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Brazilian stories you may have missed during the holidays

. Jan 07, 2020
oil prices brazil bolsonaro Photo: Rep.

The end-of-year holidays are usually a quiet period for Brazilian politics and business, as Congress and the Supreme Court take a month-long recess, and most of the population enjoys its summer vacations. However, with the increasingly powerful role of Brazil’s legislative branch, an oddly large number of laws were sanctioned on the days between Christmas and the New Year, some of them receiving important vetoes from President Jair Bolsonaro. Elsewhere, the drone killing of Iranian general Qassim Soleimani came as a shock, leading everyone to consider how an escalation of violence between the U.S. and Iran may affect the entire world, including Brazil.

To bring you back up to date, we have prepared a run-down of the most important issues of the past two weeks.

</p> <h2>A new crisis in the Middle East</h2> <p>As we explained in our <a href="https://brazilian.report/newsletters/weekly-report/2020/01/06/brazil-act-u-s-iran-conflict-breaks-out/">January 6 Weekly Report</a>, the latest crisis sparked by the killing of Iranian general Qassim Suleimani by the U.S. military may have an impact<a href="https://brazilian.report/newsletters/weekly-report/2020/01/06/brazil-act-u-s-iran-conflict-breaks-out/"> on Brazil’s economy and politics</a>.</p> <p>While Brazil is far from the potential wave of violence that may break out in the Middle East, any retaliations that impact oil prices could have repercussions for the country’s most important state-owned company, Petrobras. As the firm has pegged its fuel prices to international oil benchmarks, a spike would force it to increase prices in Brazil, thus altering inflation. The recurring fear of government interference in Petrobras led to the company&#8217;s biggest crises of the past two years, including the infamous <a href="https://brazilian.report/power/2019/04/16/government-strategy-avoid-truckers-strike/">truckers&#8217; strike</a> in 2018.</p> <p>According to news website <a href="https://g1.globo.com/economia/noticia/2020/01/06/bolsonaro-diz-que-tendencia-do-preco-do-combustivel-e-se-estabilizar-mesmo-com-tensao-eua-ira.ghtml"><em>G1</em></a>, President Jair Bolsonaro believes oil prices are taking a step back and the crisis did not have “such a major impact” on the commodity. However, he is said to have taken part in meetings to discuss the impact of the unrest on fuel costs in Brazil. On the business side, Petrobras is poised to profit from higher oil prices—the company has a privileged position, with its facilities located outside conflict zones. On Monday, Petrobras&#8217; preference shares (PETR4) rose 1.18 percent.</p> <p>Politically, Brazil’s Foreign Affairs Ministry has positioned itself “against terrorism” and its next steps will be crucial to define Brazil’s foreign policy, which has traditionally been one of remaining impartial in external conflicts, ever since the country became a republic.</p> <h2>Supreme Court v. Bolsonaro</h2> <p>The latest tug of war between the Executive branch and the Supreme Court is literally taking over Brazil&#8217;s streets. On December 31, Chief Justice Dias Toffoli suspended a government decision to slash the amounts paid to mandatory public insurance, which has been charged on drivers since 1974 to assist car crash victims and provide resources for Brazil’s public health system.</p> <p>In an interview with specialized automobile website Auto Esporte, Solange Vieira, the chief of Brazil’s insurance watchdog Susep, explained that the government’s goal is to use the funds which have piled up over the years, amounting to BRL 5.8 billion. However, Chief Justice Dias Toffoli believes the measure goes against a Supreme Court decision to strike down a provisional measure that extinguished the mandatory insurance in November, a measure that the government justified as a “way to curb fraud.” Still, according to Auto Esporte, fraud amounting to roughly BRL 70 million was uncovered in 2018, while the mandatory insurance collected BRL 4.66 billion. From 2009 to 2018, BRL 4.5 million were paid to victims.