Brazil remains hostage to truck drivers

Author

Gustavo Ribeiro
April 17, 2019 • Reading Time: 7 minutes

Good morning! Brazil remains hostage to truck drivers. Increasing competition in oil refining. The Supreme Court v. Everyone. Pension reform.

Brazil remains hostage to truck drivers

The government’s measures to please truck drivers (promoting less bureaucracy, more credit, and improvements to roads) was considered a “handout” by truckers’ unions, who say the measures have not solved the problem. After all, the sector’s main requests—raising and enforcing minimum freight prices, and reducing diesel prices—weren’t met. Moreover, the government has announced that Petrobras is free from political interference to change diesel prices according to the company’s needs.

All of this means that a new truckers’ strike remains a possibility if diesel prices at gas stations go up—in WhatsApp groups, there are talks about a May 21 protest. Diesel is 5% more expensive than it was at the beginning of the year; however, it remains almost 6% cheaper than it was after the 2018 truckers’ strike—an 11-day movement which caused fuel and food shortages, and billion-dollar losses for all sectors of the economy. Cargo transportation resumed only after the government at the time offered fuel subsidies and minimum freight prices.

While there was virtually no alternative to resume economic activity, the case showed just how powerful truck drivers are in Brazil. Over 60% of all cargo in Brazil is transported by trucks. If we exclude crude oil and iron ore, which are not transported by road, that rate spikes to 90%. In an ideal system, trucks shouldn’t account for more than one-third of cargo transport.

The problem hitting truckers is caused by a sluggish economy—which pushes demand for their services, and therefore freight prices, down—and a hike in crude oil prices (over 30% in 2019). To avoid leaving the country hostage to a single profession, Brazil should:

  • Improve regulations on the infrastructure sector, attracting more private investments;

  • Reform the state, in order to allow for more public investments in infrastructure.

Increasing competition in oil refining

Once a 100% state-owned company, Petrobras is now a private company owned by the government; the difference being that it now has millions of minority shareholders. However, Petrobras also controls 99% of the oil refining market in Brazil, which makes its pricing policy so important for the economy. In other countries, classic competition rules curb the influence of a single factor.

And that pits two groups against each other: the government—which must consider the effects of Petrobras’ role in governmental policies and its institutional symbolism—and shareholders, who are understandably only interested in the company’s financial results.

In a bid to correct that distortion, Petrobras CEO Roberto Castello Branco announced the company will sell 50% of its refineries by June. Today, Petrobras owns 13 such plants, capable of processing 2.2m barrels per day.

The Supreme Court v. Everyone

The Brazilian Supreme Court decided to continue with its controversial investigation into the spreading of “fake news” against its members. This week, the phones and computers of 7 suspects were seized, and the court censored a damaging article linking Chief Justice Dias Toffoli to the Odebrecht, the construction company involved in several Operation Car Wash-related corruption cases.

The move goes against the recommendation of Prosecutor-General Raquel Dodge, who wanted to dismiss the case. It also sparked fury within the court itself. Justice Marco Aurélio Mello, one of its longest-tenured members, called the case “inconceivable.” Other justices want the case to be analyzed by the entire court, so they can publicly oppose themselves to the impetus of the chief justice.

Meanwhile, a conservative senator presented an impeachment request against Chief Justice Dias Toffoli and Justice Alexandre de Moraes—who is overseeing the investigation and called for the censorship act—for “abuse of power.” It is by no means likely that the request will move forward, as Senate President Davi Alcolumbre doesn’t seem inclined to act upon it. But the Senate floor is also about to vote on a request to open an investigation hearings committee into the activities of superior courts.

Pension reform could advance today

After 12 hours of discussions, the House’s Constitution and Justice Committee has ended its debate phase around the pension reform bill—and could vote on it today. But with the opposition trying to stall proceedings by all means possible, it is not certain that a vote will take place before the Easter holiday, on Friday.

In theory, the committee should only analyze whether or not the reform respects constitutional principles; the merits of the bill will be debated subsequently by a special committee. But, as some congressmen put it, “anything could happen today.” There remains no consensus on the text of the bill, and the reform could start getting watered down before the real debates even begin.

Uncertainties around the pension reform have once again pushed the Brazilian Real down. Despite a positive reaction from the stock exchange, the local currency lost 0.88% against the U.S. Dollar yesterday. “It shows that markets no longer believe in the reform passing any time soon,” said analyst Reginaldo Galhardo, from Treviso Corretora.

What else you should know today

Deficit. The state of Rio de Janeiro has presented its budget proposal for 2020, forecasting a deficit of BRL 11bn. This year, the primary deficit will be BRL 8bn. The bump is due to upcoming payments of the state’s debt to the federal government. Thanks to a financial aid program, installments had been suspended until 2020. 

Far-right. Congressman Eduardo Bolsonaro, chairman of the House’s Foreign Affairs Committee, will meet this week with prominent European far-right leaders Viktor Orbán (Hungary’s Prime Minister), from whom he wants to learn more about the country’s strict immigration policies, and Matteo Salvini (Italy’s Deputy Prime Minister). Mr. Bolsonaro was chosen by former White House advisor Steve Bannon to represent “The Movement,” a transnational populist project that has reportedly stalled.

Mining. A Minas Gerais state court authorized mining giant Vale to resume operations in its largest iron ore mine in the region. The news pushed Vale’s shares up to BRL 53.10—fairly close to the BRL 56.15 it was worth before the Brumadinho dam collapse, late in January. On the wake of the incident, Vale lost 25% of market value in one day.

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