A crucial day for privatizations in Brazil

Author

Gustavo Ribeiro
May 30, 2019 • Reading Time: 7 minutes

A crucial day for privatizations in Brazil

The Brazilian Supreme Court will analyze two cases on whether or not the government needs congressional approval to carry out privatizations. The 11 justices will rule on whether to uphold last year’s injunction by Justice Ricardo Lewandowski, which limited the government’s powers—due to a risk of “irreparable damage to the country.” The ruling establishes that for each privatization process, there must be a specific law approved by lawmakers—an understanding that would clog up the government’s divestments plan.

Whichever way the court leans, the vote is predicted to be tight. Justices will also decide if state companies must hold traditional bidding processes (in which all bidders are submitted to the same conditions) to sell off subsidiaries, or if they can engage in deals directly with suitors. Earlier this week, Justice Edson Fachin suspended a USD 8.6bn deal selling a Petrobras pipeline administrator to an international consortium.

The ruling can block—or clear—USD 32.3bn in privatizations intended by Petrobras. These deals have been considered the cornerstone of the oil and gas company’s recovery from a deep crisis, caused by poor administration and corruption scandals. Trying to convince justices to vote for fewer obstacles to privatizations, Economy Minister Paulo Guedes met with three of the court’s members yesterday.

The 1990 Privatizations Law allows the government to sell companies under its control—with few exceptions, such as banks, oil and gas companies, and nuclear energy-related firms.

Will Bolsonaro’s pact hold up?

Less than 24 hours after a pact between the three branches of government was announced, the president allowed himself another dig at House Speaker Rodrigo Maia. During a dinner party at the Naval Club, the president said his pen is more powerful than the speaker’s—a joke that could be interpreted as revealing Mr. Bolsonaro’s wishes for more presidential power over Congress.

Meanwhile, multiple associations of judges criticized the Supreme Court Chief Justice Dias Toffoli’s presence in celebrating Mr. Bolsonaro’s “national pact for the pension reform.” After all, the court will surely be called upon to rule on several of the government’s key agenda points—such as gun control and today’s trials on requirements for privatization deals. The National Association of Judges has already pointed toward unconstitutional points of the pension reform, and was appalled by the idea of linking the country’s highest court to a political agenda.

Even in Congress, the idea was met with resistance. Especially since the terms of the pact—to be signed by the president, the heads of the two congressional houses, and the chief justice on June 10—talks about fighting crime “on the streets and within political offices.” Lawmakers saw it as yet another attempt to criminalize politics.

USD accounts in Brazil? The Central Bank is keen

The Central Bank announced it wants to allow the use of bank accounts in U.S. Dollars as part of the country’s banking system. The move would, at first, benefit companies depending on imports and exports, and then be extended to individuals. The bank’s regulation director called Brazil’s current laws on the use of foreign currency “obsolete,” having been established between 1920 and 1950.

The update, however, needs Congress’ approval and shouldn’t be a reality before two to three years from now. Having USD accounts could facilitate Brazil’s entry in the OECD—the “club of rich countries.”

Within Mercosur, the South American trade bloc, other countries have already lifted restrictions on the use of USD within the national banking system. Argentine banks currently administer USD 35bn—of which USD 20bn are savings accounts and USD 7bn are investments. The rest are funds of the national treasury department. In Uruguay, 80% of savings accounts are in USD.

The Central Bank also wants to allow other countries to use the Brazilian Real within their banking system. Back in March, the bank’s president, Roberto Campos Neto, expressed his wish to make the BRL the de facto currency used for business in South America.

Students set to protest again

A new round of protests against cuts in the federal education budget is scheduled for today. Following Sunday’s demonstrations in favor of the government, today’s acts will give an idea of how mobilized Jair Bolsonaro’s opposition can be. An underwhelming turnout could alleviate the political crisis pressuring the administration. However, a sizeable event could escalate tensions further. On May 15, students and teachers demonstrated in 222 cities, with an estimated crowd of 100,000 people in São Paulo alone.

Today’s crowds are expected to be much smaller, though. Mobilization on social media has been less intense, and the protests were called by three student unions umbilically associated with left-wing parties—which could affect the non-partisan character of the May 15 marches.

Also noteworthy

Embraer. Brazilian planemaker Embraer announced a partnership with engine producer WEG to develop battery-powered electric aircraft—a technology which remains incipient. The deal involves Embraer’s military and agricultural divisions, meaning it will not be a part of the company’s recent merger with Boeing. The plan is to have the maiden flight for an electric spray plane by 2020.

Odebrecht. Atvos, an Odebrecht subsidiary which produces sugar and ethanol, has filed for court-supervised reorganization—one step away from bankruptcy. The move comes after a judge ruled in favor of one of Atvos’ creditors, ordering the company to deposit, every week, 65% of its revenue in ethanol. (about BRL 20m per week). The filing puts more pressure on the parent company—which, struggling with debts of BRL 80bn, is reportedly preparing to file for administration itself.

GDP. Brazil’s official GDP numbers for Q1 2019 will be released this morning—and analysts are expecting a negative result after months of slim growth. Yesterday, BNP Paribas predicted a -0.3% retraction for the quarter. Forecasts for 2019 have been slashed from 2.53% in December to 1.23% now, according to the Central Bank’s Focus Report, a weekly survey with top-rated investment firms. Even the government has shown more pessimism, cutting its prediction from 2.2 to 1.6%.

Obama. Former U.S. President Barack Obama will be the keynote speaker at a tech event today in São Paulo. The politician will speak at 11:30 am to an audience of 10,000 people who paid BRL 2,500 for tickets. The event focuses on how Brazilian companies can become more digital, but the content of Mr. Obama’s speech has not been released.

Militias. Seven police officers were arrested in a city close to Brasília, accused of being members of an armed militia dealing land illegally. One of them is the uncle of First Lady Michelle Bolsonaro. This is not the first time the Bolsonaro clan has been associated with armed urban militias—as Senator Flávio Bolsonaro, the president’s eldest son, has ties to one of these groups in Rio.

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