A new boss for Brazil’s Central Bank

Author

Gustavo Ribeiro
February 27, 2019 • Reading Time: 6 minutes

In today’s issue: A new boss for Brazil’s Central Bank. Government tries to reorganize support base in Congress. Bolsonaro not so popular at kick-off.

A new boss for Brazil’s Central Bank

The Senate approved the nomination of economist Roberto Campos Neto—President Jair Bolsonaro’s pick to lead the Central Bank. During his confirmation session, Mr. Campos praised the legacy of Ilan Goldfajn, whom he will replace, and defended laws to ensure the independence of the monetary policy institution, as a way of reducing the perception of risk around the Brazilian economy. He also called for a trimmed-down version of the government.

A former director at Santander, Mr. Campos Neto defended that Brazil’s banking system is competitive, despite the fact that only 5 banks control 82% of the market. He said there’s a misperception around Brazilian banks, as people only look at their profits rather than their profitability. However, Brazil’s banks have had much higher return on equity results than U.S. banks every year since 2005—with 2014 being the sole exception.

This market concentration explains why Brazil has one of the world’s top 5 real interest rates (after inflation), even if the benchmark interest rate has been at its lowest level (6.5% per year). For some lines of credit, though, interest rates can reach 300%. According to data from the World Bank, Brazil’s interest spread (the difference between the average lending rate and the average borrowing rate for a bank) stands at 39%—10 times that of Mexico. Only Madagascar, with 45%, has a bigger spread.

We will soon find out for Mr. Campos Neto’s Central Bank will deal with this.

Government tries to reorganize support base in Congress

After accumulating losses in Congress and taking shots from House Speaker Rodrigo Maia on issues related to the pension reform, the government is trying to rally its troops. President Jair Bolsonaro named the rookie congresswoman Joice Hasselmann as the government’s whip in Congress. The position, in theory, has little use, as Congress rarely holds joint sessions—but it’s a way to essentially replace the ineffective lower house whip Major Vitor Hugo, without having to bin him only one month into the legislature.

Close to the president, Ms. Hasselmann is seen as a rising political force that can create a well-functioning communication channel between the Executive and Legislative branches. Her top priority will be the uphill battle to pass the pension reform. Speaker Rodrigo Maia has been vocal about how the government has handled the issue, calling out its “unreadiness” in the communication front and “slowness” in congressional negotiations.

The latest moves around the reform have raised some eyebrows. President Bolsonaro has already admitted to the possibility of trimming down the bill. To make matters worse, Mr. Maia stated that this administration might have less support for a pension overhaul than its predecessor, Michel Temer. The fiscal savings promoted by Mr. Temer’s reform bill were cut in half by Congress—and the proposal never made it to a floor vote.

Bolsonaro not so popular at kick off

According to the first opinion poll since President Jair Bolsonaro was inaugurated, 39% of Brazilian voters consider his first two months in office as being either good or great. His numbers are worse than his predecessors’, who polled between 57 and 49% at the same point. It also marks a significant drop from the 75% who believed the then-president-elect was on the right path while leading his transition team.

“This abrupt fall is due to the government’s confusion. There have been too many faux pas in the space of just two months,” says political scientist José Alvaro Moisés, a professor at the University of São Paulo. “On one side, it shows that the honeymoon period is getting shorter and shorter for new presidents—and that the current administration has wasted a lot of time.”

But it is possible to see the glass half full. Mr. Bolsonaro has posted the highest approval rating for a sitting president since Dilma Rousseff in September 2014. This previous high came during Ms. Rousseff’s re-election campaign, while she drummed all the accomplishments of the Workers’ Party’s administrations at the federal level into the heads of the voting public.

What else you should know

  • Auto industry. CAOA, a Brazilian automaker which produces vehicles with South Korea’s Hyundai and China’s Chery, is in talks to buy a Ford plant in São Bernando do Campo that is slated to close this year. São Paulo Governor João Doria has announced that there is a total of three suitors for the plant—which Ford is abandoning as part of a plan to stop producing trucks in South America.

  • Pesticides.Anvisa, Brazil’s sanitary surveillance agency, has determined that glyphosate, the best-selling pesticide in the country, is non-carcinogenic—but issued a series of precautions to be adopted in its use. In U.S. courts, glyphosate producer Monsanto was found guilty for causing a man’s cancer—and a recent study also links the substance to the development of tumors.

  • Violence.A study conducted by website G1 based on official data shows that Brazil experienced a 13% reduction in the number of violent deaths. Last year, there were 51,589 murders, against 59,128 in the previous year. The country’s murder rate continues high, though, at 24.7 for every 100,000 inhabitants.

  • Trade.The Venezuelan crisis has nearly stopped trade between Brazil and its northern neighbor altogether. In 2018, exports to Venezuela amounted to USD 577m — 89% less than ten years ago. In South America, only Suriname represents a smaller exporting market for Brazil. Besides the social-economic crisis in Venezuela, trading between the two countries has been hampered by lower oil prices.

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