February 11, 2021

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BRAZIL: Congress flexing muscles as “imperative” emergency assistance stalls

BY Mario Marconini

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( 3 mins)

As foreseen, both pro-government candidates won the presiding posts in the House and the Senate on 1 February on the basis of pork and patronage. The risk of impeachment has decreased accordingly but both new House Speaker Arthur Lira from the Progressives (PP) and Senate Chairman Rodrigo Pacheco from the Democrats (DEM) already show signs of independence from the government – albeit without the recalcitrance of previous speaker Rodrigo Maia (DEM).

Governability has therefore possibly improved overall, and President Jair Bolsonaro’s future depends more than ever on how he decides to behave, speak and deal with the challenges ahead. Bolsonaro was all the more victorious because this “flight” to greater alignment came when he had reached the lowest popularity in his presidency, amid astonishing evidence of negligence and mishandling of the pandemic and the immunization effort by his government.

The first order priority since 1 February has been the reinstatement of the emergency assistance that expired with the state of calamity on 31 December 2020. Both congressional leaders have brushed aside possible fiscal obstacles (such as the legally mandated budget ceiling) by calling for “exceptionality” in allowing more cash transfers to the poor and destitute (Lira) or simply claiming that addressing such an emergency cannot come second to fiscal reform. Economy Minister Paulo Guedes has conditioned the social grant on the return to the state of calamity that also expired at the end of 2020 – which remains a tall order. Guedes has also said the program should reach only half of the 68mn people who benefitted last year.

The distance between the minister and congressional leaders therefore still seems considerable. Lira has already sent the administrative reform to the Constitution, Justice and Citizenship (CCJ) Committee, which shows reformist commitment. However, that is only the first step, and it does not cut spending on current public servants but only on future hires and associated benefits. The reform that could free revenues for other uses – the so-called emergency PEC (constitutional amendment) that would de-link mandatory spending and introduce triggers to force spending cuts at all levels of government – may have a rougher or longer ride and could not serve to pay for emergency assistance so soon.

It is undeniable that Congress is showing willingness and ability to act quickly. The best example of this was the approval without any changes by the House yesterday, 10 February, of a draft bill that cleared the Senate on 3 November 2020 instituting the independence of the Central Bank – something that has been in Congress since 1991. In addition to showcasing Congress’ commitment to a liberal economic agenda, the new law demonstrates how agile legislators may be when they want to be.

This is why when Lira declares publicly, as he has, that the government is late in sending a proposal for a new emergency assistance regime for Covid-19, he is in fact flexing muscles despite his supposed alignment with Guedes. More importantly, it also shows that Congress will demand of government the ownership of sensitive flagship initiatives. There was consensus on making the Central Bank independent – and a good signal was sent to markets. Where no consensus is at hand, Congress is now set to have the stronger voice.

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