Photo: Marcelo Camargo/ABr

Good morning! The government v. Congress’ “Big Center.” Interest rates in Brazil could go close to zero in the near future. And the Supreme Court discusses the presumption of innocence. (This newsletter is for platinum subscribers only. Become one now!)


BREAKING

The Federal Police is carrying out search and seizure warrants at addresses linked to

Luciano Bivar, chairman of Jair Bolsonaro&#8217;s Social Liberal Party (PSL). He is suspected of quarterbacking a scheme of dummy candidates to siphon money from campaigns. Pushed into the spotlight in 2018 thanks to Mr. Bolsonaro, PSL has a long history of irregularities in the use of public funds to finance party activities—having nine of its 16 accounts rejected since 1998, when the party was founded.</p> <hr class="wp-block-separator"/> <h2>&#8216;Big Center&#8217; wants big losses for the government</h2> <p>At war against his own PSL party, President Jair Bolsonaro will face three important votes in Congress this week. And the group of parties known as the &#8220;Big Center&#8221; (<em>centrão</em>) is keen on imposing three tough defeats on the government.</p> <p><strong>Why it matters.</strong> True to his campaign promises, Mr. Bolsonaro has not built a proper legislative coalition—negotiating the approval of each bill in Congress individually. Now, parties have yet another opportunity to strongarm the government for more space in the Executive branch.</p> <p>Cornering the administration has worked in the past, leading President Bolsonaro to approve funding for projects sponsored by lawmakers—something that candidate Bolsonaro was against doing.</p> <p><strong>Context.</strong> The Big Center is a loose coalition of conservative forces, dating back to the Constitutional Assembly of 1986–1988. This group is not made up of any hardcore ideologues; instead, they are pragmatists who are willing to engage in horse-trading with whichever president happens to be in office. While most popular politicians label the group as “an example of everything that is wrong with Brazilian politics,” the truth is that the “Big Center” was courted by nearly all leading candidates in last year&#8217;s elections.</p> <p><strong>Votes.</strong> These are the proposals that could weaken the government this week:</p> <ul><li><strong>Decree 886/2019.</strong> This decree to rearrange the cabinet must be confirmed by Congress this week, or else it will expire. It moves the program of private-public partnerships to under the umbrella of the president&#8217;s Chief of Staff. According to the government&#8217;s own estimates, the program is capable of generating BRL 3 trillion in investments.</li><li><strong>Decree 890/2019.</strong> This creates the Doctors Across Brazil program, Mr. Bolsonaro&#8217;s replacement to the More Doctors program, an initiative that used Cuban doctors to provide healthcare to remote areas, where Brazilian doctors usually don&#8217;t want to work. The new program would allow Cubans in Brazil to stay for another two years, curbing the shortage of medical professionals in far-flung regions. If not approved, the decree could expire next week.</li><li><strong>Bill 6.064/2016.</strong> This bill proposes extinguishing the government&#8217;s casting vote powers in Brazil&#8217;s Administrative Council of Tax Appeals (Carf). Between 2017 and 2019, 71 percent of cases decided by this tiebreaker went the way of the government. Without it, we could see more wins for taxpayers, causing a drop in revenue.</li></ul> <hr class="wp-block-separator"/> <h2>Zero-interest rates in Brazil?</h2> <p>Over the past decade, Brazil became a case study for sky-high interest rates. But some of Brazil&#8217;s largest banks predict that the country&#8217;s real interest rates (after factoring in inflation) could be close to zero in 2020.</p> <p><strong>Why it matters.</strong> Itaú, Brazil&#8217;s largest private bank, believes that lowering the Selic benchmark interest rate from its current 5.5 to 4 percent by March 2020 could stimulate the economy to the point of allowing for a 2.2-percent GDP growth rate next year. Inflation in 2020 is expected to be at 3.3 percent.</p> <p>This prediction is more optimistic than the bank&#8217;s own recent forecasts (growth of 1.7 percent) or market consensus measured by the Central Bank&#8217;s Focus Report, a weekly survey among top-rated investment firms.</p> <div class="flourish-embed" data-src="visualisation/772318"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Instruments. </strong>Monetary policy is the main source of stimulus for the economy, in a reality where public administrations at all levels are cash-strapped, the global economy is slowing down, and the federal government&#8217;s privatization projects for infrastructure have yet to properly take off.</p> <p><strong>Indicators.</strong> Yesterday, the Central Bank published its Economic Activity Index, considered to be a predictor of the GDP. The index for August registered a 0.07-percent expansion. While lower than expected, it was an above-zero result—just the third since the beginning of the year.</p> <hr class="wp-block-separator"/> <h2>When is the presumption of innocence lost?</h2> <p>Supreme Court Chief Justice Dias Toffoli scheduled the beginning of the trial about whether defendants found guilty by a court of appeals may begin serving prison sentences—or whether they may only be jailed after exhausting all appeals routes. The case will begin on Thursday.</p> <p><strong>Why it matters.