Brazil Focus David Fleischer Phone/FAX: 55-61-3327-8085 Cell: 99218-2771 e-mail: Fleischer@uol.com.br Weekly Report Aug. 13-19 2016 Looking Ahead What to watch for? 22 nd Aug. -- Caged data for July jobs lost 22 nd Aug. -- IBGE to announce July PME unemployment 22 nd Aug. -- SRF to announce July tax revenues R$ billion, 25 th Aug. -- IBGE, PNAD unemployment data, 2 nd Q/2016 29 th Aug. -- July public accounts 29 th Aug. -- FGV to announce August IGP-M inflation data % versus % in July 29 th Aug. -- IBGE to announce Brazil s GDP for 2 nd Q/2016 % QonQ 29 th Aug. -- Min. Planning Ministry minimum wage as of 1 st January 29 th Aug. -- FGV to announce August IGP-M inflation data % versus % in July 31 st Aug. -- IBGE to announce July industrial production % MoM & +% YoY 1 st Sept. -- Trade result for August US$ billion 1 st Sept. -- August new car sales units % MoM & % YoY
2 1-2 Sept. -- 21st Foro de São Paulo 2 nd Sept. -- August new car sales units % MoM & % YoY 4-5 Sept. -- G-20 heads of state to meet in Peking, China 5 th Sept. -- Brazil ranked on WEF Global Competitiveness Index 5 th Sept. -- IBGE to post August IPCA %; 12-month accumulation at % 1 - POLITICS 5 th Sept. -- Labor Day (National Holiday in US) 5-6 Sept. -- 193 rd Meeting of Copom Selic rate 7 th Sept. -- Independence Day [National Holiday, Brazil] 1.1 - New Datafolha poll The results of a new Datafolha poll were released on Monday afternoon, 15 th August and published in the Folha de São Paulo the next day. This poll was conducted on 12-13 August with two p.p. of error. The previous Datafolha poll was conducted on 14-15 July. Seehttp://www1.folha.uol.com.br/poder/2016/07/1792488-lula-lidera-disputa-mas-nao-venceria-o-segundoturno-diz-datafolha.shtml In this July poll, simulating the presidential elections in 2018, Lula defeated the three tucano candidates (Aécio, Alckmin and Serra) as well as Marina Silva by five-point margins. But with the highest rejection level (46%) Lula would be defeated by all the latter candidates in the second round simulations. In this August poll, the four first round simulations were as follows: Candidate(Party) (1) (2) (3) (4) Rejection Lula (PT) 22% 23% 23% 22% 46% Marina (Rede) 17% 18% 17% 14% 17% A. Neves (PSDB) 14% - - - - 10% 29% Serra (PSDB) - - - - 11% - - 19% Alckmin (PSDB) - - 8% - - - - 16% Moro (No Party) - - - - - - 10%?? Bolsonaro (PSC) 7% 8% 7% 5% 19% Ciro (PDT) 5% 6% 6% - - 13% DK/NR 25% 27% 26% 20% - - These first round results are quite similar to those in the July Datafolha poll. The fourth simulation introduced the name of Judge Sérgio Moro -- like the simulation of another judge (Joaquim Barbosa-STF) in 2014. Moro polled 10% and pulled 3 p.p. from Marina, 4 p.p. from Aécio, and 2 p.p. from Bolsonaro.
