Will Bolsonaro be able to regain support in Congress?

Good morning! Brazilian Central Bank to intervene in currency depreciation. Will Bolsonaro be able to regain support in Congress? Income inequality rises for the 17th straight quarter.

Brazilian Central Bank to intervene in currency depreciation

After losing 3% against the U.S. Dollar

over the past 5 days, the Brazilian Real starts this week under tremendous pressure, at 4.10 to the USD—its lowest level in 9 months. And it could get worse, as political strains between the government and Congress threaten to paralyze the reform agenda. At least for now, the Central Bank has decided to tame the loss of value, holding three currency auctions, for USD 3.75bn, by Wednesday.

Under president Roberto Campos Neto, the bank has changed its traditional currency protection strategy, through swap contracts—meaning the future sale of dollars—for a direct offer in the on-demand market, where dollars are sold with a buyback commitment. The last time the Central Bank used that instrument was late in April, when the USD got closer to the BRL 4 mark.

Some investment firms have decided to enhance their positions in BRL against other Latin American currencies, betting that the tide will turn in the short to mid-term. The move, however, could take some time before it pays off, due to the country’s political uncertainties. Positions in the BRL against the USD have lost 11% since late October, when the election was decided.

• Go deeper: The worst economic crises in Brazilian historyWill Bolsonaro be able to regain support in Congress?After enduring a series of defeats imposed by Congress and a wave of popular protests against his administration, President Jair Bolsonaro will have to rally his troops quickly. Over the next 15 days, he must get congressmen to approve 11 provisional decrees that are set to expire—concerning areas from data protection, to social security, to the very structure of the presidential cabinet.But the president doesn’t seem quite ready to negotiate. Yesterday, he posted on Facebook a video of Congolese preacher Steve Kunda calling him God chosen to rule Brazil—comparing it to the way Cyrus the Great was chosen to rule Persia. “Support this man, be on his side. God said his first two years won’t be easy—but the hand of God is with him.”This comes after Mr. Bolsonaro published a text on Friday calling Brazil “ungovernable,” citing “corporate interests” conspiring against his success—i.e. Congress, the Armed Forces, and the Justice system.His camp is also calling for supporters to demonstrate in his favor next Sunday. But for right-wing leaders, such as São Paulo state lawmaker Janaína Paschoal (who was considered for the VP position last year), that could be a bad move—as the streets could end up being empty.Income inequality rises for the 17th straight quarterIncome inequality has risen to its highest level in at least 7 years, according to a study by think tank Fundação Getulio Vargas. The Gini index (which measures wealth distribution among a population) went from 0.625 to 0.627 in a 0 (perfect equality) to 1 (absolute inequality) scale. This trajectory has been steady for the past 17 quarters.The income gap has risen despite the decision by President Bolsonaro to bump the minimum salary by 1.1% above inflation, giving it its first real raise in two years. According to researcher Daniel Duque, who conducted the study, that’s because the slow recovery of the job market has been felt harder by less-educated workers, who are less prone to find a new position. They are the core of the discouraged labor force—that is, those who have given up on finding a job.The silver lining is that the rise of Brazil’s Gini index has been slower this year—which means there is room for it to go down again, if the country’s economic outlook becomes less bleak—which would means passing the pension reform at the very least. But true change will only come once Brazil engages in true wealth distribution and corrects fiscal privileges for wealthier people.What else you need to know today

• Truckers. Today the government will launch the trial of a special card allowing truck drivers to pre-pay for fuel—a way to help protect them from price fluctuations. Over the past month, diesel sold by Petrobras’ refineries rose by 7.5%—and this additional cost may soon reflect in prices to consumers. The idea of the card came up as part of the government’s strategy to avoid a new truckers’ strike. 

• JBS. The New York Daily News tabloid reported that the Donald Trump administration has forked over USD 62m “supposed to be earmarked for struggling American farmers to a massive meatpacking company owned by a couple of corrupt Brazilian brothers.” Pork plants run by JBS benefited from the incentive measures given by the U.S. government. Meanwhile, JBS has greatly benefited from the U.S.-China trade war, having gained over 20% in market value over the past week.

• Tourism. Brazil currently hosts 6.6m tourists per year—much less than Paris’ Louvre Museum alone (10.2m). The government plans to double that to 12m by 2022, according to its National Plan for Tourism. However, the administration chose to exclude incentives for LGBTQ tourism, which accounts for 10% of world travelers and 15% of revenue in the tourism industry. Despite the move, LGBTQ organizations still place Brazil as one of the world’s top destinations for the community.

• Budget. The federal government has frozen the entire budget for 140 public policy projects, mostly infrastructure-related. Budgetary laws don’t allow the administration to cut salaries or pensions—the bulk of public spending. The Economy Ministry is expected to announce a new round of budget cuts this week, this time of BRL 10bn—which should mean that 40% of other 300 projects will be frozen.

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