</strong> The trial will affect around 190,000 defendants—none more notable than former President Lula, who was jailed in April 2018 following convictions for corruption and money laundering.</p> <p><strong>Narratives.</strong> Freeing Lula without voiding his conviction will create an odd political scenario in Brazil. On one hand, it could weaken the narrative that the former president uses, according to which he is a political prisoner. But being at liberty would also allow him to have a better handle on his Workers&#8217; Party. It remains too early to call winners and losers from this, regardless of the outcome.&nbsp;&nbsp;</p> <p><strong>Insecurity. </strong>This case is a textbook example of how unpredictable Brazilian courts can be. Just three years ago, the court decided to allow arrests after the first failed appeal. In 2016, Justice Gilmar Mendes stated that the constitutional presumption of innocence is lost after a conviction. Oddly enough, he has now given signs that his understanding of the law has changed—and his vote could flip the majority of the court toward not allowing sentenced to be executed before a case is tried by the Supreme Court.</p> <p><strong>House.</strong> The trial is unlikely to be concluded on Thursday, as justices are expected to explain their reasoning at length. Meanwhile, the House has moved the chains to approve a bill changing the penal code, allowing for imprisonment after a single appeals court conviction. It would, however, be up to the Supreme Court to rule on how the new law (if it passes) would be enforced.</p> <hr class="wp-block-separator"/> <h2>What else you should know today</h2> <p><strong>Debit or credit?</strong> On Monday, Google Pay announced a new payment option exclusive to the Brazilian market: the choice between debit or credit cards in purchases made through cell phones. The Brazilian market is still resistant to debit cards, as they are more vulnerable to fraud—but they also make up the majority of cards in Brazil (of the 110 million cards circulating in Brazil, only 50 million are credit cards). The introduction of debit cards should gradually replace bank-issued invoices or <em>&#8220;boletos</em>,<em>&#8220;</em> a type of bar-code based push payment system that accounts for 25 percent of all online payment transactions in Brazil (but generates many fees).</p> <p><strong>Abortions.</strong> Supreme Court Justice Cármen Lúcia has removed a case from the court&#8217;s electronic voting system on whether pregnant women infected with the Zika virus should be allowed to have an abortion. It means that the case will be discussed in an in-person plenary session, giving it more visibility—and stirring up more controversy. The Zika virus has been linked to microcephaly, a condition that likely causes brain and eye damage.&nbsp;&nbsp;</p> <p><strong>Infrastructure.</strong> Projects to guarantee water supply to arid regions in the Northeast (which represent 80 percent of the spending with hydric infrastructure) should cost the federal government BRL 7 billion more than was initially forecast. The reason: planning flaws. According to the Federal Accounts Court, projects take an average of 12 years to be concluded—one was launched in 1993 and remains unfinished.</p> <p><strong>Foreign nationals.</strong> The Justice Ministry tweaked a <a href="https://brazilian.report/power/2019/07/27/sergio-moro-doctrine-hard-line-immigrants/">controversial July decree</a> allowing the &#8220;<a href="http://email.mg1.substack.com/c/eJwlUMtuwyAQ_JpwMwKMIT5wSJv0Nywe6xTVBgtDLPfrC420O9rHSLM7Vmd4xnSqLe4ZlR3S5J2iQoxiZMgpIpmVBvl9mhPAqv2i0FbM4q3OPoZG5gOT6FtxbeaBXe08E01mO19FL3tJmb3aUVOwqClMujgPwYKKYTmnTXuHFvWd83bpbxf2VeM4DuwDfsYXNqn1YCq6WCp2NbeYsk5ed6GTknQOOkobxpKLSbGVjNCxY4wOYpBiRF61ASWU037omcAUf3BJeyLo_X67k8fn48LJ-qR4L2bP2v5gG1eU1LPU7hXr0iT96xevA07QDmgeTJW0luDzOUHQZgGnciqA8tvL_3fzuYEKcOwL5AzpPWwGcz5yiaqei9XUoEyCEG3d6j9zZ4Ui">summary deportation</a>&#8221; of foreign nationals under investigation, including cases exclusively carried out by authorities in their home countries. The government extended defense deadlines from two to five days, and created additional—while still subjective—criteria for individuals to be considered &#8220;suspects.&#8221; These summary deportations cannot be used against legally registered residents in Brazil or refugees.</p> <p><strong>WTO.</strong> After convincing Brazil to abandon rules benefiting developing countries in the World Trade Organization—in exchange for accession to the OECD, which will not materialize any time soon—the U.S. government now wants Argentina to do the same. Such rules allow developing nations to benefit from longer transition periods to lower tariffs, among other provisions. Abiding by what the White House wants would be the dagger for Mauricio Macri&#8217;s struggling re-election campaign in Argentina. Voters head to the polls on October 27.</p> <p><strong>Security.</strong> Brazil&#8217;s telecommunications agency authorized the president&#8217;s security service to block telephone and internet signals in places where President Jair Bolsonaro and VP Hamilton Mourão are present. The move, however, should be used in &#8220;specific cases in which there is concrete evidence of potential [security] risks.&#8221;

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BY Gustavo Ribeiro

Gustavo is the founder of The Brazilian Report, and is an award-winning journalist with experience covering Brazilian politics and international affairs. His work has been featured across Brazilian and French media outlets.