🤔 Not just the economy, stupid

Happy Friday! Today, we talk about why just posting good economic results won’t be enough for Lula. How to fix the federal budget. And a new (old) Covid probe.

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Different polls, similar results

Datafolha, one of Brazil’s most traditional pollsters, released a nationwide survey of voter sentiment toward the government of Luiz Inácio Lula da Silva. The results echoed those of other polls: the Lula administration’s popularity has seen a sharp decline.

Red flags mounting. The four most recent polls have very different methodologies; the fact that they point in the same direction should raise alarm bells in the government.

 Why it matters. Declining popularity reduces a government’s room to maneuver, especially if that government lacks a congressional majority. A less popular federal administration is more easily cornered by its opposition, or more vulnerable to the gargantuan appetites of rent-seeking allies.

State of play. The economy grew in 2023, the job market has recovered, and salaries are going up (if only slightly). Even though food prices have ticked up recently, 12-month wage gains have outpaced food inflation.

Shift. For decades, Brazil epitomized the adage coined by Bill Clinton’s political guru, James Carville: “It’s the economy, stupid.” When the economy does well, presidents take too much credit. But they also tend to take too much blame when it struggles. 

• The government’s new popularity problems suggest a shift in the public debate, with culture-war issues playing a major role in shaping public opinion.

Conservative agenda. Public safety issues are a perfect example of this dynamic. The government was left powerless when Congress approved the end of furlough benefits for prisoners (a move abhorred by experts). A push for a tougher stance on drug possession or abortion rights could also be in the offing.

Glass half full. In the government’s favor, polls continue to show that voters approve of Lula’s administration more than that of his predecessor, Jair Bolsonaro. 

• This is despite the fact that the Brazilian electorate has become more conservative over the past four years, according to a recent Ipec poll. Ipec says 18 percent of voters identify themselves as left-wing (from 17 percent in 2020), while 41 percent say they are on the right (from 39 percent). 

Thought bubble. Lula is still doing politics as if it were 2003. The government has failed to adapt to the new dynamics of communication and is struggling mightily in social media debates. As cultural issues become more important to voters, a course correction seems imperative for Lula’s Workers’ Party to succeed in this year’s municipal elections and beyond.

 Listen to our podcast: Time for Lula to panic over dipping popularity?

Balancing the budget

The federal government is expected to announce the freezing of BRL 3 billion (USD 603 million) of its budget and reaffirm the Finance Ministry’s commitment to the zero-deficit target set in the country’s new fiscal framework approved last year.

State of play. Federal revenues have exceeded expectations. Tax collection in February rose by more than 12 percent after inflation, setting a new record for the second month of the year. Revenue authorities say 2024 has had the best first two months in 25 years.

• Taxing investment funds used by the super-rich, a major part of the government’s 2023 agenda, has been a big part of that result, according to the Federal Revenue Service.

But, but, but: Spending on welfare and pensions also increased, as the government moved to strengthen the safety nets for lower-income citizens — with measures such as expanding cash transfers through revenue distribution programs, raising the income tax threshold, and increasing the minimum wage (to which pension payments are indexed).

• Another but. Even if revenues have been high, they may not have been high enough. The Independent Fiscal Institution (IFI), a public spending watchdog that operates under the umbrella of the Senate, says revenues in January and February were BRL 12 billion below the government’s own projections.

 Why it matters. As we explained last month, the IFI believes the government has been overly optimistic about its ability to collect taxes — and that it will miss its fiscal target this year (by a wide margin).

Some wins. The government got a big break from the Supreme Court, which made a U-turn on a case involving pension rules. In 1999, pension calculations changed, and the court had previously interpreted that workers could choose to keep the old rules or adopt the post-1999 rules when they retired, selecting what was best for them. 

• While the estimated fiscal impact of this retroactive change in benefits varies widely, the fact that workers will no longer be able to do so relieves some of the pressure on public accounts.

Covid comeuppance

Congressman Eduardo Pazuello, a retired general and Jair Bolsonaro’s health minister at the height of the Covid crisis, has reportedly been placed under investigation for his responsibility in the 2021 Manaus oxygen crisis.

What happened. As community transmission of the coronavirus reached unsustainable levels in Amazonas at the start of that year, hospitals in the state capital of Manaus ran out of oxygen, causing dozens of patients to die of asphyxiation while waiting for treatment.

• Speaking before the 2021 Senate Covid inquiry, Mr. Pazuello claimed ignorance of the spike in oxygen demand in Manaus hospitals — saying he was only informed by local authorities during a visit to the city when scores of patients were already dying. 

• But a document from the Solicitor General’s Office admitted that Mr. Pazuello’s Health Ministry was aware of the “imminent collapse of the Amazonas health system” at least ten days before 31 patients died from lack of oxygen.

 Why it matters. Eduardo Pazuello oversaw an exponential increase in Covid deaths and did little to tame the pandemic — instead focusing on reducing the transparency of coronavirus data in the country.

• Mr. Pazuello’s ten-month tenure as health minister was marked by his blind obedience to Mr. Bolsonaro, Brazil’s most prominent Covid denier. His two predecessors, both physicians, did not last nearly as long, refusing to abide by the former president’s unscientific beliefs.

• Ostensibly an army logistics expert, Mr. Pazuello oversaw his fair share of logistical gaffes, such as allowing a batch of 6.8 million coronavirus tests to spoil in a government warehouse. Indeed, many critics believe the Health Ministry’s blunders were contrived, a deliberate effort to fight a fever by breaking the thermometer.

Herd immunity? Mr. Pazuello’s former wife once said on social media that the government allowed Covid to run wild in Manaus to use the city as a testing ground for Mr. Bolsonaro’s belief that herd immunity would end the pandemic sooner.

Through the cracks. The prosecutor general appointed by Mr. Bolsonaro in 2019 and 2021 shelved several investigations into the government’s Covid response, but the one including Mr. Pazuello escaped. Lula allies in Congress have pressured the country’s new top prosecutor to pursue the findings of a 2021 Senate investigation into the culprits of Brazil’s coronavirus tragedy — which claimed over 700,000 lives. 

Other concerns. Besides the Covid investigation, Mr. Pazuello is being investigated for his alleged role in a coup plot to keep Mr. Bolsonaro in power despite losing the 2022 election. 

Quick catch-up

Neighborhoods in downtown São Paulo have experienced multiple power outages this week. Enel, the Italian multinational that provides electricity to Brazil’s biggest city, has no clear estimate of when service will return to normal. City Hall promises to take legal action.

Weekly magazine Veja published an audio recording attributed to Lieutenant Colonel Mauro Cid, Jair Bolsonaro’s former aide-de-camp and the main informant in the investigation into the former president’s coup plot. Lt.-Col. Cid appears to say he was coerced into giving information to the police, even things he says he didn’t know. 

Janaína Torres, owner of several high-end dining establishments in São Paulo, was named the world’s best female chef by The World’s 50 Best Restaurants.

The state of Rio de Janeiro is on alert following a warning of potentially destructive storms. Governor Cláudio Castro declared an optional statewide holiday on Friday.

Former footballer Robinho, who played at two World Cups for Brazil, was arrested after the country’s second-highest court ruled that he must serve a rape sentence handed down by Italian courts. Robinho was found guilty of taking part in a 2013 gang rape in Milan. 

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