</p> <p>President Bolsonaro said the government <a href="https://g1.globo.com/politica/noticia/2020/01/03/bolsonaro-diz-que-governo-recorrera-da-decisao-de-toffoli-que-impediu-reducao-do-dpvat.ghtml">will appeal the decision</a> but, according to news website G1, there is no deadline for such a recourse to be used. Meanwhile, Brazilians continue to <a href="https://g1.globo.com/carros/noticia/2020/01/02/dpvat-2020-comeca-a-ser-cobrado-com-valores-do-ano-passado-apos-stf-derrubar-reducao.ghtml">pay the full price of the mandatory insurance</a>—BRL 16.21 for cars and BRL 84.58 for motorcycles. Besides the Supreme Court’s pending decisions, more changes are still to come, as the government decided <a href="https://g1.globo.com/carros/noticia/2019/12/27/seguro-dpvat-2020-tem-valor-definido.ghtml">to break insurer Líder&#8217;s monopoly over the mandatory charge</a> in 2021.</p> <h2>Special tax regime for government housing program</h2> <p>An extension of a special tax regime for federal government housing program Minha Casa Minha Vida was written into law on December 27, after Congress overturned a presidential veto. According to the law, construction companies may pay four federal taxes with only 1 percent of revenues, in connection to the real estate development of residential properties of up to BRL 100,000. The bill also extends the tax break to projects that have not started yet but were registered before December 31, 2018.</p> <h2>Anti-crime bill</h2> <p>At the eleventh hour, lawmakers approved Justice Minister’s Sergio Moro &#8220;anti-crime bill,&#8221; being signed into law on Christmas Eve. However, even President Bolsonaro vetoed 25 provisions of the legislation, maintaining Congress’ watered-down version of the bill. Controversial topics were not included by the final law, such as the so-called <em>excludente de ilicitude</em>, an understanding which would exempt police officers from being held liable for crimes—including manslaughter—if their actions were committed during their work, out of need or self-defense.</p> <p>The original bill by Mr. Moro intended to exempt crimes committed under “strong emotion or reasonable fear” from punishment. His regulation on plea bargain agreements, which would allow smaller punishments if the accused turned state&#8217;s evidence beforehand, was also barred.</p> <p>The bill also had the contribution of Supreme Court Justice Alexandre de Moraes and lawmakers themselves, as the newspaper <a href="https://www1.folha.uol.com.br/cotidiano/2019/12/entenda-o-que-muda-com-a-aprovacao-do-pacote-anticrime-por-bolsonaro.shtml"><em>Folha de S.Paulo</em> explains</a>. Now, life sentences may reach 40 years—versus 30 years before—and criminals who committed heinous crimes will not be allowed to leave prison temporarily, according to their suggestions. Another main addition is the figure of the “guarantee judge,” who will act on cases to analyze the procedural impartiality of the investigation and case handling.</p> <p>The changes to Brazil’s criminal code are far from over, as one of the most controversial topics of the anti-crime bill—<a href="https://brazilian.report/power/2019/11/17/brazil-congress-send-lula-back-prison/">the possibility of executing prison sentences after a single appeal</a>—has branched off into its own bill.</p> <h2>Changes to overdraft limits</h2> <p>The Brazilian Bar Association questioned the Central Bank on January 2, considering that changes to overdraft limits coming into force on January 6 were illegal. Now, banks must limit overdraft interest to 8 percent per month; on the other hand, from June 1 onward, they may charge a 0.25 percent tariff on overdraft limits higher than BRL 500, even if clients don’t use the product. For the Bar Association, <a href="https://www.infomoney.com.br/minhas-financas/cheque-especial-oab-diz-ao-banco-central-que-tarifa-sem-uso-e-ilegal/">this decision is unconstitutional</a> and puts consumers at a disadvantage. As we reported in our <a href="https://brazilian.report/power/2019/11/28/credit-smaller-overdraft-fees-brazilian-banks-hard/">November 28 story</a>, the Central Bank’s newest move aims to curb the exaggerated use of this tool by indebted Brazilians.