The Brazilian government is pandering to transportation workers in a hope to avoid a truckers’ strike in the molds of the one which plunged the country into chaos one year ago. As truck drivers have started to express their uneasiness over rising diesel prices, the Jair Bolsonaro administration announced a BRL 500 million line of credit for the sector, financed by the National Development Bank.

According to the president’s Chief of Staff, Onyx Lorenzoni, the money will allow truckers to buy new tires and pay for the maintenance of their vehicles. Each worker will be allowed to take out up to BRL 30,000 in loans. Truckers’ unions, however, called the move a “handout” and said it doesn’t solve the problem.

The government also promised to finish the works on two major highway projects: the BR-163 (crossing Brazil from south to north), and BR-242 (from Brasília to Salvador).

During a press conference, the government didn’t mention where the money for the infrastructure projects would come from. According to the federal spending cap, the budget cannot be increased unless a new source of revenue is identified—or funds are allocated from other areas. Mr. Lorenzoni said the funds will come from multiple places.

Infrastructure Minister Tarcísio de Freitas also promised to study the implementation of a new minimum freight price table that would be accepted and enforced by all companies. “It is not a simple task. Companies already pay a lot, but truckers earn too little. Where is the money going?”

The administration’s economic team is hoping to strike a difficult balance between reassuring truckers that their demands will be heard—but without seeming too interventionist. President Jair Bolsonaro blocked a bump in diesel prices last week—worrying markets about the company’s true independence from political interests. On Friday alone, Petrobras lost an astonishing BRL 32 billion in market value.

The government sees pegging prices to international crude oil rates as inevitable. Therefore, it wants to compensate truckers in other areas.

Brazil government's strategy to avoid another truckers' strike

An over-dependence on truckers

Last year Brazil was engulfed by chaos after disgruntled truck drivers called a nationwide strike. For 11 days, roadways were blocked and goods did not leave storage depots. Quickly, several regions suffered fuel and food shortages. One could have mistaken photos of Brazilian supermarkets one year ago for images from Venezuela—a country undergoing a full-scale collapse. Agricultural producers saw billion-dollar losses to their production—animals starved to death, dairy products perished, and shipments were delayed.

Over 60 percent of all cargo in Brazil is transported by trucks. If we exclude crude oil and iron ore, which are not transported by road, that rate spikes to 90 percent. In an ideal system, trucks shouldn’t account for more than one-third of cargo transport. And that over-dependence on roadways led the government to cave.

Michel Temer’s administration offered truckers a table of minimum freight prices and decided to subsidize diesel prices. The decision allowed the country to get back on track but opened a dangerous precent—we now know for sure that truckers can stop the country whenever they want. 

Brazil government's strategy to avoid another truckers' strike

Diesel prices became a highly political variable in Brazil.

One year after the truckers’ strike, the new government caved even before a new round of protests began. Newspaper Folha de S.Paulo reports that Wallace Landim, a truck union leader, threatened the President’s Chief of Staff with a strike if last week’s price bumps were confirmed. Six hours later, the government informed Mr. Landim that the decision had been suspended.

This direct connection between the government and truckers’ leaders has worried markets, the Ministry of the Economy, and even Big Agro—which would have a lot to lose from a new strike. More worrisome still is how easily the government caved under pressure.

How much should diesel cost in Brazil?

Supported by truckers, Mr. Bolsonaro has always been ambiguous about his commitment to a more liberal pricing policy. His political program said that the company should follow international prices, but with softer short-term changes. After the election’s first round, he said: “You can’t have a predatory policy that saves Petrobras and destroys the Brazilian economy.”

What makes Brazil’s market so different from other economies is Petrobras’ concentration of the market—the company essentially monopolizes refining in the country. Petrobras, we should remember, is a company listed on the stock market (with the Brazilian government owning its controlling share).

petrobras diesel prices

The diverse profile of stakeholders, however, has created a rift between the government, which calls the shots, and minority owners. One side considers the effects of Petrobras’ role in governmental policies and its institutional symbolism, whereas the other is simply more interested in the company’s financial results.

Former President Dilma Rousseff (2011–2016) considered Petrobras as key to her administration’s economic agenda as a whole. That’s why she used the government’s power as Petrobras’ biggest shareholder to force prices down. The policy cut Petrobras’ revenue, helping debts balloon to nearly USD 130 billion. Moreover, once controls were impossible to sustain, price hikes were brutal—and very unpopular.

When Ms. Rousseff was impeached in 2016, her successor, Michel Temer, changed the company’s pricing policy—pegging it to international oil prices (which are calculated in U.S. Dollars). Investors saw this as a shield against political interference. Prices went up, following the international trend, and the company recovered market value. However, higher diesel prices sparked an 11-day truckers’ strike late in May 2018.

There’s no easy solution. As Army General Augusto Heleno, the government’s chief security officer, put it: “[Roadway transportation] is what sustains the country. That’s wrong, but this nonsense was created over the years.”

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PowerApr 16, 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.