Port of Santos

Good morning! Today, we discuss the government’s quest to find a privatization model for infrastructure. Rio’s crackdown on LGBT books offers a glimpse of looming cultural wars in Brazilian politics. Brazil’s country risk at a six-year low. How Brazilian markets performed. Also, what you should be looking out for this week—and the most important facts of the previous seven days. (This newsletter is for platinum and gold subscribers only. Become one now!)


Infrastructure: Brazil zeroes in on privatization model for ports

As the federal government begins to draft a model to privatize

the country&#8217;s ports, a group of officials found a suitable model in Australia—which went from a totally deregulated system to one with more government input. Having public companies overseeing ports wasn&#8217;t an obvious decision, as the sector&#8217;s firms—currently owned by the state—have posted recurring losses since 1993.</p> <p><strong>Why it matters.</strong> Seaborne cargo transport is extremely underused in Brazil. The country has arguably the largest hydric potential in the world, with 12% of the world&#8217;s fresh water and a coastline of 9,000 km. And while seaborne transportation could generate savings of 80% per ton, when compared to road transport, Brazil remains highly dependent on trucks.</p> <p><strong>Benchmark. </strong>Officials who went to Australia were flabbergasted upon discovering that state-owned companies could actually turn a profit by running ports. A key difference highlighted between Brazil and Australia is efficiency. According to Diogo Piloni, the national secretary for ports, Australian ports often have up to ten times fewer workers than a similar-sized structure in Brazil.&nbsp;</p> <p><strong>Some, not total, privatization. </strong>The key, says Mr. Piloni, is not total deregulation. In ports in Sydney and Melbourne, for instance, the Australian government has opted for a more &#8220;hands on&#8221; approach, separating asset management, port administration, and naval operation controls—avoiding the verticalization of services. Privately run ports with more oversight were also those with higher profitability.</p> <hr class="wp-block-separator"/> <h2>Crackdown on LGBT books a glimpse of cultural wars we should expect in 2020</h2> <figure class="wp-block-image"><img src="https://brazilian.report/wp-content/uploads/2019/09/avengers-rio-gay-kiss.jpeg" alt="avengers rio gay kiss lgbt" class="wp-image-23736" srcset="https://brazilian.report/wp-content/uploads/2019/09/avengers-rio-gay-kiss.jpeg 575w, https://brazilian.report/wp-content/uploads/2019/09/avengers-rio-gay-kiss-300x192.jpeg 300w" sizes="(max-width: 575px) 100vw, 575px" /><figcaption>Forbidden LGBT kiss. Jim Cheung/Marvel</figcaption></figure> <p>One of the biggest literary events in Brazil, this year&#8217;s Rio de Janeiro Book Biennal became known less for the quality of the work on display, and more for a controversy artificially stirred up by City Hall. Mayor Marcelo Crivella, an evangelical bishop, ordered city auditors to seize an &#8216;Avengers&#8217; comic book which featured two gay male characters kissing—claiming that it was pornography being targeted at children. The move was approved by a state court, but, in the end, the Supreme Court ruled it an illegal censorship attempt.</p> <p>After the controversy, the comic in question sold out and newspaper <em>Folha de S. Paulo</em> ran it on their front page.</p> <p><strong>Why it matters.</strong> Mr. Crivella&#8217;s move seems to have a clear motivation: diverting the debates heading into the 2020 municipal elections (when he will fight for a second term) from administrative issues to cultural war discussions. His strategy is similar to the one currently being employed by President Bolsonaro. While the move could alienate moderate voters, it also consolidates a strong core of supporters. Mr. Crivella, who recently escaped an impeachment process, needs to have a faithful group of followers if he hopes to stand a chance next year.</p> <p><strong>Not the first time.