🔎 All the former president’s men

Happy Friday! Today is Musicians’ Day in Brazil. Brazil’s music has long been a defining part of its national identity — from samba and bossa nova to forró in the Northeast and funk in Rio. In today’s issue: 

What’s next for Bolsonaro & co. after damning police report?

The Federal Police’s Thursday recommendation to press criminal charges against far-right former President Jair Bolsonaro and 36 of his allies for plotting a coup in the aftermath of the 2022 elections is just the latest step in what is still a tortuous path towards a conclusion.

Findings. The Feds presented the Supreme Court and Federal Prosecution Office with the final report of an investigation into an alleged coup attempt by members of the Bolsonaro administration (2019-2022) — including the former president himself.

• Investigators say Mr. Bolsonaro, General Walter Braga Netto (his former chief of staff, defense minister, and 2022 running mate), and 35 others should stand trial for the crimes of violent abolition of the rule of law, coup d’état, and conspiracy.

State of play. The police investigation’s findings do not automatically result in the former president being indicted, nor are they any guarantee that he will face trial for the exact charges — and they are not necessarily proof of his guilt or that of any of his 36 allies.

• That said, the final report from the Federal Police is damning, and the next steps in the criminal prosecution process should move forward at a fast pace.

 Why it matters. Even before Thursday’s report, Mr. Bolsonaro’s legal standing was complicated. The police have already recommended criminal charges against him in two other cases: one related to procuring false vaccination cards and another for accusations of stealing jewelry that belonged to the government.

To you … The next stage is for Justice Alexandre de Moraes — the rapporteur of the case and mentioned several times in the police report, including as an alleged assassination target — to pass on the findings to the Federal Prosecution Office, which is likely to occur first thing this morning.

• Brazil’s top prosecutors will analyze the report and decide whether to accept the Federal Police’s recommendations for charges, reject them, or request further measures.

… To me. If the recommendations are accepted, Mr. Bolsonaro and others will be officially indicted, and the ball will be returned to the Supreme Court. Justices will then decide whether to accept the indictments and launch a criminal case, with the former president and others as defendants. 

Calendar. We expect the case to move quickly. Not only has the Federal Prosecution Office often been aligned with the Supreme Court on many issues, but both institutions want to avoid going to trial in 2026, when general elections will be held, which would undoubtedly contaminate proceedings.

Yes, but: The Judiciary branch goes into recess on December 20 and only returns to work in February — meaning the trial will begin in February 2025 at the earliest.

Outcome. Cases regarding federal authorities are heard before the Supreme Court. That can benefit defendants, as the court sometimes moves at a plodding pace. However, in case of a conviction, the avenues for appeal are limited.

• If that is the verdict, defendants would, at best, be able to deploy a legal strategy to delay an arrest. Former President Fernando Collor, for instance, was convicted of corruption and money laundering a year and a half ago and has avoided prison time so far, thanks to these delaying legal instruments.

• Each count against Mr. Bolsonaro and his crew carries at least three years of prison. If convicted of them all, the suspects face almost 30 years in prison.

Banks get less risk averse on credit

Brazilian banks cautiously expanded credit access throughout the first half of this year, loosening some criteria for vehicle loans, according to the Central Bank’s latest Financial Stability Report.

• For businesses, credit growth accelerated but without significant changes in approval criteria. Credit risk for households and small and medium-sized enterprises (SMEs) is stable, while large companies may see risk reduction due to improved portfolio quality.

Profitability. Bank profitability continues to recover, driven by stable provision costs, rising interest revenues from loans, and accelerated service revenues — a trend expected to persist. 

What they are saying. The Central Bank says the banking system remains well-capitalized and resilient, with sufficient buffers to absorb regulatory changes and economic shocks (capital requirements will significantly increase between 2025 and 2028 with updates to rules for assessing operational risk). Stress tests show adequate liquidity and resilience under adverse scenarios.