3 In all the second round simulations, Lula would lose to Marina Silva, Aécio Neves, José Serra and Geraldo Alckmin: Candidate(Party) Lula (PT) 32% 36% 35% 36% Marina (Rede) 44% 46% 47% 46% A. Neves (PSDB) 38% 28% Serra (PSDB) 40% 30% Alckmin (PSDB) 38% 27% Marina would top Lula be the largest margin (12 p.p.), followed by Serra (5 p.p.) and Aécio and Alckmin (2 p.p. each). If, for some reason, Lula does not run in 2018 or does not make it into the 2 nd round runoff elections, Marina Silva would defeat all three tucano candidates. 1.2 - Lava Jato On 12 th August, Marcelo Marlan was arrested by the Federal Police in SP accused of witness tampering trying to force a witness to change her testimony regarding the scheme organized at the Planning Ministry (2009-2015) to extract funds from contingency loans via the firm Consist. According to federal prosecutors, Marlan was associated with former Planning Ministry Paulo Bernardo and Guilherme Gonçalves in this scheme. On 15 th August, Judge Sérgio Moro initiated a penal code prosecution involving yet another (the third) PT national Treasurer Paulo Ferreira within Operation Abismo the 31 st phase of the Lava Jato investigation. Two other PT national treasurers have been arrested João Vaccari Neto and Delúbio Soares. Paulo Ferreira participated in the R$ 21 million bribe operation 2% of Petrobras contracts for the public works for the Petrobras Research & Development Center (Cenpes). On 16 th August, STF Judge Teori Zavascki accepted the request by the PGR (Rodrigo Janot) to open an investigation against Lula, Dilma, former Education Minister Aloysio Mercadante and former Justice Minister José Eduardo Cardozo plus the STJ President Francisco Falcão and STJ Judge Marcelo Navarro Ribeiro Dantas for obstruction of justice and witness tampering in an effort to avoid former Senator Delcídio do Amaral from doing plea bargaining testimony in the Lava Jato investigation. This decision throws more gasoline on the fire in the Senate for Dilma s impeachment (that will begin on 25 th August) exactly on the same day that she issued her Open Letter to senators and to the nation. (See Item 1.3) After she is impeached and becomes again a common citizen, this case should be transferred to a first level federal court either in Brasília or Curitiba. Seehttp://www1.folha.uol.com.br/poder/2016/08/1803750-teori-autoriza-inquerito-contra-dilma-na-lavajato.shtml Lula goes international -- In an effort to mobilize international opinion in favor of former President Lula (international pressures against his possible/probable indictment and imprisonment), on 17 th August the PT launched a pamphlet (cartilha) in Portuguese, English, French, Spanish The
4 Judicial Hunt for Former President Lula. No such pamphlet was launched by the PT to defend suspended president Dilma. 1.3 - Impeachment Finally, after several weeks of drafting and re-drafting, on 16 th August suspended president Dilma released her open letter to Brazil s senators in a last ditch attempt to reverse the positions of enough senators to avoid her impeachment [the minimum needed for impeachment by the Senate is 54 votes]. In this Message to the Senate and to the Brazilian People she emphasized that: 1) She had committed no crime of responsibility; 2) that this effort by Congress was a coup d état ; 3) she admitted that she had committed some errors, but that when she returned to office she would rectify same; and 4) that once she returned to office, she would push Congress to approve a national plebiscite to hold presidential elections as early as possible (before the scheduled October 2018 presidential election). Immediately, Senate President Renan Calheiros (PMDB-AL) criticized this fourth point, saying that this is not in the 1988 Constitution and it is always better for a country to follow its Constitution. Several moves in the US were mobilized to try to influence Brazil s senators to save Dilma from impeachment. A group of representatives in Congress petitioned the Obama government not to give any support to the interim Michel Temer government. Distaining this effort, US Secretary of State John Kerry officially represented the US at the opening ceremony for the Rio2016 Olympic Games on 5 th August Want more? With nothing else to do and with lots of free time, former pre-candidate for the Democratic Party presidential nomination, last week Sen. Bernie Sanders released a statement against the impeachment of suspended president Dilma Rousseff. He noted that many observers continue to say that her ouster resembles a coup d état. Bernie s statement was perfectly timed because that same night (9 th August) the Brazilian Senate voted 59-to-21 in favor of pronouncing [indicting] Dilma for impeachment. Seehttp://www1.folha.uol.com.br/poder/2016/08/1803927-pt-lanca-cartilha-em-quatro-idiomas-para-defesainternacional-de-lula.shtml Seehttp://g1.globo.com/politica/processo-de-impeachment-de-dilma/noticia/2016/08/dilma-divulga-carta-dirigidaao-senado-e-ao-povo-brasileiro.html Seehttp://www.forbes.com/sites/kenrapoza/2016/08/16/bernie-sanders-fails-to-influence-vote-inbrazil/#3ddfd3117c19 Apparently, the Senate with begin final impeachment proceedings on Thursday, 25 th August and suspended president Dilma will have a chance to personally defend herself on 29 th August with questions from the Senators [this should be VERY interesting]. Thus, the final vote might take place that afternoon or evening. BUT others feel that this final vote might occur on 31 st August.
