Hello, this is The Brazilian Report‘s Weekly Report. In this issue, plenty on pension reform, old-style politics in Congress today, bursting dams, and more…


The week in review

Pensions. The House passed—on the first of two roll call votes—the pension reform bill on Wednesday (more below). The House, however, faced enormous pressure from organized groups, such as various unions representing teachers, public servants, and law enforcement agents.

As a result, many amendments were approved on Thursday and Friday, cutting savings down to a lower-than-expected sum of around BRL 670bn over ten years. After struggling to bring forward the 2nd round of votes, the government threw in the towel, eventually conceding that the House will only be <a href="https://veja.abril.com.br/economia/votacao-da-reforma-da-previdencia-em-segundo-turno-fica-para-agosto/">done</a> with the reform in August.</span></p> <p><b>Diplomacy.</b><span style="font-weight: 400;"> President Jair Bolsonaro has confirmed he intends to name his son Eduardo to the most important position in Brazilian diplomacy: serving as ambassador to the U.S. Since the new government took office, Eduardo Bolsonaro has maintained a <a href="https://brazilian.report/power/2019/05/17/eduardo-bolsonaro-brazil-diplomacy/">higher profile than the actual Foreign Minister</a>, Ernesto Araújo, having met with several far-right leaders worldwide. The pick became public only a day after Eduardo turned 35, the minimum age for a Brazilian ambassador. Many diplomats and politicians expressed surprise and dismay at the choice, but Eduardo defended his appointment, citing his knowledge of the U.S., gleaned from his experience as an exchange student years ago.</span></p> <p><b>Dam collapse 1.</b><span style="font-weight: 400;"> The state government of Bahia confirmed on Friday the bursting of a dam in Pedro Alexandre, a municipality located 485 kilometers away from Salvador. The collapse flooded 40% of the neighboring town of Coronel João Sá, leaving 350 families homeless. So far, no missing or injured persons have been reported. The collapsed dam was built in 2000. Just six months ago, a tailings dam burst in Brumadinho, killing 247 people and leaving 23 missing.</span></p> <p><b>Dam collapse 2.</b><span style="font-weight: 400;"> This week a state court in Minas Gerais convicted mining giant Vale for that dam collapse in the city of Brumadinho on January 25. The company will be forced to pay compensation, but the amount has yet to be determined, as experts have not finished assessing exactly how much damage was caused. Vale faces another three lawsuits in labor courts.&nbsp;</span></p> <p><b>Corruption. </b><span style="font-weight: 400;">Brazil&#8217;s antitrust regulator Cade found 11 companies guilty of fixing prices and rigging public bidding processes—including big names such as Alstom and Bombardier. The firms defrauded 27 subway and train projects in four states. Cade blacklisted the companies from public contracts for five years, and slapped the firms with combined fines of BRL 515m. Forty-two executives and engineers who ran the scheme will be made to pay a combined sum of BRL 19m.</span></p> <p><b>Elections. </b><span style="font-weight: 400;">Eyeing next year&#8217;s municipal elections, Congress wants to double the size of the public electoral fund to BRL 3.5bn. The money is divided in accordance with congressional representation—a system that privileges more established political groups. Congress must vote on the Budgetary Directives Law—a sort of guideline for the following year&#8217;s budget—before going on its mid-year holiday.</span></p> <hr> <h2>Congress: Rodrigo Maia getting some Twitter attention</h2> <p><span style="font-weight: 400;">Managing to pass the first round of voting on pension reform with 379 votes—well above the 308 required—was a major win for House Speaker Rodrigo Maia. On Wednesday night, Mr. Maia spoke like a victorious candidate, extending an olive branch to the opposition and referring to the pension reform as an instrument against social injustice. His role as the reform&#8217;s broker gained him prominence on Twitter. And, given the importance of social media to the sitting government, this may prove to be more important than it initially seems.</span></p> <div class="flourish-embed" data-src="visualisation/489766"></div> <p><script src="https://public.flourish.studio/resources/embed.js"></script></p> <hr> <h2>Markets</h2> <p><span style="font-weight: 400;">Retail giant Magazine Luiza (MGLU3) has announced another stock split at a ratio of one share to eight. The move aims to increase liquidity. As a result, shares went up on Friday, despite an overall negative mood among traders. In one of the most impressive growth stories of Brazil&#8217;s stock market, MGLU3 has risen more than 10,000% in a matter of three and a half years. Mirae Asset’s Pedro Galdi believes the company owes its success to its constant ability to present better-than-expected results: “as long as it keeps delivering, I see the stocks going up.” But although investors’ expectations continue mounting quarter after quarter, the economic environment is not making Magazine Luiza’s life easier. Retail sales fell 0.1% in May, after a 0.4% drop in April. Investors will be able to evaluate the companies’ Q2 2019 performance on August 12.