</p> <h2>New Franchising Law</h2> <p>President Bolsonaro sanctioned the new Franchising Law, updating a 1994 piece of legislation. The bill adopts a more detailed concept of franchising, including sharing operational methods and systems. According to the <a href="https://www.camara.leg.br/noticias/629432-nova-lei-das-franquias-e-sancionada-com-veto-parcial/">House of Representatives’ official news website</a>, it determines that there is no employment relationship between the franchisor and the franchisee’s employer, even during the training period, and extinguishes the need for a security deposit by the franchisee.</p> <p>Among the main changes of the new law is the update to the document explains all the details about said business. It must be presented ten days prior to signing the contract, or the deal may be canceled. However, the 1994 law was more specific with regard to reimbursement, establishing that the franchisee could ask for their money back corrected for inflation according to the variation of savings accounts; now the law only provides for “correction for inflation.”</p> <p>According to the <a href="https://www.abf.com.br/com-apoio-da-abf-congresso-nacional-aprova-nova-lei-do-franchising/">Brazilian Franchising Association</a>, another major topic on the bill is the possibility for the franchisor and franchisee to sublet properties, which could “make it easier to expand chains, especially in shopping malls and places with a large influx of people.” In a statement published at the time of the bill&#8217;s approval, the association said the changes may help the sector grow as a whole, by keeping “initial achievements and clarifying some topics.”</p> <p>Another addition is allowing private and state-owned companies—as well as NGOs—to own franchises regardless of their field of operations. President Bolsonaro, however, vetoed an article that regulated the awarding of contracts for state-owned franchises, arguing it did not adhere to legislation on state-owned companies.</p> <h2>Higher minimum wage</h2> <p>The Federal Government published a Provisional Decree establishing the minimum wage for 2020 at BRL 1,039, higher than the original BRL 1,031 foreseen on the<a href="https://brazilian.report/money/2019/12/21/despite-improvement-brazil-far-from-going-back-to-black/"> budget</a>. The change is due to a higher consumer inflation index: while estimates projected a 3.1 percent rise, the index finished the year 4.1 percent higher. According to the Economy Ministry, the spike was caused by the rise in meat prices, which peaked due to higher imports amid the swine flu outbreak in Asia. The decision was taken on December 31 and<a href="https://www.camara.leg.br/noticias/629543-medida-provisoria-fixa-salario-minimo-de-r-1-039-em-2020/"> is already in place</a>, but will require Congressional approval.</p> <h2>Vetoes to tax incentives for the cinema industry</h2> <p>In a new blow for the <a href="https://brazilian.report/society/2019/12/26/brazilian-movies-watch-netflix-during-holidays/">Brazilian audiovisual industry</a>, President Bolsonaro fully vetoed a bill that continued tax incentives which expired on December 31. The bill extended special tax regime Recine—which granted breaks for movies made in small towns—until 2024, as well as the Audiovisual Law, which allows companies and individuals to direct 6 percent and 4 percent, respectively, of their Income Tax as donations for audiovisual projects. The government justified the veto saying it creates mandatory expenses for the Executive without indicating the origin of funds, violating both the Fiscal Responsibility Law and the federal budget.</p> <p>The bill’s rapporteur in the Senate, Eliziane Gama, refutes the argument, <a href="https://g1.globo.com/pop-arte/noticia/2019/12/30/bolsonaro-veta-projeto-que-prorrogava-incentivos-fiscais-para-construcao-de-salas-de-cinema.ghtml">pointing out in her report</a> that extending the incentives does not diminish revenues as “tax exemptions are already in place and its values are known,” as reported on news website <em>G1</em>. The presidential vetoes are yet to be examined by Congress, which may overturn them.

 
Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, she worked as an Editor for Trading News, the information division from the TradersClub investor community.

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