How the government tries to protect companies during the pandemic

. Apr 05, 2020
Brazil's government make moves to protect companies during the Covid-19 pandemic Photo: PMRJ

The pandemic that President Jair Bolsonaro dismisses as a “little flu” has shown its first major effects in Brazil. The country’s number of confirmed Covid-19 cases has jumped to 10,278, and deaths have hit 431.

Mr. Bolsonaro continues to downplay the potential of Covid-19, trying to encourage Brazilians to go back to work. He has made it clear that he will not bear the results of an economic recession, but that he is willing to throw a health crisis onto the lap of state governors, for which he has not yet brought short, medium or long term solutions. 

Even with the president wagering all his chips on the economy, the outlook is not good. Recent data showed

that even before the pandemic, unemployment was on the up — increasing from 11.2 percent to 11.6 percent between November and February.</p> <p>Economists say that this trend of <a href="">unemployment growth</a> could reach a peak of 16 percent, before evening out to 13 percent afterwards. Gross Domestic Product will also be another victim of Covid-19. Banks and research institutes are already betting on a contraction that may vary between 0.4 and 2.8 percent in 2020.</p> <p>A <a href="">survey</a> by the National Confederation of Industry showed that 79 percent of companies suffered with a drop in demand, 86 percent are having difficulty obtaining materials, and 83 percent are unable to distribute their products properly. In addition, 73 percent of industries are unable to pay their debts, 41 percent had to interrupt production, and 70 percent have recorded a drop in sales.&nbsp;</p> <div id="buzzsprout-player-3212182"></div> <script src=";player=small" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <p>The search for financial aid for this period has also become more complicated, as 61 percent of the industries admitted that they sought working capital, but 78 percent stated that they encountered more difficulties than before the pandemic.</p> <p>To try and remedy this situation, Jair Bolsonaro has adopted a few measures. The main one is the provisional decree allowing companies to suspend employment contracts for up to 60 days, and reduce working hours and wages for up to 90 days. The wage gap will be covered by the government, which will contribute up to the limit of unemployment insurance (BRL 1.813).</p> <p>Another <a href="">initiative</a> concerned a decree postponing general meetings of companies with shares traded on the Brazilian stock exchange for seven months.&nbsp;</p> <p>Banks have not been forgotten by the federal government.<strong> </strong>Another provisional decree issued on Tuesday <a href="">exempts banks from taxes on hedge operations</a> resulting from investments made in controlled companies abroad. In 2021, 50 percent of these gains should be included in companies&#8217; real profit and in the calculation of social contributions. In the following year, these amounts will be fully taxed.</p> <p>The federal government will also cover the hedges of financial institutions&#8217; that go bankrupt by the end of 2022. These losses will be used to write off debts with the Federal Revenue Service and will be retroactive, going back to January 2018.</p> <p>By way of the Central Bank, the federal government authorized the purchase of financial bonds issued by banks to maintain liquidity. These bonds will be guaranteed by financial assets, for example, loans that the bank has already granted. And the money provided by the Central Bank can be requested until the end of this year and be paid up to 12 months after receiving it.</p> <p>On Wednesday, the General Counsel for the Federal Treasury extended the deadline for companies to request installments of debts with the federal government until the end of the year. Besides, companies that pay social contributions on payroll to finance professional training entities will stop paying 50 percent of these charges by the end of June.</p> <p>On the same day, a presidential decree zeroed Financial Transactions Tax charged on loans of up to BRL 30,000 taken out by small companies. The measure reaches very small companies, which have also had their deadline for paying tax extended by 6 months.</p> <div id="buzzsprout-player-2981242"></div> <script src=";player=small" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <h2>Emergency measures during the pandemic</h2> <p>Over in Congress, a bill approved by the Senate created an emergency and transitory legal regime during the crisis. The bill requires a vote by the lower house and would create a form of parallel legislation to be in force during the pandemic.</p> <p>The text was drawn up by the Legislative and Judiciary, without President Bolsonaro&#8217;s involvement. A source heard by The Brazilian Report said that this path was taken to prevent the Executive from hindering the negotiation of these measures.</p> <p>The bill deals with various topics, ranging from the 12-month <a href="">postponement of the General Data Protection Law</a>, to the 15-percent reduction in all taxes and car rentals made by app drivers.</p> <p>Other points of the bill are as follows:</p> <ul><li>Deadlines for lawsuits are suspended until October 30;</li><li>The possibility to return products purchased over the Internet within seven days will be suspended until October 30;</li><li>Eviction actions filed as of March 20 are suspended until December 31, 2020;</li><li>Prisons for alimony must be made exclusively as house arrest.</li></ul> <h2>Help from the Justice system</h2> <p>In addition to assisting the Legislature in drafting emergency laws, <a href="">Brazil&#8217;s Justice system</a> proposed measures to prevent the bankruptcy of companies over court-supervised reorganization. One of them was to create the possibility of presenting alternative restructuring plans.</p> <p>The National Council of Justice also asked judges to make a careful decision about requests for eviction and for the taking of assets and valuables in bank accounts of these companies. One last recommendation was the prioritization of payments to creditors.

Brenno Grillo

The Brazilian Report's correspondent in Brasília, Brenno has worked as a journalist since 2012, specializing in coverage related to law and the justice system. He has worked for O Estado de S. Paulo, Portal Brasil, ConJur, and has experience in political campaigns.

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