Good morning! In today’s issue: Germany pulls out of the Amazon Fund. Argentina held its primary elections yesterday, and the results are set to stoke volatility in South American markets. Spending on infrastructure reaches the lowest in three years. 

Germany to cut funds for Amazon preservation

In a move that reflects “great concerns with

increasing deforestation in the Brazilian Amazon,” the German government decided to freeze USD 39m in funds to finance projects aimed at protecting the Amazon rainforest. The decision reportedly concerns only funds destined to projects by the Environment Ministry. President Jair Bolsonaro shrugged when asked to comment on it, saying that &#8220;Brazil doesn&#8217;t need other people to protect the Amazon.&#8221;</p> <p><strong>Why it matters.</strong> International pressure on environmental issues has been mounting. Allies of the government, however, have dismissed it as a reaction to the recent <a href="https://brazilian.report/power/2019/06/28/mercosur-eu-free-trade-deal-announced/">Mercosur-EU deal</a>, saying that lobbies against Brazil&#8217;s agriculture are forcing the narrative to justify protectionist measures. Mr. Bolsonaro also said that international funds to protect the Amazon are part of an international plot to seize control over the rainforest. &#8220;[Germany] will no longer buy the Amazon in installments. They can enjoy that money. Brazil doesn&#8217;t need it,&#8221; said the president.</p> <p><strong>Throwback.</strong> The idea that international powers want to take the Amazon from Brazil started to be vented during the military dictatorship. In 1970, then-President Emílio Médici talked about &#8220;foreign interest on our promised land,&#8221; promising not to let the Amazon become &#8220;vulnerable to infiltration, greed, and de-nationalization.&#8221; The discourse was used to justify a policy of forced integration of indigenous peoples—which resulted in the death of many.</p> <script src="https://www.buzzsprout.com/299876/1078955-56-why-is-the-brazilian-government-spying-on-catholic-priests.js?player=small" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <h2>Argentina: primary results to ramp up volatility</h2> <p>Argentina held its primary elections yesterday—and voters soundly rejected incumbent President Mauricio Macri&#8217;s administration of austerity. The Kirchnerist coalition, headed by Alberto Fernández and with former president Cristina Kirchner as his VP, took a lead of 15 percentage points, with 47.3 percent of votes. The gap was much wider than expected, casting serious doubts on Mr. Macri&#8217;s chances of re-election.</p> <p><strong>Why it matters.</strong> Argentina is Brazil&#8217;s third-largest trading partner—and any major hiccups in its economy have repercussions on this side of the border. With the leftist ticket appearing as head and shoulders ahead, even more volatility is expected for the coming weeks—as Mr. Macri&#8217;s poor showing &#8220;could spark selling of the Argentinian Peso, which would push inflation higher, and fuel more discontent,&#8221; said Matias Carugati, head economist at pollster Management &amp; Fit, in an <a href="https://www.wsj.com/articles/argentine-vote-to-show-strength-of-support-for-market-overhauls-11565533463">interview</a>.</p> <p><strong>Back to Kirchnerism?</strong> Mr. Macri was elected in 2015 with promises to slash inflation and give the Argentinian economy a kick. His support, however, has eroded over the past year, as the economy sank into recession, the country&#8217;s currency melted, and inflation skyrocketed. Last year, Argentina received a USD 57bn loan from the International Monetary Fund. Ms. Kirchner ruled Argentina for eight years, during which she nationalized businesses, controlled prices, and defaulted on the country&#8217;s debt. Her administration was also marred by corruption scandals, and she herself faces graft charges.</p> <script src="https://www.buzzsprout.com/299876/1422364-69-why-argentina-s-presidential-election-matters-to-brazil.js?player=small" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <h2>Infrastructure investments at lowest in three years</h2> <p>Over the first six months of 2019, the Infrastructure Ministry recorded its lowest level of investments (in absolute numbers) over the past three years. The drop is of 10 percent from last year. With the lowest budget for the sector in this decade, the level of authorized spending from the government also sank to 20 percent below 2018 levels. </p> <p><strong>Why it matters.</strong> Upon taking office, the government promised to increase infrastructure investments as a way to jump-start the economy. Easier said than done. But there is a silver lining to be found. The Infrastructure Ministry has effectively paid 24 percent of all authorized spending, which is the highest level in this decade. This shows that the current administration has sped up processes to approve investments. Another positive thing is that Valec, the company which runs Brazil&#8217;s railway system, tripled its spending.</p> <p><strong>Half-empty.</strong> In other sectors, however, things are bleak. Investments in roadways (which represent over 85 percent of the ministry&#8217;s investment budget) dropped 20 percent. We also see that Brazil&#8217;s access to sewage has stagnated since 2016. According to recent official data, 72.4m Brazilians still live in homes which are not connected to a sewage network.</p> <div class="flourish-embed" data-src="visualisation/587441"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <hr class="wp-block-separator"/> <h2>What else you should know today</h2> <p><strong>Pension reform.</strong> According to a survey by newspaper <em>Estadão</em>, the pension reform bill already has enough support to pass in the Senate. So far, 53 of the 81 senators said they will vote for the reform—four more votes than the minimum required. Before the reform can be voted on by all senators, however, it must pass through the Senate&#8217;s Constitution and Justice Committee.</p> <p><strong>Prosecutor General.</strong> Augusto Aras, the leading candidate to be named prosecutor general by President Bolsonaro, said yesterday he will make sure to have a team of conservatives if picked for the job. He also criticized the Supreme Court&#8217;s recent decision to criminalize homophobia, and lashed out at what he called &#8220;gender ideology.&#8221; Mr. Bolsonaro said he will pick the next prosecutor general this week, and that he is choosing between five names. Incumbent Raquel Dodge&#8217;s term ends on September 17.</p> <p><strong>Protests.</strong> Students and teachers have scheduled protests for tomorrow against cuts to the education budget. Organizers expect a higher attendance than in the last round of demonstrations. This time, artists are expected to join the crowd, too. Militants also believe that recent statements by President Bolsonaro, lauding a known torturer, will motivate more people to join their ranks.</p> <p><strong>Economy.</strong> Investment firms expect the Central Bank&#8217;s Economic Activity Index (IBC-Br), which predicts monthly GDP growth, to be hovering around just 0.1 percent in June, following underwhelming numbers by sectors such as industrial output and services. Haitong Bank said the new IBC-Br will hardly change the perception that the economy faces &#8220;strong winds against domestic growth.&#8221;</p> <p><strong>Job market.</strong> While Brazil&#8217;s overall job market remains dreary, one sector is hiring: &#8220;high-tech&#8221; positions associated with the so-called Industry 4.0. Until 2023, the number of such positions will grow 22 percent. However, the number remains very low—with fewer than 1,000 jobs—an indication of the low technological intensity in Brazil&#8217;s industry.

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Daily BriefingAug 12, 2019

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BY Gustavo Ribeiro

An award-winning journalist with experience covering Brazilian politics and international affairs. His work has been featured across Brazilian and French media outlets.