January 01 - 09, 2015
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São Paulo – Brazil January 01 - 09, 2015 Fiscal Composure 01/01/2015 After a series of accounting maneuvers and last-minute legal fixes, the true scale of the damage to Brazil's National Treasury this year is unlikely to be known until the end of January. Even without taking into account the duty on public debt, the government accumulated a deficit of US $6.9 billion from January to November, a shocking deterioration since 2011, when the government achieved a surplus of US $35.2 billion. Given the lack of transparency with which the public finances have been dealt with, it is still uncertain what approach the outgoing economic team will take. In the best hypothesis, all spending that has been planned will be completed, including those that have been postponed for months or even years. However, there remains the fear that in order to present favorable accounts, the government will repeat the trick of transferring for the following year an increasing slice of its expenses, creating another obstacle on top of the adjustment planned for President Dilma Rousseff's second term. The incoming finance minister, Joaquim Levy, will have to take the fiscal promises made by the government with a generous pinch of salt. While the announcement of surplus targets equivalent to 1.2% of GDP in 2015 and 2% in 2015 and 2017 has been well received, it is not enough to restore the confidence of business leaders and investors. Doubts also hang over the government's ability to increase tax revenues, and especially over the level of freedom the new economic team will be granted by the Rousseff administration. 1 Source: Folha de São Paulo Newspaper São Paulo – Brazil The next hurdle is the estimate for 2015 revenue, which will be made in the budget announcement for the first two months of the year. The optimism that has persisted in recent years has served only as an excuse for an imprudent increase in spending. One encouraging sign has been the adoption of growth estimates more in line with those of the market, in contrast with the unrealistic predictions that characterized the management of the outgoing finance minister Guido Mantega. As much as possible, the balancing of the books should come from a range of different sources, such as excessive dividends of state-owned assets, or from programs which permit the payment of outstanding tax in instalments. It will also be necessary to make bi-monthly budget reports relevant once more, as they serve an important function in identifying potential risks to the fulfilment of the established fiscal goals. Their effectiveness has been impaired by a lack of transparency in calculations of expenses and revenues. These new habits will imply, at least to begin with, the announcement of bad news. This is, however, the only way to restore credibility. While it is still not possible to prove fiscal solidity, the government needs to keep its composure. Rousseff Sworn In for Second term 01/02/2015 President Dilma Rousseff was sworn into her second term in office on Jan. 1, confronting the expanding Petrobras kickback scandal, a moribund economy and less congressional support for her ruling coalition. Her surprisingly narrow October election and the weakening of her ruling coalition among lawmakers will make it more difficult for her to tackle the challenges, experts said. Some also said she will have to change her rigid management style and seek compromise. But in a 40-minute inaugural speech before Congress, Rousseff sharply defended her record, noted the great strides Brazil has made in social inclusion with her government programs and said she’s ready to fight graft and end impunity for the rich and powerful. “The Brazilian people want even more transparency and more combat against all types of crimes, especially corruption,” she said. “And they want the arm of justice to reach everyone equally. I’m not afraid to face these challenges.” Rousseff also vowed to defend Petrobras from “internal predators and foreign enemies,” without explaining to whom she was referring. 2 Source: Folha de São Paulo Newspaper São Paulo – Brazil Rousseff repeated a series of campaign promises to punish corruption, help small companies, expand the government’s role in public security and increase spending for housing, health and education. She promised to make education her number one priority. Regarding the fiscal reform that is expected to be announced by the new economic team, Rousseff said that a fiscal adjustment is necessary but it will come “with the least sacrifice possible for the population.” Dollar Ends Year at R$2.66 The dollar ended 2014 at R$2.662, an increase of 12.9% for the year and 3.5% in December. The strengthening of the dollar was a worldwide phenomenon but was felt more in Brazil as foreign investors began to pull back in anticipation of an increase in US interest rates. In December, as