A common currency for Brazil and Argentina?

Author

Gustavo Ribeiro
June 07, 2019 • Reading Time: 7 minutes

Good morning! Could Brazil and Argentina have a single currency? The pension reform drama continues. The Supreme Court’s privatizations trial.

A common currency for Brazil and Argentina?

During his first official visit to Argentina, President Jair Bolsonaro told a crowd of businessmen of the possibility of Brazil and Argentina sharing a currency. It already has a name: the “Peso Real.” But while industrialists showed enthusiasm about the idea, it seems more of a populist campaign slogan than an actual project of monetary integration between South America’s top 2 economies.

Argentine President Mauricio Macri is heading into what promises to be a very difficult re-election bid, with the Peronist ticket (including former President Cristina Kirchner as the VP candidate) leading the race, according to polls. Mr. Macri’s chances are hampered by the country’s current financial crisis and rampant inflation rate. The idea of the Peso Real could give the incumbent a discourse of hope to voters—especially since the Brazilian side declared the plan would only move forward if Mr. Macri wins another term.

Moreover, the Brazilian Central Bank declared no studies of a common currency have been done so far. Argentine analyst Gustavo Segré called the Peso Real “one of the most absurd ideas” he ever heard of. “Both countries can’t even pass common regulatory policies nor pro-trade measures [to turn Mercosur into a true free trade zone]. And we are to expect a common currency?”

The pension reform drama continues

In a country that loves soap operas, none seems to have more twists and turns than the negotiations around the pension reform. Lawmakers threatened to remove state-level public servants from the new rules—which would push local administrations into financial collapse—unless governors publicly showed support for the unpopular reform. Governors planned to release a letter defending the reform on Tuesday—but its contents were leaked, sparking more confusion.

At least three drafts circulated among lawmakers. The first said governors “repudiated” the idea of not including them in the new social security system. Congressmen took issue with the word “repudiate.” The reform’s rapporteur in the House said governors should have more “humility” and “say please” for them not be scrapped from the bill.

The goal was to produce a document signed by all 27 governors. Those from Northeastern states, however, have complained of how their São Paulo and Brasília counterparts have acted. Eager to lead—and to boost their political profiles nationally—João Doria and Ibaneis Reis have made “rookie mistakes,” according to other governors, by trying to corner Congress. “This is a marathon, not a sprint,” said one of them.

Why it matters. A Senate-financed think tank on public policy and budgetary issues said the impacts of the pension reform would be dramatic on states. In the case of Tocantins, for instance, savings would be equivalent to 3.5 times the state’s current liquid revenue. Not including states in the reform would certainly doom most of them to financial ruin. In Rio de Janeiro, for instance, the social security deficit represents 30% of the state’s liquid revenue.

Go deeper:

Supreme Court splits baby in privatizations trial

Yesterday, the Supreme Court resumed the trial on whether the government needs a green light from Congress to privatize assets. The verdict could have devastating effects on the sitting administration’s aggressive divestments plan. In the end, the court went for a middle-ground decision, saying that the government can sell off subsidiaries of state-owned companies on its own—but privatizing the parent companies would require congressional authorization and a traditional bidding process (with all competitors having the same conditions to compete).

According to the Economy Ministry, Brazil has 134 state-owned companies—including 88 subsidiaries.

While the decision kept some restrictions to privatizations, it was more or less what the government wanted: more flexible rules. Mines and Energy Minister Bento Albuquerque celebrated the decision, saying that it will let the government foster private investments and be paramount to Brazil’s economic recovery.

After the decision was proclaimed, Justice Edson Fachin authorized the USD 8.6bn deal between Petrobras and a French-Canadian consortium for control over one of the state-owned company’s subsidiaries, TAG, which had been suspended last week. Petrobras plans to raise over USD 32bn in divestments.

Also noteworthy

Inflation. Brazil’s official inflation rate for May will be published today. Analysts expect it to be at 0.2%, which would be the lowest level for the month in a decade. In April, the rate was at 0.57%—below March’s 0.75%, but still the highest for the month in three years. The April inflation rate was pushed up mostly by food prices, fuels, and medicines. After the year’s first trimester, inflation sits at 2.09%—economists believe it will finish the year at 4.03%, below the 4.25% target.

Education. After criticizing the academic environment in Brazilian public universities—and freezing BRL 5.8bn of the budget—Education Minister Abraham Weintraub argued that the country’s superior education development should take place through private entities. To a crowd of private college owners, Mr. Weintraub defended that the state shouldn’t interfere with the student-college relationship in any way. And he forecast 3% GDP growth for Brazil this year—three times the median of market analysts’ predictions.

Truckers. President Jair Bolsonaro proposed the end of mandatory drug tests for truck drivers to renew their licenses—claiming it is too expensive and not effective. While experts do agree with questions about the current system’s efficiency, a new study shows why controls of the kind should be perfected—not scrapped. Urine tests in 150 truckers pulled over by police showed 8% of them used drugs, especially cocaine, amphetamines, and marijuana.

Neymar case. Brazilian football star Neymar, who battles a rape accusation from a Brazilian woman, has received support from an unexpected source. The Labor Cause Party, a Trotskyist far-left group, published a text saying the player has been framed in a move orchestrated by imperialist capitalists of the developed world who want to belittle Brazilian football. Last year, the party published a text saying that world capitalism was behind Brazil’s loss to Belgium in the World Cup—and that even Justice Minister Sérgio Moro had something to do with it.

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