5 STF President Ricardo Lewandowski visited the Senate on Wednesday, 17 th August and met with Senate President Renan Calheiros (PMDB-AL) and party leaders in an effort to define the chronogram (sequence). At 9:00 a.m. on 25 th August, the session will begin with questions of order raised by Senators regarding the chronogram. Once these are resolved, the two accusation witnesses will make their presentations. Then, the six defense witnesses indicated by Dilma s lawyer, former Justice Minister José Eduardo Cardozo will make their presentations It is possible that this phase might extend into Saturday, 27 th August, and if necessary into Sunday, 28 th August. Lewandowski tried to avoid sessions on Saturday and Sunday, but was convinced that this might be possible if the phase of accusation and defense witnesses extended beyond Friday evening. At 09:00 a.m. on Monday, 29 th August, suspended president Dilma Rousseff will have her day in court and will make a 30-minute presentation that could be extended. Then, each of the 81 Senators will have up to 10 minutes to question her and she would have 10 minutes to respond to each question. This might take all day Monday. Then, on Tuesday, 30 th, each Senator will have up to 10 minutes to speak. This sequence should last until 8:00 p.m. was the case the previous two sessions in May and in August. Finally, the accusation and defense lawyers will make their final allegations and only then will the 81 Senators cast their electronic (open) votes perhaps late Tuesday evening or on Wednesday, 31 st August. Interim President Michel Temer is anxious to terminate this process as soon as possible because he plans to represent Brazil as full president at the G-20 meeting in Peking on 4-5 September. PMDB to expel Sen. Kátia Abreu? -- Because of her disobedience of her party s determinations (in favor of Dilma s impeachment), the PMDB is deliberating the possible expulsion of Senator Kátia Abreu (TO). She was Dilma s last Minister of Agriculture and has joined the very vocal and aggressive minority in the Senate defending her dear friend. Stay tuned! 1.3.1 OAS requests more information Some 10 days ago, a group of PT federal deputies sent a complaint/request to the CIDH-Inter- American Human Rights Commission (a unit within the OAS structure) to suspend the impeachment process in Brazil. On 16 th August, the CIDH sent an information request to the interim Temer government 1) What was done to maintain the legality (constitutionality) of this process; and 2) What would be the effects of the impeachment (permanent ouster) of Pres. Dilma Rousseff? The CIDH gave Brazil seven days to respond. The Foreign Ministry (MRE) is coordinating the response. Many thought this appeal to the CIDH was at best comical because this Commission had ordered the Brazilian government to cease/suspend all operations of the construction of the Belo Monte hydro electric project. Pres. Dilma brushed this request off as imprudent and irrelevant, and suspended all financial contributions to the CIDH. Dilma said that this was an inadvertent
6 intromission into Brazil s internal affairs!!! respond to the CIDH request. Reportedly, the Brazilian Senate has assumed the task to 1.4 Municipal elections Last year, Congress approved a small modification in election laws parties with less than nine deputies in the Lower House should not participate in TV election debates. When the representatives of the candidates in SP to establish the rules/guidelines for the first debate on the TV Bandeirantes João Doria (PSDB), Marta Suplicy (PMDB) and Major Olímpio (PSD) invoked this law to veto the participation of the PSoL candidate, Dep. Luiza Erundina. In the latest Datafolha poll Marta Suplicy poled 16%, João Doria 6%, Major Olímpio 2% and Erundina had 10%. The Folha de SP, UOL and SBT TV have organized a debate on 23 rd September and also excluded Erundina and other small party candidates. However, the TV Cultura in SP is organizing a debate with ALL 13 candidates for Mayor of SP on 12 th September. In Rio, Pedro Paulo (PMDB) 5%, Bolsonaro (PSC) 8% and Índio da Costa (PSD)??% vetoed Marcelo Freixo (PSoL) with 14% in the latest Paraná Pesquisas poll. Probably, in several other larger cities, small party candidates will be vetoed from the TV debates in spite of their standings in the polls. This was a problem in the TV debates in the presidential election in 2014. The TV Globo s prime time news program Jornal Nacional invited only the three top candidates Pres. Dilma Rousseff (PT), Aécio Neves (PSDB) and Marina Silva (PSB) for a ten-minute (each) Q&A interview, but excluded the other parties. 1.4.1 STF voids Ficha Limpa Law On 17 th August, the Supreme Court more or less voided the Ficha Limpa Law by deciding that a Mayor or ex-mayor can only be excluded from running in the 2016 municipal elections if his/her accounts have been rejected by two-thirds of the respective municipal council. With the approval of the Ficha Limpa Law by Congress, a Mayor s accounts could be rejected by the state accounting court (TCEs) or the national accounting court (TCU) resulting in his/her ineligibility. With this 6-to-5 STF decision, some 6,000 candidates will not be impeded from running in October 2016. Controversial STF judge Gilmar Mendes (also President of the TSE) declared that Those who drafted this Law must have been drunk. As was expected, this STF decision outraged the OAB and the TCU. 1.5 2016 Social Progress Index (SPI) The 2016 Social Progress Index, organized by Michael Porter and Scott Stern with Michael Green was released this week. The SPI used 53 indicators to evaluate the social progress of 133 nations and Brazil appeared in 46 th rank in spite on its 79 th rank in GDP per capita. The first five
