Case of Iran ships shows Brazil’s alignment to the U.S.

Good morning! Iran ships stranded on the Brazilian coast. A new round of cuts to the federal budget. Will truckers go on strike again? The president moves to permit illegal mining. Enjoy your read.

Case of Iran ships shows Brazil’s alignment to the U.S.

Since Friday, Brazil’s state-owned oil and gas company Petrobras has been refusing to sell fuel to four Iranian ships located on the coast of the state of Paraná, due to U.S. sanctions against the Middle-Eastern country. In a note to investors, the company explained that, should it provide fuel to the vessels, it would be penalized due to its U.S. operations. Petrobras said other companies could provide fuel to the Iranian ships—though the state-owned company maintains a de facto monopoly in fuel distribution. The vessels, which are transporting urea, were set to leave for Iran with a corn shipment.

Why it matters. Since taking office, President Jair Bolsonaro has adopted a position of alignment with the U.S. Iran, however, is an important export market for Brazil’s agribusiness sector (and is the biggest buyer of Brazilian corn). In 2018, it accounted for USD 2.2bn in direct imports, and an additional USD 2bn in indirect imports—representing the 6th-largest bilateral trade surplus for Brazil. And this year, exports to Iran have grown by 22%.

Brazil’s exports to Iran

Backdrop. For months now, U.S. President Donald Trump has stepped up a policy of squeezing the Iranian economy through economic sanctions—especially aimed at the country’s oil exports—the lifeblood of Iran’s economy. The Brazilian government has alerted local companies about the extent of the sanctions—and the risks of non-compliance. On Sunday, President Bolsonaro said Brazil is “aligned with [U.S.] policies [on Iran].”

• Go deeper:Bolsonaro—Balancing extremism and diplomacy

Will truckers go on strike this week?

Over the weekend, truck drivers began discussing sites for holding demonstrations against the minimum freight pricing table published by the government last Thursday. The sector had planned a strike starting today, but union leaders want to wait until their meeting with Infrastructure Minister Tarcísio de Freitas before making a move. In WhatsApp groups, drivers shared a recording attributed to the minister, in which he would have said the table was a mistake. The ministry has yet to confirm or deny the authenticity of the audio.

Why it matters. Despite its potential for sea- and waterborne transportation, Brazil still relies heavily on roadways for cargo transportation. Outside iron ore and crude oil, about 90% of cargo travels by truck. Last year, an 11-day strike proved to be crippling to the country—and was partially responsible for Brazil’s stalling GDP figures for 2018—a growth of only 1.1%.

Backdrop. Disgruntled truckers claim the minimum freight pricing tables were favorable for owners of transportation companies, but not for them. One year after their strike, autonomous truckers have lost 20% in revenue. Meanwhile, cargo transport employers saw earnings jump by 28%. Which reinforces the suspicion that last year’s movement was no strike—but rather a lockout promoted by employers for their own benefit (which is illegal).

• Go deeper:Why is Brazil so dependent on truckers?

Economy Ministry plans more budget cuts

President Bolsonaro declared this weekend that the government should promote a new round of cuts to the federal budget, this time amounting to around BRL 2.5bn. The president said the move would be necessary to avoid a shutdown, but didn’t specify which areas would lose funding. 

Why it matters. The Brazilian government is in a difficult situation. On one hand, public investment is seen as the only way out of a stagnating economy. However, revenues are being squeezed, as growth has been so weak for so long. Markets estimate a paltry 0.8% growth for this year.

Backdrop. In January, the federal budget for 2019 was BRL 3.381 trillion. In March, however, the administration froze BRL 29bn—with education and defense being the sectors to suffer the most. Since 2016, the government has operated under a spending cap—meaning it can’t raise spending from one year to the next by more than the inflation rate.

The president wants to legalize illegal mining

On Sunday, President Bolsonaro said he will send a bill to Congress legalizing garimpo—or wildcat prospecting and mining—in the country. “The garimpeiro is a citizen who deserves respect and consideration,” he said—adding that the bill will, however, outlaw the use of mercury in individual mining activities. 

Why it matters. Last year, over 70 tons of gold were legally extracted in Brazil—with another 20 tons (worth over BRL 3bn) being done illegally. Estimates hold that 30% of garimpos don’t declare their activities. Located in remote forest areas in the Amazon (and usually on indigenous land), this type of mining extraction is the backdrop for many conflicts with indigenous populations and is submitted to almost no oversight. It has a profound environmental impact—due to deforestation and the widespread use of mercury, which contaminates soils and water.

Controversies. The statements on mining come as Mr. Bolsonaro initiates a war of words with the National Institute of Space Research, with monitors deforestation through satellite imagery. The president has contested the veracity of the information provided by the institute, showing an 88% bump in deforestation rates in June, against one year ago.

Also noteworthy

Internal struggles. General Otávio Barros, President Jair Bolsonaro’s spokesman, joined the administration to improve relations between the president and the press—and has used monthly meetings with reporters to do so. However, Mr. Bolsonaro usually gives journalists quotes that are so controversial in such encounters, that it has led many of his allies to criticize Gen. Barros, claiming he’s a spokesman who “exposes, rather than protects” the president. The president’s son, Carlos Bolsonaro—who has sponsored the firing of two cabinet members already—has now turned his social media guns on Barros.

Army. The Brazilian Army Command has issued a norm regulating how officers must behave on social media. Only the rank of General will be allowed to associate their military ranks to their accounts and only major units will have an official Twitter account. The high command wants to avoid an overpoliticization of troops, especially since several members of the Armed Forces are working in the federal administration.

Indigenous affairs. Federal Police Inspector Marcelo Augusto Xavier da Silva is the new president of Funai, Brazil’s agency for indigenous affairs. Controversially, his name was vetted by the agricultural caucus in Congress, which wants to control demarcations of indigenous lands. Curiously, Mr. da Silva is suing Funai—he accuses the agency of violating his honor when he served as its ombudsman (the case is sealed). He also famously (but unsuccessfully) tried to get the Federal Police to investigate indigenous leaders.

Violence. In a country with over 60,000 homicides every year, tough-on-crime discourse has helped elect many politicians in 2018—and has been a mainstream topic in legislative houses around the country. In 12 states, the number of bills presented that have focused on curbing rates of violence has spiked 54% in the first six months of the legislature, as compared to the entirety of 2015, when the previous legislature kicked off.[/restricted]

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