Escalating tensions at Brazil-Venezuela border a test for Bolsonaro

Author

Gustavo Ribeiro
February 22, 2019 • Reading Time: 7 minutes

In today’s issue: Escalating tensions at Brazil-Venezuela border a test for Bolsonaro. Initial roadblocks to the pension reform. Embraer could face competition from its own joint venture.

Escalating tensions at Brazil-Venezuela border a test for Bolsonaro

Nicolás Maduro has shut down the Venezuelan border with Brazil in an effort to prevent humanitarian aid to reach his country. The Brazilian government, however, has decided not to pull the plug on its plan to get food and medicine across the border. An Air Force plane is taking 22.8 tons of powdered milk and 500 first-aid kits to the city of Boa Vista. But in order to get the aid, Venezuelans will have to enter Brazil, get the goods, and try to cross the border again.

Mr. Maduro has been adamant against humanitarian aid—despite his country’s full-scale crisis, with food shortages and inflation rates reaching 1,370,000%. As aid missions have been organized by his opposition and financed by the U.S. (due to political disputes, international aid agencies such as the Red Cross have stayed on the sidelines), Venezuela’s anti-democratic leader sees it as a Trojan horse to oust him from power. In response, Mr. Maduro has sent tanks to the Brazilian border.

The border shutdown will directly affect Roraima, Brazil’s northernmost state—which is dependent on the neighboring country for fuel and power. In several towns close to the border, gas stations are nonexistent, as fuel is very cheap on the Venezuelan side. Roraima is the only Brazilian state not connected to the national power grid. Roughly 70% of the state’s energy supply comes from Venezuela—and could face a blackout should Mr. Maduro end the supply.

Brazilian Vice President Hamilton Mourão will represent Brazil next week at a meeting of the Lima Group, a 14-country body created to find solutions for the Venezuela crisis. Brazil doesn’t recognize the legitimacy of Mr. Maduro, considering opposition leader Juan Guaidó as the country’s head of state.

Initial roadblocks to the pension reform

On Wednesday, President Jair Bolsonaro presented his ambitious pension reform bill. The proposal elevates contribution rates for civil servants, making it tougher for wealthier workers—even if many inequality-generating points of the current system remain. However, the government chose not to tackle the question of military pensions—which come under a different system. In response, Congress wants to stall the reform until a military pension reform is submitted as well.

Even allies of Mr. Bolsonaro admit the government must be quick in addressing the military (which are numerous among the government’s top brass), so as not to send a message that the Armed Forces are a privileged caste in the country. On another front, civil servants earning high salaries have threatened to sue the government against a 12% contribution rate for the pension system, as stated by the bill. Servants of the federal government have one of the strongest lobbies in Brasília—and will certainly represent a difficult obstacle for the approval of the reform.

As we said on this newsletter yesterday, expect a trimmed-down version of the bill to be approved. “There are three certainties in life for Brazil: death, taxes, and the fact that reforms get watered down in Congress,” economist Monica de Bolle told The Brazilian Report.

Embraer could face competition from its own joint venture

NewCo, the company to be created from the Embraer-Boeing joint venture, will be allowed to compete with the Brazilian manufacturer in the segments that were left out of the deal, namely on executive jets. That possibility is part of a document that will be voted on by shareholders on Tuesday.

The item has been the subject of controversy among shareholders. “This material was made available only in late January, amid a big load of documents — precisely to go unnoticed,” complained one representative of a minority stake. Embraer claims it has kept the market constantly informed of its every move, while Boeing has not commented on the case.

According to the document, NewCo—which will be controlled by Boeing—will be allowed to incorporate Embraer’s intellectual property when launching jets of up to 50 seats (which includes all executive jets), as long as it tries to negotiate a deal naming Embraer as its preferred partner for the project. Legal experts considered the document vague, which would give Boeing a loophole to act on Embraer’s remaining segments.

What else you should know

  • Vale. A federal court has denied an arrest request against a Vale director in what was the first move from prosecutors against the board members of the company, responsible for a January 25 dam collapse that killed at least 171 people. Prosecutors claimed executive Peter Poppinga has been detrimental to society—as he was also indicted in 2015 for another dam collapse. The case’s judge said Mr. Poppinga should be considered innocent until proven otherwise. 

  • Marielle Franco.Almost one year after the murder of Rio City Councilor Marielle Franco, the police launched an operation to arrest people suspected of trying to tamper with the investigation. The plot would include a member of the state’s accounting court (an anti-corruption tribunal), using suspects as a decoy to push the police into false leads.

  • Corruption.Senator Ciro Nogueira has been targeted by a Federal Police operation launched this morning. He is suspected of being involved in a scheme to siphon away BRL 43 million during the 2014 presidential campaign. Mr. Nogueira faces charges of corruption and money laundering.

  • Ford.After the Ford Motor Company announced it is shutting down its São Bernardo do Campo plant, São Paulo’s state government has announced its intention to seek out possible suitors for a takeover. Ford’s decision would eliminate 3,000 jobs and risk an additional 21,000. Meanwhile, unions will travel to the company’s Dearborn headquarters to try to revert the decision.

  • Food & beverage.Kraft Heinz, the food giant controlled by Brazilian investment fund 3G, lost 20% of its market value on Thursday, following weak fourth-quarter results and the disclosure of an SEC subpoena regarding is accounting policies. The company is struggling due to changing consumer habits, who try to replace packaged foods with healthier alternatives. This has slowed Kraft Heinz’s sales and made investors go off its shares.

  • Agribusiness.After having celebrated great results in 2018, the soybean production chain will face setbacks this year—with estimates showing a reduction in all indicators: harvest, gross production value, exports for beans, oils, and crumbles. The sector’s output will be 5% smaller, due to the lack of rainfall and excessive heat in many states. 

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