of Dec. 26 capital flows for financial operations were negative by US$11.3 billion, an all-time record for the month. Trade operations were positive by US$507 million, leaving the month with net outflows of US$10.8 billion. This reversed the year’s result, leaving it a negative US$6 billion. Rousseff Names New Cabinet Members 01/03/2015 President Dilma Rousseff concluded the formation of her new cabinet on Dec. 31, maintaining 13 current ministers. The final substitutes announced were Mauro Vieria, currently Brazil’s ambassador to Washington, who was named the new foreign minister, and Juca Ferreira of the ruling PT Party who was named culture minister, a post he previously occupied from 2008 to 2010. The day before, Rousseff named seven new ministers: Antonio Carlos Rodrigues, transportation, Gilberto Occhi, national integration, Miguel Rossetto, general secretary, Patrus Ananias, agrarian development, Pepe Vargas, institutional relations, Ricardo Berzoini, communications, and Carlos Gabas, social security. Backers of ex-president Lula complained that Rousseff had replaced pro-Lula members of the PT Party with PT politicians linked to other factions with the result that Lula had lost influence in the new government. Lula has already indicated that he will run for the presidency in 2018. The naming of Berzoini as communications minister again raised the specter of press control. Berzoini is an outspoken defender of the PT’s proposal to establish social controls on the media, seen as a euphemism for censorship. The ministers who remained in office were Thomas Traumann, social communication, Luís Inácio Adams, advocate general, Marcelo Neri, strategic subjects, Aloizio Mercadante, cabinet 3 Source: Folha de São Paulo Newspaper São Paulo – Brazil head, Arthur Chiori, health, Eleonora Menicucci, women’s policy, Guilherme Afif Domingos, small businesses, Ideli Salvatti, human rights, Izabella Teixeira, the environment, José Eduardo Cardozo, justice, José Elito Carvalho Siqueira, institutional security, Manoel Dias, labor, and Tereza Campello, social development. The PT Party ended up with 13 ministries and its main ally in Congress, the PMDB, six. Other ministries went to the PDS, PDT, PP, PTB,PCdoB, PROS, PRB and PR parties, all of them government allies. Government Reduces Labor Benefits 01/04/2015 In direct conflict with President Dilma Rousseff’s campaign rhetoric, the government issued two decrees on Dec. 31 restricting benefits received by employees. In order to cut spending in 2015 by an estimated R$18 billion (US$6.7 billion), the government chose to reduce pension and unemployment benefits. This runs completely counter to statements Rousseff made during her re-election campaign that she would never touch worker’s rights. According to the decrees, the government will increase from six month to 18 months the minimum time period required for a worker to be employed by a company in order to qualify for unemployment benefits. The decrees also reduce pensions to surviving spouses of deceased workers to 50% of their salary plus 10% for each dependent. Dependents will cease to receive benefits once they become adults. Also pensions paid to spouses will only be lifetime for those who are at least 44 years old at the time of the worker’s death. At present these pensions are paid at full salary and are always lifetime. The government also included a measure that would reduce the value of the annual salary bonus known as PIS. This value is today set at the value of the minimum wage but will now be set in proportion to the length of time a worker has been employed. The minimum employment period will increase from one month to six months. After the decrees were released, however, the Labor Ministry stated that the proposed change in the PIS bonus is unconstitutional. Labor leaders said they would challenge the constitutionality of this and the other changes contained in the decrees The decrees also raised labor costs for employers. At present, companies must pay the first 15 days of employee sick leave benefits after which this is assumed by the social security institute. Under the new rules, the responsibility of companies will increase to 30 days. 4 Source: Folha de São Paulo Newspaper São Paulo – Brazil In a related development, Rousseff set the value of the new minimum salary at R$788 (US$296), an increase of 8.84% from last year’s minimum of R$724. The actual value would be R$788.06 which Congress has attempted to round off to R$790. Government Policy 01/05/2015 Only one day after taking office, the government’s new planning minister Nelson Barbosa had his authority severely damaged. Barbosa said that the new economic team was preparing a change in the calculation of the minimum salary. The salary has been increasing above inflation for several years and this has added to the deficit of the social security system since many retirees have their benefits linked to the minimum wage.