</strong> In 2017, an exhibition called “Queer Museum,” featuring 270 LGBTQ-themed artworks, was abruptly closed after right-wing groups began a crusade to shut it down. Protesters accused the material—which was sexually explicit—of promoting pedophilia and bestiality.</p> <p><strong>Democracy issues. </strong>For Fundação Getulio Vargas professor Oscar Vilhena, Brazil is experiencing a moment when elected officials want to impose their agenda to the detriment of the law. &#8220;Some leaders are hostile to the constitutional framework they must abide by,&#8221; he wrote. &#8220;In Brazil, [the LGBT community is] currently having a hard time. We are moving backwards due to the lack of commitment [to Human Rights] of our authorities,&#8221; said André Fischer, a household name in Brazil’s LGBTQ community, in a 2017 interview with <strong>The Brazilian Report</strong>.</p> <hr class="wp-block-separator"/> <h2>Markets</h2> <p>MRV (<a href="https://www.investing.com/equities/mrv-on-nm-historical-data">MRVE3</a>), Latin America&#8217;s biggest homebuilder, crashed 11.5% after an unexpected move: the acquisition of the Miami-based AHS Residential. Per Eduardo Guimarães, of investment consultancy Levante, the move helps MRV diversify. However, he points out that the move could involve a conflict of interest—as MRV&#8217;s founder Rubens Menin is also AHS&#8217; controller. Shares could feel the pressure of the risks in this abrupt decision to &#8220;go global.&#8221;</p> <p style="text-align:center"><strong><em>Natália Scalzaretto</em></strong></p> <hr class="wp-block-separator"/> <h2>Brazil country risk at a 6-year low</h2> <p>At 124 base points, Brazil&#8217;s 5-year Credit Default Swaps (CDS)—commonly called the country risk—have gone back to 2013 levels, when Brazil still enjoyed investment-grade rating. The lower CDS reflects prospects of the pension reform advancing, as well as a tax reform and the deregulation of the economy. The forecast seems positive, but those hopes will have to be fulfilled if the country wants to regain investment grade. Today, Brazil remains in junk territory according to the biggest ratings agencies.</p> <figure class="wp-block-image"><img src="https://brazilian.report/wp-content/uploads/2019/09/CDS-5-years-Brazil-1024x590.jpg" alt="CDS 5 years Brazil" class="wp-image-23738" srcset="https://brazilian.report/wp-content/uploads/2019/09/CDS-5-years-Brazil-1024x590.jpg 1024w, https://brazilian.report/wp-content/uploads/2019/09/CDS-5-years-Brazil-300x173.jpg 300w, https://brazilian.report/wp-content/uploads/2019/09/CDS-5-years-Brazil-768x443.jpg 768w, https://brazilian.report/wp-content/uploads/2019/09/CDS-5-years-Brazil-610x351.jpg 610w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure> <hr class="wp-block-separator"/> <h2>Looking ahead</h2> <p><strong>Economic indicators.</strong> The economic calendar this week includes data on Brazil&#8217;s trade balance (Monday), the release of the IGP-M price index, which predicts inflation (Tuesday), and monthly results of the retail (Wednesday) and services (Thursday) sectors. On Friday, the Central Bank will release its economic activity index—which allows for a fairly reliable prediction of GDP growth.</p> <p><strong>President Mourão.</strong> Yesterday, Jair Bolsonaro underwent his fourth surgery since being stabbed on September 6, 2018—this time, to remove a hernia from his abdomen. The procedure was successful and Mr. Bolsonaro is recovering well. Until Thursday, Vice President Hamilton Mourão will be the acting president. A low-profile figure in recent months, the VP became nevertheless notable in the first half of the year after multiple clashes with Mr. Bolsonaro&#8217;s sons—and for often going against the party line of the president&#8217;s office. This insubordination led Mr. Bolsonaro&#8217;s entourage to accuse Mr. Mourão of trying to present himself as a more viable alternative for head of state.</p> <p><strong>Pension reform.</strong> After the Senate&#8217;s Constitution and Justice Committee approved the pension reform bill, the upper house&#8217;s floor is set to debate and vote on the issue. There must be at least five sittings of discussions, but party leaders—headed by Senate President Davi Alcolumbre—want to strike a deal to reduce the timetable and hold at least the first round of voting this week.