Explaining Brazil #139: Bolsonaro’s hand is not invisible

Facing a sluggish economy and rising inflation, President Jair Bolsonaro felt he had to intervene. He focused on fuel prices, which have seen eye-watering hikes since the start of the year. In 2018, similar increases led to a truckers’ strike that halted the country for nearly two weeks and scarred the economy. So, Mr. Bolsonaro took matters into his own hands and called for a change of CEO at state-controlled oil and gas company Petrobras. His pick for the position is retired Army General Joaquim Silva e Luna, a former Defense Minister who previously worked as the head of the massive Itaipu hydro power plant.

Analysts expected turmoil, but we got carnage. Petrobras’ market value evaporated, with a 20-percent skid in a single trading session. And the frenzy contaminated other state-owned companies, as it became apparent that the president also plans to hold down electricity prices by force.

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On this episode:

• Carlos Góes is the Chief Research Officer at Instituto Mercado Popular, a São Paulo-based think tank. Previously, he worked as a researcher for the International Monetary Fund. He is now finishing a Ph.D. at the University of California in San Diego. Mr. Góes also served as an economic advisor for the Michel Temer administration.
• Carlos Portugal Gouvêa is a lawyer specialized in corporate law, compliance, and commercial contracts. He is a tenured professor of Commercial Law at the University of São Paulo, where he created Brazilian law schools’ first graduate and postgraduate courses on corporate governance.

Background reading:

• Following Mr. Bolsonaro’s intervention, markets expected turmoil on Monday. What they got was carnage.
• Controlled prices or free market? That’s the Petrobras dilemma, as the company’s shareholders mix private investors — which focus on the bottom line — and the government, which must consider the firm’s institutional symbolism and role in government policies.
• Hikes in oil prices directly affect Brazilian consumers. In 2018, a surge in diesel fares led disgruntled truckers to stage an 11-day strike. The protests halted the country — as truckers account for 60 percent of cargo transportation in Brazil.
• How fuel prices behaved between 2001 and 2019 in Brazil.

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