Bolsonaro administration: one man down

Author

Gustavo Ribeiro
February 19, 2019 • Reading Time: 7 minutes

In today’s issue: Bolsonaro administration: one man down

Bolsonaro administration: one man down

After an excruciating week, President Jair Bolsonaro has finally fired Gustavo Bebianno, who served as his secretary-general for 48 days. Accused of electoral fraud, Mr. Bebianno was chastised for days by the Bolsonaro clan—which could reduce the government’s political capital. Members of Congress have watched one of the president’s closest allies being so publicly humiliated, passing on the image that nobody is safe from a similar fate.

The president, however, has not explained why he fired Mr. Bebianno. If it was for the fraud suspicions, then why is Tourism Minister Marcelo Antônio still in office, despite similar accusations? Last week, Mr. Bebianno threatened to reveal documents detrimental to the president. Still, the president shared a video thanking him for his dedication during the 2018 campaign.

It remains unclear how Mr. Bebianno’s firing will impact the government’s agenda of reforms. But the perception that the administration lacks clear guidance is growing among analysts—which should make markets volatile. Just after his firing, Mr. Bebianno was invited by opposition senators to speak before Congress about the case.

The replacement

Retired General Floriano Peixoto, who served as Mr. Bebianno’s number 2, takes over as Secretary-General—who is usually one of the president’s closest advisors. Like other cabinet members, Gen. Peixoto headed, between 2009 and 2010, the UN Peacekeeping Mission in Haiti (MINUSTAH). There are now 8 military cabinet members—plus VP Hamilton Mourão. A record since the military dictatorship ended in 1985.

Setting the stage for the pension reform

President Jair Bolsonaro promises to deliver the pension reform bill to Congress in person tomorrow. The administration wants to send a message of normality—despite the obvious chaos. Besides the crisis around the former secretary-general, allies are growing wary of the administration, following promises of an “Operation Car Wash-like” probe into the education sector.

That irritated the Democratas party, which controlled the Ministry of Education during Michel Temer’s administration. While it is a consensus that a Bolsonaro-backed investigation would focus efforts into probing the Workers’ Party era, House Speaker Rodrigo Maia—arguably Democratas’ biggest star—was vocal about his bother with the government. Mr. Maia, who controls the House’s agenda, is key to the reform.

The government is all-in on its overhaul of the pension system. In order to get support from governors and senators, the administration will propose a bill creating a financial rescue program to states in a dire financial situation. This new program would be much less harsh than current financial recovery rules for near-bankrupt administrations.

Two Federal Police operations this morning

It’s been a busy morning for the Federal Police. In the state of São Paulo, the 60th phase of Operation Car Wash has been launched, and 46 agents are carrying out 12 search and seizure warrants. The Feds are investigating a “sophisticated BRL 100m money-laundering scheme” operated by the Odebrecht construction company, used to make campaign contributions in 2010 and 2011.

Also today, another Federal Police Operation was launched in the states of Pernambuco, São Paulo, Paraíba, Mato Grosso do Sul, Alagoas, and Brasília. Ten arrest orders and 40 search and seizure warrants were issued. Agents are investigating a group of companies—controlled by the same family—which has earned over BRL 400m in fraudulent contracts with the Ministry of Tourism and Sistema S, a group of non-profit institutions created by the private sector, promoting culture, social welfare, employment, and training.

State-run energy company privatization delayed for 2020

The capitalization of Eletrobras—Brazil’s state-run energy company—should not happen this year, as the government had promised. The Ministry of Mines and Energy is still evaluating how the capitalization process will be carried out. Brazil’s current legal framework for the energy sector is outdated—which could be a major deterrent for investors.

The main issue, per government officials, is the so-called hydrological risk, calculated by the Generation Scaling Factor (GSF), an index that measures companies’ exposure to the spot energy market. The reduced availability of hydropower reservoirs for energy supply requires the dispatch of thermal power from coal, gas or oil sources, which is more expensive. This pushes spot market prices way above inflation—since 2013, power bills went up by 100%, against the 33% inflation for the period.

More privatizations on the horizon

The federal government wants to carry out 24 concession auctions in March. Most will be in the infrastructure sector, for contracts such as railways, ports, and airports. In total, the government wants to privatize 193 ventures currently controlled by the state. According to an official of the Ministry of the Economy, the state-owned companies running a loss are costing the treasury BRL 15bn every year, “which could be better invested in healthcare and security.”

What else you should know

  • Mistrust. Paranoia seems to be the prevalent feeling within the Jair Bolsonaro administration. According to reports from Folha de S.Paulo columnist Monica Bergamo, cabinet members are now leaving their cell phones outside of meeting rooms—fearing that a fellow government official will record the conversation and use its content against them.

  • Crisis. Gustavo Bebianno lasted for only 48 days as the President’s Secretary-General. Incredibly enough, though, this wasn’t the quickest firing for a cabinet minister. In 2016, Michel Temer had to fire former Senator Romero Jucá as minister of Planning after 11 days—following the publication of a tape in which Mr. Jucá appeared talking about the government’s need to sabotage Operation Car Wash.

  • Controversy. Minister of Education Ricardo Vélez-Rodríguez apologized on Monday after calling Brazilians “cannibals” who “steal things from hotels and planes” when traveling. Mr. Vélez-Rodríguez, who was born in Colombia, said he loves Brazil unconditionally—and that his words were taken out of context.

  • Trade. Brazil is seeking EUR 180m in compensation from the European Union after it imposed tariffs on steel from major producing countries. The Brazilian government notified the World Trade Organization that it could retaliate—to “rebalance” trading relations. Such measures should include higher tariffs on EU products, such as powdered milk.

  • Taxes. About 90,000 properties in São Paulo will face a bump in housing taxes of up to 50%. The significant rise is due to a glitch in the mayor’s office’s system, which updated tariffs with three years of delay. Now, the rise has accumulated all at once. Normally, the São Paulo municipal housing tax should have gone up by only 3% this year.

  • Industry. After 5 straight years of decreasing revenue, Brazil’s machinery and equipment industry recorded a 7% growth in 2018. Even exports recorded a 7% hike, despite a major financial crisis in Argentina—Brazil’s biggest market for manufactured goods. Between 2013 and 2017, however, the sector shrank by 47%. For this year, the sector expects to grow again, even if at a slightly slower pace—between 5 and 6%.

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