Biden or Trump: the effects of the U.S. election on Brazil

. Nov 03, 2020
election Trump and Biden debate on October 22, 2020. Photo: Stratos Brilakis Trump and Biden debate on October 22, 2020. Photo: Stratos Brilakis

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We’re back, after Monday’s “Day of the Dead,” a national holiday in Brazil. This week, the U.S. election and its ripple effects on Brazil. And the new goals of the government’s economic team.

How the U.S. election affects Brazil

The eyes of the world are turned to Election Day in the U.S.

— and the outcome of the race for the White House could affect Brazil in a big way. Under Jair Bolsonaro, Brazil&#8217;s foreign policy has been centered around creating (or, at least, projecting) a strong alliance with U.S. President Donald Trump. Brazilian President Jair Bolsonaro has broken with protocol and publicly cheered for a Donald Trump re-election on multiple occasions, who he deems &#8220;better for the U.S. and the world.&#8221;</p> <ul><li>Mr. Bolsonaro reportedly wants to be the first world leader to <a href="">congratulate</a> the U.S. president on winning four more years in office.&nbsp;</li><li>If polls are right and former Vice President Joe Biden wins the Electoral College, then all is lost. According to FiveThirtyEight, Mr. Biden has an <a href="">89-percent chance of victory</a>.</li></ul> <p><strong>Why it matters.</strong> Whatever today&#8217;s election result may be, it seems unlikely that Brazil-U.S. relations will improve significantly.</p> <p><strong>If Trump wins the election.</strong> The &#8220;bromance&#8221; between Mr. Bolsonaro and the U.S. president would continue — and a deeper wedge could form between Brazil and China. The president has been coy about whether he will decide to ban Chinese telecom giant Huawei from Brazil&#8217;s upcoming 5G auction, but that becomes a stronger possibility in the case of at least two more years of the Bolsonaro-Trump tandem.</p> <ul><li>Ideological proximity hasn&#8217;t brought results to Brazil. Trade with the U.S. <a href="">fell to an 11-year low</a>, and Mr. Trump has not shied away from slapping import quotas on Brazilian steel — despite numerous concessions made to facilitate the entry of U.S. ethanol in Brazil.&nbsp;&nbsp;</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/4222907"><script src=""></script></div> <p><strong>If Biden wins <strong>the election</strong>.</strong> A Biden White House is expected to be much more predictable in terms of trade, but that is not necessarily good news for Brazil. Jair Bolsonaro&#8217;s environmental policies (or lack thereof) have turned him into an international pariah — even earning a negative mention from Mr. Biden in the first U.S. presidential debate. The Democrat said he would call for a world effort to offer Brazil USD 20 billion to end Amazon deforestation or face unspecified &#8220;economic consequences.&#8221;</p> <p><strong>Silver lining?</strong> In recent decades, Brazil has been a sort of after-thought for U.S. presidents. Which could be a good thing in the case of a Biden win. Immigration from Central America, Cuba, and Venezuela sits way above Brazil on the U.S. foreign policy agenda. Latin America&#8217;s biggest country doesn&#8217;t even get a mention in Mr. Biden&#8217;s government manifesto.&nbsp;</p> <ul><li>As we have reported, the Biden camp is expected to <a href="">wait for Mr. Bolsonaro to extend an olive branch</a> before any attempt to deepen relations.&nbsp;</li></ul> <iframe src="" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe> <hr class="wp-block-separator"/> <h2>An independent Central Bank for Brazil could become a reality</h2> <p>With the 2020 municipal elections just two weeks away, the government has finally admitted —&nbsp;at least behind the scenes — that the chances of passing any structural reform this year are zero. To avoid even more pressure from markets amid a recession and grim outlooks for public debt and unemployment, the administration is trying to focus on more achievable goals: such as formally making the Central Bank independent from the government and passing a new bankruptcy law.</p> <p><strong>Why it matters.</strong> Economy Minister Paulo Guedes champions the two proposals as a way to grant markets more legal security.</p> <p><strong>The case for</strong> <strong>an independent Central Bank.</strong> Giving Central Bank board members terms that do not coincide with presidential terms would shield monetary policy from political interference. That would follow the model used by advanced economies in Europe and North America.</p> <ul><li>Many in Brazil abhor such a proposal, saying it would make the country&#8217;s monetary policy hostage to foreign interests. Millions of voters agree with this assessment, especially since the 2014 presidential campaign, when the Workers&#8217; Party tied that notion to inflation spikes and famine.</li></ul> <p><strong>Will it pass?</strong> The independence of the Central Bank has been debated in Congress for years, and it could stay there for many more if some squabbles are not appeased. There are two bills — one in each congressional chamber — battling for priority. Unless they can reach a compromise, one chamber could stall the other&#8217;s bill.</p> <ul><li>Moreover, there is a lot of uncertainty over the powers of Paulo Guedes, who champions the initiative. As we reported earlier this month, his <a href="">Economy Ministry faces a possible split</a> —&nbsp;which would dilute much of his influence.</li></ul> <p><strong>Bankruptcy law.