🦩 Oblivious Congress

Good morning! This week, we talk about how Congress is steamrolling bills that could worsen the climate emergency. A Brazilian week in New York City. And how states’ accounts are depleted. 

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Congress and its “Destruction Package”

The Brazilian Congress has 25 related bills and three constitutional amendment proposals on its docket, which environmentalists have dubbed the “Destruction Package.” Even while the country looks on in horror at the climate crisis in Rio Grande do Sul, these bills still have momentum for approval. 

 Why it matters. Nearly all Brazilians have linked the floods in Brazil’s southernmost state to climate change. Still, lawmakers seem poised to pass legislation that could make the climate crisis even worse.

What they are saying. Several climate watchdogs denounce that these proposals will make extreme climate events (such as floods and droughts) more frequent.

Strike one. Last week, the House passed a bill to no longer consider the planting of eucalyptus and pine trees as damaging to the environment, freeing them from the need to obtain environmental licensing. The main argument against planting eucalyptus is that the trees have such a high consumption of groundwater that they can dry up water sources such as rivers and springs.

Irrigation. Another proposal that could severely impact groundwater sources allows the construction of irrigation systems inside preservation areas, such as riverbanks. Experts say the proposal will make water crises more frequent and spark land conflicts across the country. The Senate has approved the bill; it is now being analyzed by the House. 

Amazon protections. One of the bills in the Destruction Package that environmentalists fear the most intends to lower protection thresholds for properties in the Amazon — from the current 80 percent of any land to just 50 percent (in municipalities where most land is made of protected areas).

• If approved, more than 4.6 million hectares of Amazon rainforest land would be at risk of deforestation. The bill was scheduled for a vote last Wednesday at the Senate Constitution and Justice Committee, but was postponed due to health issues affecting the proposal’s rapporteur. 

• Be smart: Deforestation in the Cerrado savanna has worsened — and a big chunk of it happens legally. The Environment Ministry has complained that state-level legislation has hindered protection guardrails, and now Congress wants to magnify that problem.

Licensing. One bill, which has already cleared the House, would essentially turn environmental licensing into an exception rather than the rule. It would free up landowners from having to submit detailed regulatory impact studies, and require self-declared pledges instead.

One brief pause. Among the most contentious environmental issues facing the Luiz Inácio Lula da Silva administration concerns newfound oil reserves in the so-called Equatorial Margin — offshore reserves along Brazil’s northern and northeastern coasts. Parts of the administration are in favor of drilling, while other parts warn of the massive environmental risks embedded in doing so.

• The House had scheduled a hearing on the issue for last Wednesday, but postponed it due to the tragedy in Rio Grande do Sul.

Tragedy by the numbers. The Rio Grande do Sul floods have killed almost 150 people already. Meanwhile, nearly 620,000 have been forced out of their homes — the highest number for a single tragedy on record for Brazil. The catastrophe is far from over, as further flooding is expected and an abrupt drop in temperature is causing health concerns.

Brazil in New York City

Dozens of Brazilian politicians will be in New York City this week for several events to showcase the country as an investment hub for infrastructure. The events will take place between Monday and Wednesday, with business leaders and politicians taking part.

• On Wednesday, the Financial Times hosts its third annual Brazil Summit — of which The Brazilian Report is a supporting partner. 

 Why it matters. The main goal of these events is to promote investment in Brazil. “[The week] is an important gathering of CEOs, CFOs, shareholders, businesspeople, and investors that enhances networking and the exchange of ideas and encourages business between Brazil and the U.S.,” says Simoni Morato, CEO of Safra National Bank of New York and president of the Brazilian-American Chamber of Commerce.

Break the ice. Bringing decision-makers face-to-face with investors helps break down preconceived ideas and strengthens ties between local governments and international capital. 

• Governors of some of Brazil’s most populous and wealthy states, including São Paulo, Rio de Janeiro, Minas Gerais, and Piauí, will sponsor and participate in the FT’s Brazil Summit.

Leading. With Brazil holding the G20 presidency in 2024 and hosting COP 30 in 2025, the country has a historic opportunity to lead the global agenda for sustainable development. 

• Discussions during the summit will focus on energy transition, sustainable agriculture, and new models for the Amazon, highlighting the central role the business sector is playing and will continue to play in shaping this agenda.

No show? Multiple events of this “Brazilian week” in New York will not have some of their keynote speakers — politicians who decided to stay in Brazil during the climate crisis in Rio Grande do Sul. That is the case of House Speaker Arthur Lira, who would be on two events on Monday and Tuesday.

Markets

The torrential rains in Rio Grande do Sul left their mark on the grain market last week. Soybean prices in Chicago rose in the first days of the floods, reflecting fears about possible losses, but that spike lost steam — ending the week rising by just 0.33 percent. In the state of Paraná, meanwhile, soybean prices rose by 2.05 percent in the same period.

Chart of the week: Problematic state accounts

Finance Minister Fernando Haddad will discuss with Rio Grande do Sul Governor Eduardo Leite the suspension of the state’s debts with the federal government due to the severe floods that have hit the state. The question is not if debt payments will be suspended, but for how long — whether until the end of this year or for the next three years.

State of play. A study by Firjan, a federation of Rio de Janeiro industries, shows that 23 of Brazil’s 27 states are set to end the year in the red. Rio Grande do Sul has the fifth-biggest expected deficit at BRL 3.11 billion (USD 0.6 billion).

Stories we’re following

As massive rainfall in the state of Rio Grande do Sul continues, officials warn about more floods in multiple cities. The Guaíba River, which bathes the state capital Porto Alegre, could return close to the record highs recorded at the start of the month. 

Petrobras, Brazil’s state-controlled oil giant, publishes its Q1 results Monday after the bell. Investment bank Itaú BBA expects the company’s Ebitda to reach USD 13.4 billion — meaning USD 3.5 billion in dividends.

Hospitalized on May 4, Former President Jair Bolsonaro has no estimated date to be discharged. He is struggling with a chronic skin infection that has bothered him for years.

In case you missed it

An 8-3 Supreme Court majority upheld provisions of 2016 legislation on the governance of Brazilian state-controlled companies. The rules in question create barriers to the appointment of politicians to executive positions.

Brazil’s April inflation rate came in at 0.38 percent, slightly above median market expectations. In the last 12 months, consumer prices in Brazil have risen by 3.69 percent.

The government and Congress agreed on a way to end payroll tax exemptions for 17 economic sectors in a gradual manner. The benefit will end in 2028 after reintroducing the tax in 5 percent increments each year, until reaching the standard 20 percent rate.

The Central Bank’s Monetary Policy Committee cut Brazil’s benchmark interest rate by 0.25 percentage points to 10.5 percent. Markets saw the split decision as political—the five Central Bank board members named by the Jair Bolsonaro administration voted for a slimmer cut, while the four appointed by Lula voted for a 0.5-point cut.

After months of negotiations, Brazil and Paraguay have settled on the tariffs for the energy produced by the Itaipu Dam hydroelectric complex. Brazilian officials said the deal will authorize Paraguay to sell its half of the energy produced by Itaipu to the private market.

Electoral prosecutors in Rio de Janeiro have asked for the state’s top officials to be removed from office (including Governor Cláudio Castro) for illegally using their posts to create an unfair advantage for themselves during the 2022 election.

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