How violence hampers the Brazilian economy

How violence hampers the Brazilian economy

The Brazilian Institute for Applied Economic Research released the 2019 Brazilian Violence Map—showing that the country registered 65,602 murders in 2017. This number, however, is not equally distributed. While the overall murder rate jumped 24% in 10 years, the rise in North and Northeastern states (the country’s poorest) was a staggering 68%. Youth and black males are also much more in danger than any other population group.

These numbers are explained by the success of drug gangs in the Southeast, which have branched out to other regions. They benefited from a booming market in the country’s less developed areas, which nevertheless experienced a jump in per capita income since the early 2000s. The war for the control of drug routes helps to explain the rise in murders.

According to the study, violence costs Brazil around 6% of its GDP. Citizens feel they need to spend more money on private security, whereas the state ends up injecting more resources on law enforcement and healthcare. The estimate also counts intangible costs, such as how much money Brazil loses by scaring off international tourists.

How to deal with gangs

The Violence Map uses more detailed data than other studies—which explains why it is based on 2017. But, as we’ve pointed out in our June 3 Daily Briefing, Brazil experienced a 13% reduction in murders last year, thanks to more investments in intelligence.

What the study shows is that there is no easy solution for Brazil’s violence problem—and researchers suggest that making it easier to have a gun, as President Jair Bolsonaro wants, could push the number of violent deaths up again.

• Go deeper: Bolsonaro, the military and legitimate violence in Brazil

Costly defeats for the government in Congress

After a few days of truce, the ‘on-again, off-again’ relationship between the Bolsonaro administration and Congress took a dip. Without a reliable support base, the government postponed until next week a vote that could raise the debt ceiling by BRL 248bn—which is paramount to avoid a shutdown or breach of fiscal responsibility laws (which is an impeachable offense). The new ceiling must be approved by June 15, or else social security payments will be hurt.

Meanwhile, the House approved a constitutional amendment that forces the government to honor investments proposed by lawmakers. In essence, that means the federal administration would have control over only 3% of the budget—almost ending its capacity to promote cuts on public spending.

Regarding the pension reform, parties are split on whether or not to include state and municipal servants in the new rules. The question is not financial—as states spend BRL 153bn on pensions—but is political: lawmakers don’t want to bear the political burden of an unpopular pension reform on their own. The reform’s rapporteur will present his report to the special House committee on the issue on Tuesday, when governors will be in Brasília.

These three episodes show not only that the relationship between branches of power is far from completely healed—but also the government’s inability to deal with important issues without leaving them to the very last minute.

Privatizations

Today, the government could suffer yet another major blow—as the Supreme Court continues its trial on whether the privatization of state-controlled companies needs congressional approval. So far, the vote is tied at 2-2. Analysts expect a 6-5 narrow majority, but they don’t risk predicting to which side the court is pending. A ruling favorable to the administration, however, could unclog several divestment programs.

Cut in interest rates not enough to foster construction sector

Caixa, Brazil’s largest public bank, has announced a cut in up to 1.25 percentage points in interest rates on housing loans to the middle class. The lowest rate was reduced from 8.75% to 8.5% per year—and the highest went from 11% to 9.75%. New rates will be valid from next Monday on. The bank will also renegotiate the debts of almost 600,000 families in default.

The move, however, may not be enough to stimulate a sector that just a few years ago was arguably Brazil’s most dynamic. Interest rates have been lower than usual in the country for quite some time—with little effect on fostering investments. With unemployment rates at a persistently high level (12.5%), consumers are unwilling to take on new debts. Pessimism is rampant among companies—which refuse to invest out of fear of losing money. A barometer published by the association of construction material producers show that the optimism rate went from 56% in January to just 8% now.

Experts believe that concessions of infrastructure projects to private actors—as well as opening up the sanitation business to private companies—is the only short-term answer to a sector that could absorb part of the less-educated unemployed workers.

• Go deeper: Brazil’s sanitation problem is also classist

Also noteworthy

Argentina. President Jair Bolsonaro visits Argentina today—where he is expected to face multiple protests. Argentine President Mauricio Macri wants to use the meeting with Mr. Bolsonaro to build a narrative that the international community supports his re-election (even though he is no longer the favorite for the October election). However, in a country where the memory of the military dictatorship remains present, Mr. Bolsonaro’s pro-torture statements could end up being detrimental to Mr. Macri, analysts say.

Car Wash. Colombia’s House of Representatives opened a preliminary probe into former President Juan Manuel Santos for his alleged participation in a corruption scheme run by Brazilian construction firm Odebrecht in his country. Mr. Santos is suspected of taking hefty donations from the company, in exchange for contracts with Colombia’s government. He will testify on June 17, when the parliament will decide whether to open a formal investigation.

Energy. Ambev, Brazil’s largest beer producer, has signed contracts worth BRL 140m with four different partners to build 31 solar power plants by March 2020—in order to supply energy to its 94 distribution centers. The move is part of an effort by Anheuser Busch InBev, Ambev’s parent company, to replace all current energy sources by renewable ones by 2025.

Hacking. A hacker reportedly attacked Justice Minister Sergio Moro’s cell phone on Tuesday. He promptly changed lines, and the Federal Police is on the case. Mr. Moro is not the only former member of Operation Car Wash to have his cell phone hacked—back in April, the same thing happened in April to former Prosecutor General Rodrigo Janot, and other prosecutors have reported the same thing.

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