</strong> A more consensual bill — having already passed in the House — it is nearly unanimous that companies need a clearer recovery path, especially with the coronavirus crisis. This new law would define many understandings which have been set by courts and write them into law. &#8220;The new rules could lower interest spreads and would make the rules much more transparent,&#8221; says Fábio Astraukas, CEO of consultancy Siegen — which specializes in court-supervised recovery processes.</p> <p><em>— with Débora Álvares</em></p> <hr class="wp-block-separator"/> <h2>Markets</h2> <p>Itaú Unibanco, Brazil’s largest private bank, will release its Q3 earnings report today. Profit estimates sit around BRL 4.7 billion, which would represent a 14-percent increase from Q2. The bank made headlines after announcing executive Milton Maluhy Filho as its next CEO, taking charge in February 2021. Praised internally for his ability to deliver results, Mr. Maluhy will be tasked with fully digitalizing the bank and boosting profits.</p> <p class="has-text-align-center"><strong><em>Marco Harbich</em></strong></p> <hr class="wp-block-separator"/> <h2>Record unemployment. Again.</h2> <p>Once again, official data shows a record-high unemployment rate in Brazil, as people attempt to return to the workforce in droves after months of isolation or pessimism over a perceived lack of opportunities. Over the past 12 months, the country has lost 12 million jobs — only civil service gained personnel in the last year.&nbsp;As grim as things may look, some experts warn that <a href="">the worst is yet to come</a>.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3891156"><script src=""></script></div> <div class="flourish-embed flourish-chart" data-src="visualisation/4223028"><script src=""></script></div> <hr class="wp-block-separator"/> <h2>Looking ahead</h2> <ul><li><strong>Payroll taxes. </strong>Senate President Davi Alcolumbre promised to hold a floor vote tomorrow to strike down a presidential veto on payroll tax cuts to 17 economic sectors until December 2021. Members of Congress argue that the move would prevent even more layoffs in the upcoming year. Even ultraliberal Economy Minister Paulo Guedes is in favor of cuts, providing a new tax on financial transactions is created.</li><li><strong>Vaccine 1. </strong>Uncertainty over how Brazil will proceed with a future coronavirus vaccine remains. President Jair Bolsonaro is still reticent to distribute a Chinese-made vaccine nationwide, because of (1) his increasingly anti-China stance, and (2) his rivalry with São Paulo Governor João Doria, who brought the vaccine to Brazil and is almost certain to be on the 2022 presidential ballot. VP Hamilton Mourão said the Chinese vaccine would have support from the military, but Mr. Bolsonaro told reporters he will have the final say. House Speaker Rodrigo Maia meets with state governors today, who fear their states will <a href="">lack immunization coverage due to the president&#8217;s political feuds</a>.</li><li><strong>Vaccine 2. </strong>Meanwhile, the federally-run Oswaldo Cruz Foundation says the potential vaccine by the University of Oxford and British-Swedish lab AstraZeneca could be distributed as early as March 2021.</li><li><strong>Health Minister.</strong> Eduardo Pazuello, Brazil&#8217;s Health Minister, has been in the hospital with Covid-19 since Friday, after suffering from dehydration. According to medical reports on Monday, Mr. Pazuello&#8217;s condition has improved but he remains under observation.</li><li><strong>PIX.</strong> The Central Bank&#8217;s new <a href="">instant payment system</a> PIX goes operational today — but only in a trial mode, and under several restrictions. Initially, only 5 percent of registered users will be allowed to use PIX, and the new platform will only be available on a 24-hour basis as of November 16. Banks will also be allowed to place caps on amounts wired through PIX.</li></ul> <hr class="wp-block-separator"/> <h2>In case you missed it</h2> <ul><li><strong>2021 budget.</strong> The risk of the government entering 2021 <a href="">without approving a federal budget</a> is becoming very real. Party squabbles have stalled the works of the Congressional Budget Committee (which must vote on the budget before taking it to the rest of the lawmakers). If a budget is not passed, Brazil’s federal government could realistically go into shutdown. That is bad in regular times, but could be catastrophic during a pandemic.</li><li><strong>Peru.</strong> The Peruvian Congress will try once again to oust President Martín Vizcarra for alleged &#8220;moral incapacity.&#8221; It is the second impeachment request in as many months — and the third in a year. The trial will be for alleged acts of corruption in 2014. Eight in ten Peruvian citizens would rather have Mr. Vizcarra stay in office until the end of his term, in April 2021. </li><li><strong>Airlines.</strong> Trying to improve its cash flow, Azul Airlines (Brazil’s third-largest carrier) issued BRL 1.6 billion (USD 280 million) in <a href="">convertible bonds</a> last week, becoming the latest Brazilian airline to go to the market for funds instead of accepting a bailout package proposed over 6 months ago by the government-controlled National Development Bank (BNDES).</li><li><strong>Violence.</strong> The November 15 municipal election is shaping up to be one of the bloodiest on record. On Monday, Rio de Janeiro City Councilor Zico Bacana (as well as three other people) was <a href="">shot with a firearm</a> while campaigning in a bar in the Northern Zone of the city. Monitoring by weekly magazine Época shows that ten candidates have been assassinated over the past two months — and dozens more escaped murder attempts.

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