Bolsonaro’s strategy to win over the Northeast

Author

Gustavo Ribeiro
April 10, 2019 • Reading Time: 7 minutes

Good morning! Bolsonaro has a strategy to win over the Northeast. Superior Court could rule on Lula’s case. Brazil’s debt forecast better, but still worrisome.

Bolsonaro has a strategy to win over the Northeast

The Brazilian Northeast is not fond of Jair Bolsonaro. It was the only region in which he didn’t earn the majority of votes during the 2018 election—and it is where his rejection rates are the highest (39%). He is hoping that could be about to change after today, as the president launches an expansion to the Bolsa Família cash transfer welfare program—which will now have 13 payments per year (which would cost BRL 2.6bn/year).

Created by the Workers’ Party (PT) in 2003, Bolsa Família has been extremely successful in courting votes from poor Brazilians—and no region is poorer than the Northeast, where at least 12% of the population depends on the program. The move could also boost Mr. Bolsonaro’s approval rating in peripheral communities in state capitals—where the rate of families depending on the program is also high.

Bolsa Família alone, however, is not enough to curb poverty rates or presidential unpopularity. The program helped former Workers Party’s President Lula turn the Northeast into his stronghold, but he was also favored by a commodities boom which saw the creation of 15m jobs between 2003 and 2010. The strategy by Mr. Bolsonaro could be effective—but only if the economy starts to grow again.

Superior Court could rule on Lula’s case

The Superior Court of Justice—Brazil’s 2nd-highest judicial body—could trial Lula’s latest appeal as early as today. The case is with one of the court’s panels, made up of 5 justices each. Recent decisions indicate to many legal scholars that Lula could see one of his convictions dropped, allowing him to be placed under house arrest.

Lula was found guilty of corruption and money laundering for accepting a beachfront apartment in exchange for benefiting a construction company with the Bolsonaro administration. But the former president never became the formal owner of the flat—which, in the defense’s argument, would nullify the accusation of money laundering. That interpretation would slash Lula’s sentence from 12 to 3 and a half years, making him eligible to be released from prison and serve out the rest of his time at home.

This will be the first time a high court rules on the merits of Lula’s case. Previously, they denied his demands for early release—which didn’t get into the specifics of due process and arguments for conviction. The chances of Lula being acquitted from all crimes are slim: the justices on the case overruled only 1% of Operation Car Wash-related convictions.

Coffee giant files for bankruptcy protection

Amounting debts of BRL 1bn, Terra Forte—Brazil’s largest coffee exporter—has now filed for court-supervised reorganization. The company’s loans were calculated in U.S. Dollars—and as the Brazilian currency lost value, its debt skyrocketed. International coffee prices have also experienced a fall, contributing to the company’s downward spiral.

In its heyday, Terra Forte exported 6.5% of all coffee from Brazil—and in 2008 it was the single biggest producer in the world, with 18m coffee plants. In recent years, however, the company incorrectly forecast that the price of a 60kg bag of coffee would be worth BRL 550, and leveraged itself through several bank loans. According to the lawyers of the controlling family, 95% of its debts are with banks and tradings—and Terra Forte’s labor liabilities are over BRL 1m.

Lawyers, however, say that the company has good production prospects are will not go bankrupt.

Brazil’s debt forecast better, but still worrisome

The International Monetary Fund has slightly improved its forecast for Brazil’s debt ratio over the next five years—but the outlook remains that of a continued upward trajectory, almost reaching 100% of the GDP in 2024. Brazil’s gross debt projection is now 97.6% of GDP (from 98.3%). The fund believes that Brazil will only record a primary surplus in 2022—of a mere 0.1% of the GDP.

Among a list of 39 emerging economies, Brazil’s current debt-to-GDP ratio (87.9%) only trails to Egypt’s (92.6%) and Angola (88.1%). Gross debt levels are considered to be one of the key indicators of a country’s solvency.

The fund stresses the need for fiscal reforms in the country. Brazil’s top challenges ahead include approving pension reform, capping public sector salaries, and reducing the interest rate burden on the country’s debt load. No easy task.

What else you should know today

  • Inflation. Pushed mainly by food products and fuels, Brazil’s official inflation rate jumped from 0.43% in February to 0.75% in March. Over the past 12 months, inflation has stood at 4.58%, well above forecasts and the highest rate in two years. In New York, Central Bank President Roberto Campos Neto said the bank’s mission is to tame inflation, not achieve growth. 

  • Trade.Economy Minister Paulo Guedes declared yesterday that Brazil will adopt a hard stance on international trading. “We will shut down [countries] not willing to open up their markets to us.” He took Argentina as an example: “They want us to drink more of their wine. Fine, but they will have to drink more of our milk.”

  • Pension reform.Congressmen could impose another defeat on the government, postponing the vote on the pension reform bill in the House’s Constitution and Justice Committee. Instead, centrist parties are planning to vote on a bill to limit the government’s power over the budget, making it mandatory for it to honor budgetary allocations proposed by Congress.

  • Diplomacy.President Bolsonaro met with ambassadors of Arab countries and said Brazil is friends with all nations. The move follows a controversial visit to Israel, which included the announcement of a business office in Jerusalem. The event was organized by agricultural lobbies—which have an important trading market in Muslim-majority countries. Foreign diplomats said the president was successful in “breaking the ice.”

  • Rio in chaos.Rio de Janeiro Mayor Marcelo Crivella blamed global warming for the intense rains which flooded the city and killed 10 people. “It has never rained so much in such a short time span.” Intense storms, however, have killed thousands in Rio since the 16th century. In 1966 alone, 250 died. In 2019, the count is at 17 so far.

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