul><li><strong>Elections.</strong> Last week, the Senate passed a constitutional amendment changing the dates of the 2020 municipal elections, from October 4 and 25 to November 15 and 29. The matter now must be approved by the House, where there is little consensus on the change. Pressured by incumbent mayors, parties of the so-called Big Center in Congress have opposed the new calendar. To gather support, House Speaker Rodrigo Maia has proposed increasing money transfers from the federal government to municipalities. It will take 308 of 513 seats to change the election date.</li><li><strong>Truce? </strong>Cornered by multiple investigations reaching members of his inner circle, President Jair Bolsonaro has charged his top political advisors with initiating conversations with Supreme Court justices and lowering tensions between the branches of government. The question is how long will this truce last —&nbsp;in the past, similar efforts did not last more than a few days. Perhaps the probes <a href="https://brazilian.report/power/2020/06/18/arrest-fabricio-queiroz-pressure-president-jair-bolsonaro/">against his eldest son</a> — or against his <a href="https://brazilian.report/power/2020/05/28/bolsonaro-says-the-supreme-court-is-out-to-get-him-he-not-wrong/">online supporters</a> — will force a change of heart.</li><li><strong>Coronavirus.</strong> It has been a month since states began reopening their economies, and the results are not encouraging. The infection curve saw steep bumps in the Northeast and Southeast regions. The epidemic is also advancing in the South — where cases and deaths have <a href="https://piaui.folha.uol.com.br/o-epicentro-e-mais-embaixo/">doubled</a> over the month of June. In Brasília, the biggest public hospital has 100 percent of ventilators in use —&nbsp;and its director said in a <a href="https://www.oantagonista.com/brasil/exclusivo-iminente-colapso-na-saude-de-brasilia-faz-medicos-sugerirem-lockdown-imediato/">leaked</a> audio message that there are no longer available beds in most of the capital&#8217;s health units. Meanwhile, the city of São Paulo could reopen bars and restaurants as early as next week.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/3012250" data-url="https://flo.uri.sh/visualisation/3012250/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <hr class="wp-block-separator"/> <h2>In case you missed it</h2> <ul><li><strong>Commodities.</strong> CME Group, the parent company of the Chicago Board of Trade, has celebrated a partnership with B3 —&nbsp;which controls São Paulo&#8217;s stock exchange&nbsp;— to develop risk management products for Brazilian companies on the domestic and global market. They will launch futures on Brazilian soybeans in Q3, pending regulatory approvals. The expanded deal includes the extension of the existing B3 cross-listed mini-soybean futures and options contracts, and will allow the companies to evaluate potential products related to South American soybeans and similar commodities.</li><li><strong>Sanitation.</strong> After years of waiting, Congress has finally passed a new regulatory framework for <a href="https://brazilian.report/society/2017/11/26/brazils-sanitation-water-supply-problem/">sanitation services</a>&nbsp;— which will allow private players to fight on an equal footing with public companies. The government expects BRL 700 billion in <a href="https://brazilian.report/coronavirus-brazil-live-blog/2020/06/19/senate-to-vote-on-sanitation-legal-framework-a-hope-for-new-money/">new investments</a> in the near future and hopes the sector will help kickstart the economy.&nbsp;</li><li><strong>Justice. </strong>A Rio appeals court <a href="https://brazilian.report/newsletters/brazil-daily/2020/06/26/rio-de-janeiro-judges-bend-the-rules-for-flavio-bolsonaro/">granted “parliamentary immunity” to Senator Flávio Bolsonaro</a> in the investigation into alleged money-laundering operations carried out within his office, during his stint as a Rio state lawmaker. In practical terms, the case now leaves the trial courts and moves up to an appellate court, where it will be conducted by the politically-appointed State Prosecutor General. While the decision can be struck down by higher courts, it gives Mr. Bolsonaro more time to plan a defense or stall the case even more.</li><li><strong>Cabinet.</strong> President Jair Bolsonaro announced Carlos Alberto Decotelli, the former head of Brazil&#8217;s National Fund for Education Development, as his <a href="https://brazilian.report/newsletters/brazil-daily/2020/06/19/brazil-fired-education-minister-world-bank-job-queiroz-arrest-gdp/">new Education Minister</a>. But his latest cabinet appointment didn&#8217;t come without its dose of controversy: on Twitter, Mr. Bolsonaro mentioned Mr. Decotelli held a Ph.D. from the University of Rosario (Argentina), which was denied by the institution&#8217;s dean —&nbsp;also on Twitter. Mr. Decotelli, however, is just the latest in a long line of Brazilian public officials who have <a href="https://brazilian.report/society/2019/06/03/resumes-lies-wilson-witzel/">lied about their résumés</a>.

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