🚧 Flood risk everywhere

Happy Friday! Today, we bring worrisome findings about the flood risks facing most Brazilian cities. The impacts of the Rio Grande do Sul disaster on inflation begin to be assessed. And the Rio de Janeiro governor goes on trial.

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Flood risks loom over an unprepared Brazil

Data from the Science and Technology Ministry shows that 72 percent of Brazil’s 5,570 municipalities face a medium-to-very high risk of facing floods in the coming years. What’s more, that is the most optimistic of the ministry’s projections.

Tomorrow’s problems, today. Since 2019, more than 60 percent of Brazilian cities have faced some type of emergency caused by extreme climate events, according to data compiled at the end of last year by think tank Instituto Talanoa, at the request of The Brazilian Report.

State of play. The federal government promises to draft a national strategy to adapt Brazilian cities to the growing climate emergency by October. So far, only 12 of Brazil’s 27 state capitals reportedly have plans to adapt to climate change. 

• Porto Alegre, the capital of Rio Grande do Sul, is not one of them. Its lack of preparation was exposed in recent weeks after record-high rainfall in the surrounding state. 

• The Guaíba River burst its banks, leaving most of Porto Alegre residents without water and electricity, while entire neighborhoods became inaccessible due to floods.

Be smart. What is particularly worrisome about the Rio Grande do Sul tragedy is that some of the areas hit hardest by floods were not those deemed as being at very high risk for 2030.

 Why it matters. Things may be about to get worse, as Brazil — and the world, for that matter — seems to be entering an era of omnipresent disasters. 

Disagreements. A national adaptation plan was drawn up in 2016 but was buried during politically turbulent years — first, a presidential impeachment, then, the election of climate-change denier Jair Bolsonaro in 2018. Hyperpolarization has also hampered dialogue between municipal, state, and federal officials with different political beliefs.

Shelved. Between 2013 and 2015, the government set its Brazil 2040 program into motion, which included assessing the risks climate change would create for several economic sectors. The program was abruptly shelved and its proposals were published in an incomplete manner and without any publicity.

• Since then, science has accumulated data on the topic, but public policies have not evolved to factor in climate risks. 

• “We don’t have a law, a regulation, a standard, or a real adaptation program,” Natalie Unterstell, one of the coordinators of the Brazil 2040 program, told The Brazilian Report. “The Growth Acceleration Program [which aims at fostering growth through massive public works] has nothing about adaptation to climate change,” she adds.

Warning. Almost 55 percent of Brazilians live within 150 kilometers of the coast, recent census data found. Most of the cities they live in face flood risks — including Rio de Janeiro, the country’s second-most populous city with 6.2 million people. 

• Geography, density, and poverty levels contribute to cities’ degrees of vulnerability. That is particularly true in Recife and Salvador, major cities in Brazil’s Northeast region.

Amazon. Moving inland, the city of Manaus — the biggest in the Amazon region — faces its own risk of flooding due to the irregular housing occupation of riverbanks. 

• The platform MapBiomas showed that, between 1985 and 2021, Manaus was the Brazilian city with the greatest expansion of urbanized areas in precarious settlements, an area equivalent to 10,000 football fields.

First official estimate of flood impact on inflation

The Finance Ministry has raised its inflation forecast for the year from 3.5 to 3.7 percent, closer to the median forecast by market agents surveyed weekly by the Central Bank.

What they are saying. “The increase in inflation estimates captures both the effects of recent exchange rate depreciation on market prices and the impacts of the heavy rains in Rio Grande do Sul on the supply and prices of fresh produce, rice, meat, and poultry,” the Finance Ministry wrote in its bimonthly macroeconomic report.

 Why it matters. Food prices are expected to rise sharply in May and June, but “a significant portion of this increase should be reversed in the following months, with the normalization of supply.”