7 ranks were Finland, Canada, Denmark, Australia and Switzerland. The best ranked Latin American nations were Chile (35 th ) and Argentina (38 th ). Seehttps://www2.deloitte.com/content/dam/Deloitte/at/Documents/about-deloitte/socialprogress-index-2016.pdf In spite of being one of the richest nations, the US is ranked 19 th on the SPI. In a recent article in the Harvard Business Review Why Americans are so Angry despite America s Strong Economy? Michael Green affirmed that this gap between economic performance and social progress has led to this anger that has been exploited well by Republican candidate Donald Trump and in part explains his success in the Republican primaries. To the contrary, Green affirmed, Brazil has advanced in terms of tolerance and inclusion, despite its economic problems. Seehttps://hbr.org/2016/08/why-americans-are-so-angry-despite-americas-strong-economy 2 FOREIGN RELATIONS & TRADE 2.1 Foreign bond issues in 2016 US$ 25 billion?? This is the very optimistic estimate regarding foreign bond issues by the private sector in 2016. SO far in 2016, US$ 17.5 billion have been issued (130% more that the US$ 7.6 billion in the same period in 2015. Now some banks that operate in this sector affirm that the total 2016 issue might reach US$ 25 billion. One reason large global liquidity favors bond issues be emerging economies. 3 - REFORMS Nothing this week. 4 PRIVATIZATION & REGULATION 4.1 Celg auction postponed The auction for Celg [the electricity distribution firm for the state of Goiás) was scheduled for Friday, 19 th August but on 16 th August, Eletrobras decided to postpone this auction. Why? No bidders filed auction documents even the Chinese because the basic minimum price/bid of R$ 2.8 billion was considered to high. 5 - ECONOMICS 5.1 Father s Day sales worst since 2005
8 Different from the US, Brazil celebrates Father s Day on the second Sunday in August. According to Serasa, the sales of presents for Father s Day in 2016 were down by -9.7% YoY and the worst result since 2005. 5.2 Auto sector retracts Previously, VW interrupted production as its factories due to a lack supply of parts and components from a financially strapped supplier (Keiper), while searching for another supplier. On 15 th August, Mercedes-Benz began sacking some 3,000 employees after attempts to maintain employment via leaves of absence, collective vacation periods and the federal government s PPE (Job Protection Program) that reduced the work week and salaries in an attempt at maintaining jobs. Ford put all employees on forced vacation thru 26 th August in an attempt to reduce its accumulated stock of new cars. 5.3 GDP in 2017 On 15 th August, the Temer economic team announced a modification of its estimate for Brazil s GDP in 2017 from +1.2% to + 1.6%. However some private sector analysts have higher predictions for Brazil s GDP in 2017 Banco Santander (+2.0%), BNP Paribas (+2.0%) and Banco Fibra (+2.1%). 5.4 - Unemployment On 17 th August, IBGE released its continuous PNAD data for the second quarter 2016 11.3%. The highest unemployment rate was in the Northeast (13.2%) and the lowest in the South (8.0%). Seehttp://www1.folha.uol.com.br/poder/2016/08/1803975-julgamento-de-dilma-devera-durar-sete-dias-e-acabarem-31-de-agosto.shtml With the Olympic Games in Rio, unemployment was 7.3% in 2 nd Q/2016. 5.4.1 Industrial Employment On 19 th August, the CNI released data for industrial employment and production in July both indicators continued to decline. IP in July remained stable, although the indicator (46.6 points) was below 50.0 and showed a decline JuneJuly. The indicator for employment was stable at 45.1. However, this survey of 2,532 firms showed that expectations and the intention to invest are improving (more positive) 5.5 Federal revenues decline improved On 19 th August, the SRF announced that federal revenue collections in July were R$ 107.41 billion (-5.8% YoY) down from (improved) from -7.14% YoY in June. Tax collections for the Jan-
9 July 2016 period totaled R$ 724.607 billion up from the R$ 676.006 billion in the same period in 2015. 5.6 Solar Panel factory in Campinas On 17 th August, the Chinese BYD Energy announced a partnership with Canadian Solar to install a solar panel factory in Campinas, SP with production to begin in early 2017. BYD calculated that by 2019 Brazil should 134 solar energy generating units producing 2,734 MW.