</span></p> <p style="text-align: center;"><strong><em>Natália Scalzaretto, TBR markets reporter</em></strong></p> <hr> <h2>How budgetary amendments get legislation passed in Brazil&#8217;s Congress</h2> <p><span style="font-weight: 400;">This week, Brazil’s House voted on pension reform, something the Bolsonaro administration sees as its top priority—although not a view shared so much by Jair Bolsonaro himself. But even if Mr. Bolsonaro has been an unlikely rogue agent in the mix, he helped drag the bill over its first hurdle thanks to the use of so-called parliamentary budgetary amendments.</span></p> <div class="flourish-embed" data-src="visualisation/488947"></div> <p><script src="https://public.flourish.studio/resources/embed.js"></script></p> <p><span style="font-weight: 400;">These amendments are a provision in the Constitution that prevent the executive branch from having monopoly control over the federal budget. Representatives may allocate parts of the budget to projects of their interest—usually infrastructure or healthcare ventures in their constituencies. First, the amendments must be approved by Congress. After that, the executive must authorize the money, and it holds all the cards on when to do so.</span></p> <p><span style="font-weight: 400;">Inevitably, these amendments become a bargaining chip for the government when trying to get legislation passed. As a congressman, Mr. Bolsonaro was highly critical of the instrument. To him, it belonged to the “old ways of horse-trading politics,” being little more than a tool to buy congressional support. Moreover, he argued that lawmakers chose to fund projects that would benefit themselves rather than defending their constituents&#8217; best interests.</span></p> <p><span style="font-weight: 400;">In June, however, Mr. Bolsonaro approved BRL 2.5 billion in parliamentary amendments; this week, another BRL 1.67 billion. Officially, though, he maintains that the approaching pension reform vote was all but a coincidence.</span></p> <p><span style="font-weight: 400;">“The fact that [Mr. Bolsonaro’s] government released payments during a voting period shows that, despite their rhetoric [against “old-style” politics], they’re following in the footsteps of administrations that came before them,” said José Alvaro Moises, a senior political science professor at the University of São Paulo.&nbsp;</span></p> <h4>Parliamentary amendments under other administrations</h4> <p><span style="font-weight: 400;">Many Brazilian presidents relied on the strategic use of parliamentary amendments. In 1997, then-President Fernando Henrique Cardoso released BRL 150 million to guarantee support for administrative and pension reforms.</span></p> <p><span style="font-weight: 400;">His successor, Luiz Inácio Lula da Silva, enjoyed an overall positive relationship with Congress partially thanks to budgetary amendments. During his administration (2003-2010), Lula oversaw a “boom” of such funds—increasing them by 550%. He was advised by members of center-right parties that, with legislatures as fragmented as Brazil&#8217;s, financing Congress-backed projects was the best way to whip votes.</span></p> <h4>How legitimate are parliamentary budgetary amendments?</h4> <p><span style="font-weight: 400;">Under the law, representatives indeed have the right to request funds from the executive through parliamentary amendments. In other words, they are entirely legal. The idea is that representatives have a better knowledge of their regions and can identify what sectors require investment. This way, states receive more nuanced improvements that may be overlooked by the executive.</span></p> <p><span style="font-weight: 400;">However, oversight into how these funds are actually spent leaves much to be desired. Many congressmen use the prerogative to pour money into companies to which they have links, or to ask for bribes from those who will benefit from the projects to be financed. An emblematic case took place in 1993, when 18 lawmakers were caught defrauding the federal budget—10 ended up losing their seats. In 2006, a decades-long scheme to siphon money away through fraudulent contracts to buy ambulances also came to light.</span></p> <p><span style="font-weight: 400;">But Mr. Moises explains that corruption does not go hand in hand with parliamentary amendments. In fact, he said that they actually deter corruption, since representatives want funds to reach their state to guarantee electoral support. The situation becomes more problematic when the executive hesitates to release payments unless Congress does what it wants.</span></p> <p><span style="font-weight: 400;">“[Using the amendments as a bargaining tool] is distorting something that is legal and constitutional. Releasing payments during voting periods is a misuse of the amendments,” said Mr. Moises.

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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.

BY Martha Castro

Martha Castro is an intern at The Brazilian Report. She is a Brazilian journalism and political science student at Northwestern University in Evanston, Illinois.