Yes, but … Despite strong labor market signals of low unemployment and rising income, household and SME finances remain strained due to high debt levels and income commitments.

 Why it matters. The ongoing cycle of interest rate hikes is likely to step up the pressure on businesses and households’ ability to meet their financial obligations. Brazil’s policy rate currently stands at 11.25 percent, and markets believe it could hit 12 percent by the end of this year.

Grain exports still too reliant on trucks

Transporting grains across Brazil remains a persistent challenge. A new study by EsalqLog, a logistics research center at the University of São Paulo’s agriculture school, reveals that soybean and corn exports are increasingly reliant on trucks.

• Counterintuitively, however, the share of grain tonnage transported by trucks has declined. This shift, however, has more to do with an increased volume of exports over the past 13 years. 

• The study notes that grain destined for export markets is more likely to move by rail than shipments intended for domestic consumption.

Corn: Between 2010 and 2023, roads’ overall share in transporting corn fell by 8 points (84 to 76 percent), while railways rose from 15 to 17 percent, and waterways grew from just 1 to 8 percent. However, when looking solely at corn exports, the percentage transported by trucks more than doubled to 45 percent.

Soybean: The trends were similar when it comes to soybeans. In general terms, road transportation fell, with rivers and railways gaining ground, but trucks became more essential with regard to soy transport for export.

By the numbers. Demand for exports has outstripped the quality of transportation infrastructure, despite investments in the area. Soybean exports grew by 250 percent and corn by 416 percent between 2010 and 2023. Meanwhile, production of each crop increased by “just” 125 percent.

• According to the National Association of Grain Exporters (Anec), freight accounts for around 25 percent of the total cost of transporting soybeans from Brazil to China — and 19 percent of the cost comes specifically from road transport in Brazil.

What they’re saying. “Almost all infrastructure investments from 2010 to 2023 have been insufficient to support export growth,” said Thiago Péra, a coordinator at EsalqLog. Rail and waterways haven’t matched the speed or volume of export growth.

 Why it matters. Roadway transportation is costlier and slower, partly due to the poor quality of Brazilian roads. But trucks remain the favored method due to a lack of alternatives, especially during periods of drought affecting river levels.

• Moreover, the 2018 truckers’ strike proved that this lack of alternatives can leave Brazil beholden to these professionals, potentially grinding the country to a halt should its truck drivers switch off their engines.

Zoom out. Despite six pending rail projects worth BRL 63 billion (USD 10.89 billion), including the Ferrogrão grain line linking the country’s Center-West and North regions, Brazil’s logistics remain bottlenecked, with trucking costs affecting competitiveness — particularly when you compare it to a country such as the U.S.

• Back in July, Mr. Péra warned that Brazil should be investing around 2 percent of its GDP on logistics, but the actual figure hovers around just 0.5 percent.

Yes, but … Improving Brazilian infrastructure is not only a matter of money. Many routes set to lower transportation costs for exporters raise massive environmental concerns. 

Exhibit A: The Ferrogrão project is a 933-kilometer planned railway that would link Brazil’s soy belt to the Port of Miritituba in the Amazon region. It crosses the Jamanxim National Park and the Tapajós Environmental Protection Area.

• Indigenous leaders say the Ferrogrão would result in “the deforestation of more than 2,000 square kilometers of native forest, impact 4.9 million hectares of protected areas, and affect at least 16 indigenous reserves.”

Quick catch-up

Governor Mauro Mendes of Mato Grosso, an agricultural powerhouse, said Brazilian consumers should boycott Carrefour — after the French supermarket chain announced a ban on meat from Mercosur countries.

Finance Minister Fernando Haddad said the government should cut at least BRL 5 billion (USD 860 million) in federal spending. Chief of Staff Rui Costa, meanwhile, said the cuts could be announced today.

The Brazilian real continued its downfall against the U.S. dollar as investors await spending cut announcements. On Thursday, the greenback closed the day valued at BRL 5.81 on the spot market.

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