Towards Social Security Reform
The second half of 2019 features a reform push by the Bolsonaro administration and congressional leaders. The social security reform was finally approved in the Chamber of Deputies with special consideration for federal law enforcement officials. The reform now moves on to the Senate where President Davi Alcolumbre (DEM-Amapá) has promised to push the measure to a plenary vote in short order. However, the Senate is expected to consider incorporating states and municipalities into the reform project which could send the measure back to the lower chamber for final passage.
Will There Be Tax Reform?
During deliberations over the social security reform, both the Ministry of the Economy and legislators floated tax reform proposals. The Brazilian tax system is of particular concern to states and municipalities, rendering the Minister of the Economy Paulo Guedes’ proposal susceptible to amendments during the legislative process. There are doubts whether the National Congress can work out a compromise that is acceptable at the federal, state and municipals levels. At the moment, it does not appear that President Jair Bolsonaro is prepared to lead legislators and state and municipal executives to a consensus reform bill.
Paulo Guedes’ Reform Agenda and Challenges
The financial markets and Bolsonaro government applauded the passage of the social security reform in the Chamber of Deputies despite the many economic uncertainties that discourage investment. This positive note played a key role in the Monetary Council’s (COPOM) decision to lower the prime interest rate (known as the Selic rate) by one half percent. At the same time Minister Guedes’ team has announced a series of modest stimulus measures including authorization that allows workers to access a small portion of their individual balance in the Severance Indemnity Fund, known as the Fundo de Garantia do Tempo e Serviço, or FGTS,
Also, Petrobras’ recent sell off of the controlling stake of BR distribuidora, the large retail fuel subsidiary, and the government’s intention to liberalize the natural gas market represent the government’s efforts to accelerate economic growth in the face of fiscal consolidation. Currently, a congressional majority supports the government’s economic policy measures. but political challenges will certainly arise. Clearly, future economic performance will be a critical factor in determining just how long the window of economic liberalization will stay open.
The Focus on Federal Universities
The Ministry of Education got off to a turbulent start in 2019 with the controversial leadership of Ricardo Vélez who departed after three months as minister only to be replaced by Abraham Weintraub who has proved equally controversial but loyal to the president. Weintraub drew criticism over his “Future-se” plan that seeks to transform Brazil’s public federal universities to bring them closer to business by offering more “market” oriented curriculum and seeking private sector investments in return. Weintraub’s proposal is considered ambitious, if not controversial because it would directly impact the university community that has shown itself to be the most vocal critic of the Bolsonaro government during its first six months.
The Brazilian Left as Opposition
The Brazilian Left continues to reorganize as the opposition while political parties, such as the Brazilian Socialist Party (PSB) and the Democratic Labor Party (PDT) struggle to maintain party discipline during the difficult votes on social security reform. The PDT and its presidential candidate Ciro Gomes openly condemned partisan defectors within its congressional delegation, reflecting this party’s efforts to replace the Workers Party (PT) as the leader of the Brazilian Left and opposition to the Bolsonaro government. The PDT’s leadership gambit will be difficult as the Communist Party of Brazil (PCdoB) and the Socialism and Liberty Party (PSOL) align with the PT during the run up to the 2020 municipal elections. At this moment, the PT appears open to new political alliances but not at the expense of its efforts to elect its candidates, especially for the mayor of São Paulo along with executive elections in the medium sized cities of the states of São Paulo, Minas Gerais and Rio Grande do Sul. The question is whether other parties of the Brazilian Left will concede to the PT’s campaign plans or contest elections against the PT’s candidates to further fragment the opposition to the Bolsonaro government.
The Lava Jato at the Crossroads
The leaked text and audio messages of Justice Minister Sérgio Moro, when he was the central judge in the Lava Jato corruption prosecutions between 2014 to 2018, with members of the Lava Jato prosecutorial taskforce seem to confirm judicial and prosecutorial collusion and misconduct.
The taskforce and then judge Moro were responsible for the convictions of dozens of political and business leaders, including former President Lula. The leaks call into question many of these convictions but have not yet led to any judicial action that would annul any of the convictions so far. However, the Supreme Court, the National Congress and the Public Ministry must now grapple with these controversial revelations and could take measures that restrict prosecutorial authorities in the future. Meanwhile, President Bolsonaro has defended Moro and prosecutors while he decides on the nomination of his next Attorney General and contemplates the possibility of naming two Supreme Court justices during his term in office. The scandal and the president’s actions will likely shape the Brazilian politics in the coming years. However, as it stands it does not appear that Minister Moro will step down anytime soon amidst mounting calls for his resignation or that Lula will be released from his cell in Curitiba where he continues to play the primary leadership role for the PT and the Brazilian Left.