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Poliarco Monthly Brazil Report: October

Atualizado: 14 de out. de 2019

Limits to Judicial Activism

In September, the Brazilian Federal Supreme Court (STF) and the National Congress placed new limits on the prosecutorial powers of the Lava-Jato taskforce. Supreme Court Justice Alexandre de Moraes declared the taskforce’s efforts to establish and manage a special fund made of recovered monies seized from defendants to be illegal. Rather, the STF ruled that the funds would be spent on education and efforts to fight fires in the Amazon and curb deforestation. Also, at the end of the month, the Court approved a procedural resolution that could lead to the annulment of Lava-Jato convictions.

Congress Advances Its Agenda

Congress responded to what many politicians believe to be excesses in the judicial activism of the Federal Police by approving a new law to curtail what a majority of parliamentarians see as abuse of authority. President Jair Bolsonaro vetoed 18 items of the new law just to see his vetoes later rejected by Congress. The new legislation includes a provision that allows for the prosecution of government officials who initiate prosecutorial investigations without a just cause, or judges that hand out convictions and sentences without considering the correct legal process and/or the underlying legislation.

Congress also passed new legislation to regulate electoral procedures and political parties. Since 2016, the STF has prohibited electoral campaign donations coming from private sector companies. As an alternative, Congress established a campaign financing fund (known as the Party Fund). The new law further consolidates the fund by guaranteeing that the federal government will finance it in its entirety. It also simplifies the fund’s regulation and gives greater flexibility for political parties to use it without much accountability. Critics argue that the fund and its recent modifications will strengthen incumbency and the congressional elite while decreasing transparency. With greater flexibility and less accountability, party leaders will exercise greater discretion in distributing funds to hand-picked candidates and be allowed to use funds for non-electoral activities including payments to defense attorneys hired to defend party members facing criminal prosecutions.

Presidential Diplomacy and the International Scenario

President Bolsonaro reaffirmed his domestic and international agenda during his speech at the opening of the 74th United National General Assembly. He criticized the political left and adopted a nationalist tone, speaking of the Amazon as a matter of Brazil’s sovereignty. He once more showed a defiant stance regarding mounting international criticism of his government’s environmental policy in the region, which is seen as contributing to a surge in forest fires and deforestation. As a response to Brazil’s diplomatic orientation, the Austrian parliament approved a motion that requires the country’s European Union representatives to vote against the ratification of the Mercosul-European Union (EU) trade agreement. While this move is not definitive because a new EU Parliament will be elected later this year, it is a warning alert given that all EU member parliaments must vote to ratify the agreement before it can be enacted.

The Economics and Politics of Petroleum

International events and scenarios have significantly impacted Brazil’s oil & gas industry. The drone attacks on Saudi Arabia wells and the subsequent spike in crude oil prices quickly impacted the Brazilian domestic market. First, it placed the government in an uncertain position given its previous commitment to withdraw fuel price controls in order to increase the interest of investors as Petrobras advances its divestment plan by auctioning/selling segments of the oil and gas value chain. On the other hand, the government is worried over abrupt domestic price hikes that could trigger another round of trucker strikes, a concern that arose earlier this year due to direct threats from truckers. Second, the crude oil price hike heightens expectations over the coming exploration and production tenders, including promising blocks in the offshore, pre-salt fields. Congress authorized the government to make a final payment to Petrobras to conclude the 2010 Transfer-of-Rights agreement by approving the constitutional amendment 98/2019. This measure allows for the special excess oilfield tender, scheduled for 6 November. This special bidding round will result in gigantic signing bonuses that will be divided by federal, state and municipal governments. Such new funds are highly coveted by all spheres of government, given the fiscal challenges they face amidst the economic crisis that has engulfed the country. However, Congress still needs to vote and approve a second constitutional amendment to regulate the division and disbursement of these non-recurrent signing bonuses.

How Long Will the Constitutional Limit on Expenses Last?

The country’s overall economic performance has unleashed growing doubts over the viability of the constitutional limit on federal government expenses approved in 2016 under the Temer administration. The slow government revenue growth forces the Ministry of the Economy to confront the expansion in obligatory recurrent expenses, including social security, by delinking or downsizing such expenditures from the federal government’s budget. It is unclear whether Congress will support this fiscal strategy. Chamber of Deputies President Rodrigo Maia has backed the constitutional limit on expenses and could rally support for the government’s plan. However, it is important to note that austerity and further fiscal consolidation would negatively impact the political calculations of representatives who intend to run in next years’ municipal elections. As an example, the conflicting interests of the executive and legislative branches were on full display when congress worked to turn the Fund for Basic Education Development (FUNDEB) a permanent fixture in the federal budget with the federal government covering 40% of its costs. The Ministries of Education and of the Economy opposed the measure. The question is whether this and other budgetary conflicts become a significant obstacle to advancing the liberal economic policy agenda of the Minister of the Economy, Paulo Guedes, in the coming months.

The Congressional Agenda

The social security reform bill continues to consume most of the agenda in Congress. The reform now awaits a second vote on the Senate floor after passing the Constitution and Justice committee and being approved in the first-floor vote. However, the reform was further modified to eliminate restrictions on public employee bonuses, a defeat for Minister Guedes. Congress also approved other laws, including a new telecommunications regulatory framework which was being demanded by operating companies. The new law also contemplates the transfer of government assets to operating firms in exchange for new investments. Aside from the electoral and party fund reform, Congress also approved a new campaign spending limit for municipal elections that will be already in effect for the 2020 ballot.

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