Another “victim” of Operation Car Wash

Author

Gustavo Ribeiro
July 15, 2019 • Reading Time: 6 minutes

Good morning! Another construction behemoth involved in Operation Car Wash could soon face bankruptcy. The Senate is poised to amend the pension reform bill. And Brazil could lift some visa restrictions to Chinese citizens. Enjoy the read!

Another “victim” of Operation Car Wash

A month ago, the Odebrecht construction group filed for a court-supervised judicial recovery process—one step away from bankruptcy. The company was severely hit by Operation Car Wash, after its schemes to bribe politicians were uncovered by investigators. OAS, another construction behemoth, is inching close to collapse. According to reports filed by administrators to courts, as reported by the Folha de S.Paulo newspaper, the risk of bankruptcy is very real.

OAS’s fortunes pivoted on November 14, 2014, when its CEO at the time, Léo Pinheiro, was arrested by federal marshals in an operation called “Judgement Day”. For OAS, the name could not have been more appropriate. Since then, the company’s gross revenue dropped from BRL 7.7bn to 900m. In documents dating from April, administrators said the company was in a “critical” situation and might not be able to recover.

The company had filed for court-supervised recovery in 2015; it held BRL 8bn in debt at the time. After divesting itself of some of its most valuable assets, OAS managed to liquidate its biggest dues. It could be out of the recovery phase soon. However, that is not necessarily good news for the firm, which could then be exposed to bankruptcy requests by current creditors.

OAS is the company accused of bribing former President Lula with a beachfront triplex apartment—which motivated the his first conviction.

Data from July 2018 showed how Operation Car Wash devastated Brazil’s biggest construction groups. Turnover of the country’s top six firms fell from a combined BRL 77bn to 22bn in three years. In that span, 500,000 jobs in the sector disappeared.

Senate poised to amend pension reform bill

The House has yet to finish its vote on the pension reform—which will only happen in August—but senators are already poised to alter the text. PSDB Senator Tasso Jereissati, the likely rapporteur of the reform in the upper house, said in an interview that state- and municipal-level civil servants would probably be included in the new retirement rules—something that was considered to be a deal-breaker in the House.

But Mr. Jereissati wants to make changes to the text in such a way that would not delay the bill’s path. Normally, if the Senate changes anything from the text approved by congressmen, the bill goes back to the House—where it would need 60% of votes in two rounds to pass. The solution would be to approve the bill after it leaves the lower house, and then propose a new constitutional amendment altering certain points in the pension system.

Senate President Davi Alcolumbre said he expects the Senate to be done with the reform in just 37 days. The timeline seems unlikely, however, due to the many disagreements held between parties. It’s worth remembering that party leaders predicted quick proceedings in the House—six months later, the reform bill is still dragging.

Brazil to lift some visa requirement on Chinese citizens

Despite Jair Bolsonaro’s historical anti-Beijing stances, his administration intends to facilitate the entry of Chinese and Indian citizens. The idea, sponsored by the Tourism Ministry, is to eliminate visa requirements for Chinese citizens who already hold visas to the U.S., Japan, Canada, and Australia. The government lifted visa requirements on citizens of the five countries in March.

For Indian tourists, the idea is to implement a reciprocity policy—allowing them to obtain online visa authorizations, just like Brazilians heading to India. Brazil only has diplomatic representation in Mumbai and New Delhi—making visa formalities a difficult ordeal for Indians in much of the rest of the country.

Red flags from Beijing

China is undisputedly Brazil’s biggest trading partner. But the Asian giant is suffering the effects of a trade war with the U.S. During Q2 2019, China’s growth fell to 6.2%. While the rate would make most countries jealous, the figure is actually the lowest since 1992, when modern quarterly records were adopted in China. That could represent a bad omen for the already sluggish Brazilian economy, as the people’s republic is the destination of around one-third of all Brazilian exports (and half of commodity exports). 

Also noteworthy

GDP. The Central Bank publishes today its economic activity index for May—a sort of preview of what GDP numbers will look like. In April, it showed a drop of 0.47% in Brazil’s economy. In a quarterly report, the bank said Brazil’s economy has not reacted in Q2 2019, and slashed its growth expectations for the year, from 2.2 to 0.82%. The bank also releases its latest Focus Report today, showing market expectations for the economy.

Mercosur. Brazil takes over the rotating presidency of Mercosur—the trade bloc with Argentina, Uruguay, and Paraguay. The priority for the short term is getting the trade deal with the European Union approved by the parliaments of all member states.

Deficit. The next prosecutor general, who takes office in September, will encounter a severely depleted budget. According to members of Raquel Dodge’s incumbent administration, there is currently a BRL 100m deficit for paying for non-mandatory expenses. The Federal Prosecution Office says it is taking measures to correct the situation, but it did not go into specifics. The office has reportedly cut working hours to reduce power and water bills.

Literature. The 2019 Paraty International Literature Festival has come and gone. And none of the top 5 best-selling authors in this year’s event are white: four are black (all of them foreigners) and one is indigenous.

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