Bolsonaro calls Brazil “ungovernable” and parties fear radicalization

May 18, 2019 • Reading Time: 7 minutes

The federal government announced massive cuts to the education budget—and tried to turn it into an ideological discussion. How markets performed this week. Bolsonaro calls Brazil “ungovernable” and parties fear radicalization. (This newsletter is for platinum and gold subscribers only. Become one now!)

The week in review

  • Bolsonaro 1. A Rio de Janeiro court authorized prosecutors to look into the last 10 years of bank statements of Senator Flávio Bolsonaro—the president’s eldest son. A total of 95 companies and persons linked to him will also be scrutinized. The senator has been accused of being the leader of a corruption scheme, and a report leaked to the press shows that he had earnings which “are not compatible with his declared income,” and have clear characteristics of money laundering operations. 

  • Bolsonaro 2. The investigation could shed light on the connections between the senator and armed militias in Rio. It could also spill over the president himself, as First Lady Michelle Bolsonaro has received money from a man considered by prosecutors as Flávio Bolsonaro’s financial operator.

  • Mining. Vale has informed public prosecutors of structural problems in an iron ore dam located just 134km from Brumadinho, where another dam of the same kind collapsed on January 25, killing 240 people and leaving 32 others missing. The structure of the mine is moving and, if that process continues, part of it could fall apart between May 19 and 25—which can ultimately affect the residue reservoir. Prosecutors ordered the company to keep the local population up to date with the risks and impacts. On Saturday, local towns will simulate an evacuation plan.

  • Oil & gas. Petrobras has informed that it detected around 300 liters of oil next to the P-31 overseas oil drilling platform on Wednesday morning. The company said it followed protocols established by regulators and that no more oil was found in the region. However, it did not say what caused the spill. Last month, Petrobras stopped operations at another platform due to a 941-liter oil spill.

  • Argentina. Former Argentine President Cristina Kirchner announced on Saturday she will be in the upcoming presidential race—but not on top of the ticket. In a surprising move, Ms. Kirchner (who leads the race according to some polls) will be the VP candidate for Alberto Fernández—who served as her Chief of Staff. Argentina’s political situation has a huge impact on Brazil, as the neighboring country is the biggest destination for Brazilian manufactured goods.

Education: Less money, fewer students

Education has been a hot-button issue in Brazil, after the federal government announced massive budget cuts—and tried to turn it into an ideological discussion. This week, hundreds of thousands of students, teachers, and staffers of public and private institutions took to the streets in approximately 170 cities to demand more financing for education.

Meanwhile, private companies have faced many challenges. In a sluggish economy, the number of students has gone down and market leaders have posted negative numbers. This week, Kroton—the world’s largest educational group—announced a 4.3% drop in net revenue and a 34.2% drop in adjusted net profits after Q1 2019.

Of all top players, only Arco has gained market value in the last month—thanks to the acquisition of Positivo, a company with over 650,000 students. Moreover, Arco is listed on the New York Stock Exchange, where liquidity is higher than in São Paulo’s market.

While plenty of investors are frustrated with the Brazilian market, some have started to wonder whether the recent free-fall of the São Paulo stock exchange may be a buying opportunity. The atmosphere is tense and there is too much distortion on all sides—so it’s important to be able to distinguish information from rumor. For next week, keep an eye on how the pension reform will develop in Congress, after lawmakers declared they may vote on a new bill different from the one presented by the government, but which would also save BRL 1 trillion over 10 years.

Natália Scalzaretto, TBR markets reporter

Bolsonaro calls Brazil “ungovernable” and parties fear radicalization

The Brazilian political system has been described as one of “imperial presidentialism.” While the head of state has enormous agenda-setting powers—being able to run the country through provisional decrees—Congress is also endowed almost unlimited prerogatives. Furthermore, Brazil has the world’s most fragmented legislature (currently made up to 30 parties). Historically, presidents have had to scramble to form and keep coalitions. 

But from the get-go, Jair Bolsonaro has shown no interest in building a coalition.

After nearly 5 months of tension, Congress has decided to bypass President Bolsonaro and run the country by itself. This week, lawmakers presented a tax reform bill without even consulting government officials, and have talked about scrapping the pension reform for another bill entirely—with the proposal’s rapporteur going as far as saying that “the government has no strength whatsoever.”

On Friday, the president shared a text on several WhatsApp Messenger groups talking about the struggles of his administration, calling Brazil “ungovernable” without the “quid pro quo shenanigans” he refuses to engage in. The message said that Mr. Bolsonaro was being attacked for clashing with the interests of powerful corporations.

In political circles, the move was interpreted as a way to galvanize supporters, who are trying to organize an act in favor of the president for May 26. On social media, many of Mr. Bolsonaro’s defenders talked about “standing up to Congress and the 11 crooked [Supreme Court] Justices.”

Congressional leaders ordered lawmakers not to respond to the message, so as not to fuel the idea of a conspiracy to fustigate the government. The move, however, was interpreted as a declaration of war—and tensions should only grow higher from now on. As a result, the Brazilian Real crashed, and the São Paulo stock market fell to its lowest level since October.

Mr. Bolsonaro’s talks of generic conspiracies against him orchestrated by “corporations” are reminiscent of the actions of former President Jânio Quadros, in 1961. Belittled by Congress after adopting a radical anti-system rhetoric, Mr. Quadros evoked “hidden forces” that didn’t let him govern. And in his wishes to incite supporters to protest in his favor, he is apeing another former head of state in 1992, when Fernando Collor asked people to show their support for him in the streets.

Neither was successful. Mr. Quadros resigned after only 8 months in office, while Mr. Collor faced a series of protests asking for his impeachment—which ended up being voted by Congress in 1992.

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