Previous Quarterly Editions
Expropriation Risk: 52 52 54 56 Political Violence Risk: 58 60 61 59 Terrorism Risk: 40 40 38 39 Exchange Transfer and Trade Sanction Risk: 43 44 45 49 Sovereign Default Risk: 51 50 48 52
TREND ▲ OUTLOOK ▲
His dismissal of the threat posed by COVID-19 has left President Jair Bolsonaro increasingly unpopular. After an escalating feud with Health Minister Luiz Henrique Mandetta, who had urged the adoption of international guidelines in response to the virus, Bolsonaro dismissed Mandetta in April 2020 and replaced him with a health sector businessman. This was the last straw for many, especially as it came just after publication of a report by a group of leading universities suggesting that only 8% of the country’s COVID-19 cases had been captured in official figures. Mandetta’s dismissal also weakened the president’s standing with leaders of his party in the legislature. Even the military, with which Bolsonaro has always enjoyed close links, is reportedly seeking to bring the president under control by having the general who acts as his chief of staff take a more direct role in decision-making. The president’s repeated minimising of the extent of the health threat and his rejection of social distancing measures supported by many in his own government have left him politically isolated from all but his most loyal supporters. His calculations seem to be that he needs to maintain the support of the most loyal 20% or so of the electorate until the 2022 elections to win a second term, but this is becoming an increasingly risky strategy. Moreover, the Supreme Court (STF) has ruled that states and municipalities can take their own decisions both on social distancing measures and regarding which essential services must remain open, effectively reducing the president’s relevance. This has left him in a state of open war with governors, especially those of Sao Paulo and Rio de Janeiro states which are dealing with the worst of the pandemic. Although these two conservative governors supported the president in the 2018 run-off against a centre-left presidential candidate, they had taken a critical approach to him even before the current health crisis. However, Ronaldo Caiado of Goiás, the state governor closest to Bolsonaro, also officially broke with the president after a television address on March 24 2020 in which Bolsonaro urged people to abandon lockdowns and return to work. Calls for Bolsonaro’s impeachment have grown as some groups that supported him in 2018, notably the wealthy and those with a college education, turn against him over his handling of the COVID-19 crisis. Bolsonaro is also paying the price for his dismissive treatment of Congress since taking office, with the leaders of both the House and Senate quick to condemn his March 24 2020 comments about disregarding the lockdown. In March 2020, the president used his social networks to encourage his supporters to take to the street and protest against both Congress and the Supreme Court, and personally joined demonstrators in Brasilia. In April 2020, the House passed legislation over Bolsonaro’s objection that would provide 17 billion USD to state governors to make up for revenue lost during lockdowns, suggesting that the president is becoming more peripheral to policy. All this is happening while the economy, already weak, is expected to contract by 5% this year. With official unemployment already at 11% at the end of 2019, most of the country’s workers earning their living in the informal sector, and growth barely above 1% since 2017, the social and economic consequences of the crisis will be dire for the most vulnerable Brazilians. After a prolonged delay, the government finally announced a number of steps to help regional governments and support the economy, but these quickly looked insufficient.
Before the COVID-19 crisis, the Bolsonaro government was already struggling to push its agenda of liberal economic reforms in the legislature. There is a possibility that Congress will decide to speed up passage of reforms to the tax system and the civil service if these are seen to be helping the country tackle the crisis. However, this is quickly being overtaken by antipathy towards the president. The meeting in March between Presidents Bolsonaro and Trump in Florida produced little progress on a US-Brazil free trade agreement. This was not surprising given broad hints from Washington that the Brazilian decision to allow China's Huawei to supply telecoms equipment would delay progress on trade. Bolsonaro was also unable to secure a promise from Trump that Washington would not impose new tariffs on Brazilian steel and aluminium.
TREND ▼ OUTLOOK ▲
Pot-banging protests against the president have become a daily event across major cities as his mishandling of the COVID-19 crisis unites his opponents across the political and social spectrum. Bolsonaro still counts on the support of around 25-30% of voters, many of them highly socially conservative people whose backing he will retain so long as he is seen to berate liberal sections of society. For now, the lockdowns make street demonstrations all but impossible, but once restrictions are lifted then major anti-Bolsonaro protests are likely and these may meet with a heavy response from the security forces.
Brazil continues to avoid the experience of terrorism. However, personal insecurity remains high, and the significant economic deterioration linked to the COVID-19 pandemic could increase crime in urban areas. The impact of the virus on the overcrowded prison system is likely to produce serious rioting and the possibility of breakouts.
With inflation largely under control, the central bank’s benchmark interest rate, the Selic, was at a record low of 3.75% before the virus struck. Even so, further reductions are likely. In March 2020, the bank pledged to inject 230 billion USD of liquidity into the financial system, primarily through lending to banks, and called for the constitution to be amended to allow it to purchase public and private financial assets and so run the kind of quantitative easing programme seen in the United States and Europe. The real lost 20% of its value during the first quarter, falling to around five to the USD, and continues to be weakened by the government’s response to the virus crisis.
Brazil’s gross debt, which includes the federal, state and municipal governments, as well as the public pension system, hit 80% of GDP last year, having been around 50% as recently as 2014. The government was attempting tentative steps to reduce it before the virus struck. Now, however, the debt-to-GDP will inevitably rise again. The government is helped by the fact the overwhelming majority of Brazilian sovereign debt is denominated in the national currency, making default a distant prospect, but the unanticipated leap in public spending this year will be a significant setback for efforts to control debt, as well as for the country’s score from the international rating agencies.
Return to contents Next Chapter