Iran threatens to cut imports from Brazil

Good morning! Iran threatens to cut economic ties with Brazil. The government announces its stimulus package for the economy. More information about the hacking of cell phones belonging to figures of Operation Car Wash. And the São Paulo Forum, a left-wing conference that means more to the right than to the left.

Iran threatens to cut imports from Brazil amid shipping impasse

Tehran authorities have threatened to reduce—or even halt entirely—imports from Brazil, as two Iranian vessels have been stuck near Brazilian ports without fuel. The ships carried urea (used to produce fertilizers) and were supposed to return loaded with corn. Petrobras, however, says it can’t refuel the vessels for fearing being hit by U.S. sanctions. Trying to strangle the Iranian economy, the White House has increased sanctions against the Middle-Eastern country, which would also bring penalties for companies that do business with Iran.

Why it matters. In the short-term, the impacts of the stalemate will be limited, as most of the last corn harvest has already been sold. Producers, however, fear that about 30% of the product’s future exports could ultimately be compromised if tensions escalate further, as 6.4m of the 22m tons shipped overseas in 2018 went to Iran. Other products could be affected—Brazilian exports to Iran amount to USD 2bn per year, mostly in commodities like corn, beef, and sugar. According to official data, Brazil has imported USD 26m from Iran (which is little, but nevertheless represents an 800% increase from last year).

Legal imbroglio. A court’s decision had initially forced Petrobras to fuel the Iranian vessels, but was quickly suspended. Prosecutor General Raquel Dodge says the company that hired the ships can look for alternative providers, though Petrobras holds a de facto monopoly in fuel distribution in Brazil. The case is expected to be settled by the Supreme Court, but no trial date has been agreed.

Stimulus package to have a small, but important impact

After some hesitation, the government announced a package to inject cash into the economy. Starting next month, workers will be able to withdraw money from their FGTS accounts—a severance fund usually only available when someone is laid off. In order to for the plan to be taken up by the greater number of people, without compromising the fund (which is also used to finance infrastructure projects), the Economy Ministry has limited withdrawals to only BRL 500.

Why it matters. It may seem like almost nothing, but it could be of major help for millions of families. After all, 38% of Brazilians who are in default have debts amounting to less than BRL 500. Moreover, the money comes at a time of low inflation rates, and could help boost consumption. The government’s strategy is to make BRL 28bn available this year, and BRL 12bn next year. That could have a 0.35-percentage point impact on GDP growth.

Yes, but… The construction sector didn’t like the move, as it could reduce the amount of money available for housing and infrastructure projects. The Economy Ministry, however, has indicated that the FGTS fund finished 2018 with BRL 119bn, assuring constructors that the withdrawals won’t have a major impact in the real estate sector.

More on the hacking of Brazilian authorities

One of the four suspects arrested on Tuesday told the Federal Police that he was responsible for hacking the cell phones of Justice Minister Sergio Moro, Operation Car Wash lead prosecutor Deltan Dallagnol, and hundreds of other authorities. The modus operandi was fairly basic, using a telemarketing software to run a Caller ID Spoofing scheme (a sort of identity theft). 

He also confirmed, per newspaper Estado de S.Paulo, to be the source of The Intercept—which has published a series of reports with private messages exchanged between members of Operation Car Wash, showing improper actions by Mr. Moro and the prosecutors.

Why it matters. Without getting into the content of the messages leaked by the press, the case revealed Brazilian authorities’ poor handling of sensitive data. High-profile authorities used non-encrypted cell phones and stealing their data proved to relatively easy. Since the leaks started to surface, cabinet members began used phones encrypted by Brazil’s intelligence agency.

Political intent. One of the hackers said the plan was to sell damning information to the Workers’ Party, which in turn accused Mr. Moro—under whom the Federal Police operates, of trying to frame the party. So far, it doesn’t seem like the party had anything to do with the case, but a reminder is important: in 2006 and 2010, the Workers’ Party faced heat for trying to get illegally-obtained information against electoral adversaries.

Not exculpatory. Members of the Supreme Court have privately said that, even if the leaks were the product of an illegal act, it doesn’t mean Mr. Moro didn’t step out of bounds, acting more like a prosecutor rather than a judge.

São Paulo Forum starts today. Does anyone care?

The gathering of Latin American left-wing political parties and organizations called the São Paulo Forum starts today in Caracas. However, it won’t feature any Brazilian political leader of significance.

Why it matters. Now in its 25th edition, the event has become more important to the right than to the left. For the former, it has become a sort of bogeyman, elevated well beyond its significance. Members of the current administration call it the cradle of “cultural Marxism.” For the left, out of power and on the back foot now in much of Latin America, the conference—more of a get-together than a formal congress in the first place—has lost much of the relevance it may have had. 

• Go deeper: The rise and fall of South America’s Pink Tide

Also noteworthy

No-deal Brexit. As Boris Johnson takes on the Prime Minister’s job in the UK, Brazilian industrialists are trying to picture what a no-deal Brexit would look like for them. If the UK leaves the European Union without agreeing on a deal with the bloc, the impacts on global growth will certainly be negative—but it would open a window for a Mercosur-UK deal. Massive food importers, the Brits would have little interest in protecting sectors in which Brazil is competitive.

Government. President Jair Bolsonaro will meet with the heads of his Social Liberal Party (PSL) to discuss how the party and his administration can work together more cooperatively. PSL has been only the 7th most loyal party in House votes, thus far. Mr. Bolsonaro joined PSL with the sole purpose of running for president, and never had partaken in much partisan activity. However, he is becoming aware that his administration’s image is tied to that of his adopted party.

Tax reform? This week, Bahia Governor Rui Costa boycotted an event in his state with Jair Bolsonaro, after the president used a slur to refer to people from the Northeast of the country. Next Monday, he hosts other governors from the region for a meeting to discuss how they will position themselves regarding the tax reform bill. But it could easily become an anti-Bolsonaro rally. 

Guns. Taurus, Brazil’s largest gun manufacturer, has been suspended from dealing with the São Paulo state government for two years, after allegedly providing state police forces with malfunctioning weapons. The company claims that the timing of the decision was not an accident, and that instead, it is a move intended to keep Taurus from participating in the process to sell 40,000 handguns to the São Paulo police.

Prosecutor general. President Bolsonaro has reportedly picked a date to announce who will lead Brazil’s Federal Prosecution Office for the next two years: August 17, a Saturday. The date is not random—it gives the Senate time to analyze and confirm the name before the end of Raquel Dodge’s term, which expires on September 17.[/restricted]

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