Backdrop. The Finance Ministry echoed the Central Bank’s perception of an increasingly challenging global scenario. “The materialization of some risks, such as the acceleration of U.S. inflation and the intensification of geopolitical tensions in the Middle East, led the market to postpone the start of interest cuts by the Fed, increasing risk aversion, treasury yields, and the dollar exchange rate.”

• The Finance Ministry says in its report that in Brazil, both the interest rate curve and the inflation projected markets for this year and the next have risen since March, mainly due to external factors.

Oops. If inflation projections have already factored in some of the damage caused by the floods, the same can’t be said about the Finance Ministry’s estimates for economic growth. The government believes gross domestic product will increase by 2.5 percent (from 2.2 percent in March).

• How the Rio Grande do Sul floods will impact the economy “will depend on the occurrence of new climate events, spillovers on nearby states, and the effects of fiscal aid and credit programs in hard-hit cities.”

• Rio Grande do Sul is Brazil’s fourth-largest economy, behind only São Paulo, Rio de Janeiro, and Minas Gerais. The state “is expected to record losses mainly in Q2, partially offset in subsequent quarters.” 

• “Activities related to agriculture and the manufacturing industry are expected to be the most affected at the national level, as they are more significant in [Rio Grande do Sul’s] GDP compared to the Brazilian GDP,” said the ministry.

Electoral trial of Rio governor to kick off

Rio de Janeiro’s state electoral court will today begin to analyze a case in which Governor Cláudio Castro is accused of abusing his power to load the dice ahead of the 2022 election, when he won re-election in a first-round landslide. 

 Why it matters. Prosecutors have asked for the courts to impeach Mr. Castro and his lieutenant governor, as well as the speaker of the state’s legislature — among other officials.

Accusations. Prosecutors say the accused used the public purse to artificially boost social programs in the first half of 2022, with the aim of increasing their re-election chances. 

• A public foundation and a university were also allegedly used as fronts for the state government to hire thousands of political campaigners as temp workers and have them work for the accused’s campaigns on the public dime.

• Reports by news website Uol showed that these temp workers withdrew BRL 22 million (USD 4.28 million) in cash from ATMs late in 2022. This strategy has been used in other schemes in which participants sought to move money while leaving a minimal trace.

Defense. Speaking with The Brazilian Report during this week’s Brazil Summit in New York City (we were a supporting partner of the event), Mr. Castro accused the case’s lead prosecutor of political bias. He complained that no one from the university allegedly used as a front for hiring campaign workers is facing charges “because the dean ran for office for the [left-leaning] Workers’ Party.”

— Luciana Rosa contributed reporting from New York City.

Quick catch-up

 President Lula enacted a law on the new rules for drivers’ mandatory insurance. The bill surreptitiously included a provision giving the government an extra BRL 15 billion to spend.

Rio Grande do Sul Lieutenant-Governor Gabriel Souza said the state is considering relocating entire cities after the floods that ravaged Brazil’s southernmost state. He voiced plans to build four “provisional cities” in and around Porto Alegre, Rio Grande do Sul’s capital.

Polishop is the latest major retail group to file for bankruptcy protection in Brazil. The company was a Brazilian pioneer in sales through infomercials, but it has struggled to make its brick-and-mortar operations profitable in recent years.

Electoral authorities in Rio Grande do Sul say the floods have damaged at least 500 electronic voting machines; a warehouse with 15,000 more is inaccessible. Officials have not ruled out the possibility of postponing the October municipal elections in the state (which would require congressional authorization).

After negotiating to be Congresswoman Tabata Amaral’s running mate in the 2024 São Paulo mayoral race, TV presenter José Luiz Datena is saying he wants to run on a ticket of his own. Mr. Datena has a long track record of announcing a bid for office, only to withdraw when push comes to shove.

Brazil will host the 2027 Women’s World Cup, following a vote from the FIFA Congress in Thailand on Friday. It will be the first Women’s World Cup to be hosted in South America.

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