</p> <p><strong>Telecommunications.</strong> Congress is expected to vote this week on a new legal framework for telecoms, updating regulations which are already 20 years old and overly focused on landline telephone services. The move is considered to be essential to save telecom big hitter Oi, as it removes obligations to invest in public payphones—one of the company&#8217;s biggest money drains. Created with the help of the federal government <a href="https://brazilian.report/money/2017/12/19/oi-telecom-crony-capitalism/">to become a national giant</a>, Oi has been under court-supervised reorganization since 2016, with <a href="https://brazilian.report/money/2019/07/19/oi-telecom-ambitious-path-recovery/">debts of BRL 65bn</a>. There are talks of government intervention if the company doesn&#8217;t recover soon.</p> <p><strong>Tourism.</strong> The government will announce the appointment of 15 new tourism ambassadors over the coming days. Despite being intended as a campaign to enhance tourism in Brazil, the move has left the sector&#8217;s companies worried sick. The first choices have been dreadful: former footballer Ronaldinho Gaúcho, who had his passport seized after refusing to pay an environmental fine, and jiu-jitsu fighter Renzo Gracie, who recently called French President Emmanuel Macron a &#8220;pansy&#8221; and threatened to choke him.</p> <hr class="wp-block-separator"/> <h2>In case you missed it</h2> <p><strong>Prosecutor General. </strong>Jair Bolsonaro chose Augusto Aras to be <a href="https://brazilian.report/power/2019/09/06/augusto-aras-brazil-new-prosecutor-general/">Brazil&#8217;s prosecutor general for the next two years</a>. The move infuriated both the left (which believes Mr. Aras has bent over backwards for the nomination, making him less independent than he should be) and the right (which sees him as a &#8220;closeted leftist,&#8221; due to his past criticism of Operation Car Wash). Justice Minister Sergio Moro was totally excluded from the selection process, underlining how he has lost prestige with the president.</p> <p><strong>Better than cash. </strong>The Central Bank is working on a project to allow digital, instant payments over the phone. Similar systems already exist in India and China and are widely successful. In Brazil, however, deposits are only effectively made on the same day for transfers happening on weekdays, between 6:30 am and 5 pm. The move is expected to lower tariffs on payments and reduce the use of cash by up to 30%. Today, over <a href="https://brazilian.report/money/2018/06/27/brazil-internet-smartphones/">84 million Brazilians own smartphones</a>.</p> <p><strong>Amazon.</strong> Rainforest deforestation has increased by 222% in August 2019, when compared to one year ago, according to official data. Brazil has faced international pressure, with countries threatening to oppose the Mercosur-EU trade deal if Brazil doesn&#8217;t abide by its environmental commitments. Even retail giant H&amp;M (which has a track record of using child labor) has <a href="https://brazilian.report/opinion/2019/09/04/european-amazon-destruction-macron-norsk-hydro/">taken the moral high ground over Brazil</a>, suspending purchases of leather from the country.</p> <p><strong>Buyers&#8217; remorse?</strong> Recent polls show that Jair Bolsonaro is the least popular among presidents during their first years in office. Moreover, one-quarter of his voters declare having regretted their choice—and wouldn&#8217;t vote for him were the election to be held today. Voters between 45 and 59 years old—that is, the ones most immediately affected by the government&#8217;s pension reform—are among those with the highest regret rates. The president is particularly unpopular in the Northeast, which is still a stronghold of the left.</p> <p><strong>Labor market.</strong> Five years after the start of Brazil&#8217;s worst recession on record, the country&#8217;s labor market continues to deteriorate. The amount of underemployed people has reached 7.4m. Among educated workers, this rate jumped 160% since 2014.

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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.