Week of June 2-6 2014 The Week in Review On The Economic Front Unemployment Source: IBGE Continuous PNAD According to the Brazilian Geography and Statistics Institute *By quarter (IBGE), the National Quarterly Household Survey reported 8.0 7.9 on Tuesday that unemployment in Brazil rose to 7.1% in the 7.5 7.4 7.1 7.1 first quarter of 2014 compared to 6.2% for the fourth quarter 6.9 6.9 of 2013 and 7.9% for the first quarter of 2013. The jobless 6.2 rate climbed 0.9% in the first quarter of 2014. This latest survey used a new methodology and a broader, more Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 detailed sample from the six largest metropolitan regions. Q1/12 Industrial Output IBGE also indicated that in April, industrial production fell 0.3% from March, as output of capital goods and consumer durables dropped. It was the second consecutive decline in two months. Industrial output fell 5.8% year over year. Trade Balance The Brazilian trade balance recorded the lowest figure for the month of May in the last 12 years. According to the Ministry of Development, Industry, and Foreign Trade (MDIC), the country exported US$ 712 million more than it imported. Pew Research A new Pew Research Center Survey, Global Attitudes Project, indicates that 72% of Brazilians are dissatisfied with their country, compared to 55% just weeks before the mass protests began in June 2013. “Opinions about the national economy have changed even more dramatically over the last year. Two-thirds now say Brazil’s once-booming economy is in bad shape, while 32% believe the economy is doing well (good). In 2013, the balance of opinion was the reverse: a 59%-majority thought the country was in good shape economically, while 41% said the economy was bad. Brazilians are also concerned about the impact of the World Cup on their country, with 61% believing that hosting the event is bad because it takes money away from schools, health care, and other public services. On The Political Front Presidential Poll: According to a Datafolha poll of voters released on Friday, the percentage intending to vote for President Dilma Rousseff declined from 37% to 34% since the poll in May. The percentage supporting Senator Aecio Neves (PSDB/MG) fell from 20% to 19%, while the percentage for former Pernambuco state governor Eduardo Campos (PSB/PE) decreased from 11% to 7%. Importantly, 17% of voters indicated that they would cast blank ballots and 13% have yet to decide, so that fully 30% of the electorate currently does not support any candidate. Datafolha poll margin of error is of plus or minus 2 %. World Cup Security Following a series of protests and strikes weeks before the World Cup, the Rousseff Administration signed an agreement with the Federal Police to prevent more strikes during the tournament. The agreement calls for a 15.8% increase in wages for officers and clerks, with 12% to be granted immediately and the rest in January 2015. This amounts to a BRL$ 376 million increase in wages by January. Despite legislation prohibiting wage increases in an election year, the administration dodged legal questions by arguing that BRASÍLIA SÃO PAULO WASHINGTON, DC SAF Sul Quadra 02, Lote 04. Rua Olimpíadas, 134, 5º andar, Cj 52. 1101 17th St. Edifício Via Esplanada Condomínio Alpha Tower NW Suite 1010 Salas 103 a 106 Vila Olímpia Phone: (202) 822-6420 CEP 70070-600 CEP 04551-000 Fax: (202) 822-6423 Fone: (61) 3327-2606 Fone: (11) 3079-4533 www.patri.com.br Fax: (61) 3327-1619 Fax: (11) 3079-2202 [email protected] the increase was a part of negotiations initiated in 2012 with the Ministry of Planning. In another attempt to prevent mass strikes, President Rousseff offered military assistance to the World Cup host cities hoping to increase security. Brasília, São Paulo, Rio, Cuiabá, Curitiba, and Natal have already accepted the military’s help. Bilateral Relations According to David Rothkopf, Foreign Policy magazine publisher and former Under Secretary of Commerce for International Trade during the Clinton Administration, Brazil and the United States have a relationship marked by “mutual paranoia.” In an interview with Folha de S. Paulo, he said that “if Dilma [Rousseff] gets reelected, she has to rethink the relationship with Hillary Clinton or Jeb Bush, the favorite [candidates] to succeed [Barack] Obama. There are opportunities for cooperation in science, energy, and climate change.” (See more on Campaign Trail below). Campaign Trail With the party convention season officially kicking off this Friday (and wrapping up on June 30th), the campaign will be heating up just as the World Cup is getting under way on June 12th. The Labor Party (PT) convention is scheduled for June 21,st and the PMDB convention for June 10th. Dilma Rousseff will be confirmed as the presidential candidate and Vice President Michel Temer, a PMBD leader, as her running mate for the coalition ticket. For the main opposition parties, the PSDB convention scheduled for June 14th will nominate Senator Aécio Neves (MG) and also select his running mate. The PSB, whose convention will take place on June 28th and 29th, will nominate Eduardo Campos, former governor of Pernambuco state, to head the presidential ticket and former Environment Minister Marina Silva as his running mate. On Tuesday June 3rd, President Rousseff gave an interview to foreign correspondents in Brasília. In talking about her Administration’s tax cuts and current fiscal challenges, she said that new cuts are off the table. Quote: “The federal government has reached its limit.” She also said that she plans to meet Vice President Joseph Biden during his visit to Brazil for the World Cup and further mend ties with the Obama Administration. Quote: “I’m certain we can pick up our relations where we left off.” During “Roda Viva,” a televised interview on TV Cultura aired on Monday June 2nd, Senator Aécio Neves said that, if elected, he would reduce the number of cabinet positions, currently 39, and also gradually reduce inflation to the central target rate of 4.5%. Quote: “The center of the target must be sought out, and I think that’s possible in a period of a year-and-a-half to two years.” Eduardo Campos visited Vigário Geral, a Rio de Janeiro slum on Tuesday, where he said that as the popular dissatisfaction towards the Rousseff Administration grows, there is a trend of the governing coalition shedding some of its allies at the state level. Quote: “As the campaign season approaches, society will clearly distance itself from following the current path of change, [and] it is natural that the coalition will decouple from that change.” Cotton Case / Itamaraty Hacked According to Folha de S. Paulo, in a document leaked last week by hackers of the Ministry of Foreign Affairs’ e-mail and data system services, Brazil would be willing to accept financial compensation of US$ 400 million for cotton producers and in return, would not seek to open a new World Trade Organization panel against the United States. The agreement, purportedly under negotiation, would provide financial compensation to Brazilian cotton farmers for distortions believed to be caused by the new U.S. Farm Bill. Folha also reported that at a meeting held last week in Washington, Brazil requested US$ 800 million in compensation. However, the Brazilian Cotton Growers Association (Abrapa) stated that it would consider accepting US$ 400 million despite losses estimated to be upward of US$ 1.6 billion over five years. Task Forces Tax and Investment Fiscal War: On Wednesday, Senators from various parties met the Ministry of Finance Executive Secretary, Dyogo Oliveira, to discuss draft bill (PLS) 130/14. The bill addresses the BRL$ 55 billion in tax incentives granted yearly by the states. Senators want to accelerate the voting on the bill which aims to end the states’ tax disputes (Guerra Fiscal) before the Federal Supreme Court (STF) declares illegal all state tax incentives. During the meeting, they established that the National Council on Fiscal Policy (CONFAZ), which convenes the finance secretaries from the 26 states and the federal finance district, will BRASÍLIA SÃO PAULO WASHINGTON, DC SAF Sul Quadra 02, Lote 04. Rua Olimpíadas, 134, 5º andar, Cj 52. 1101 17th St. Edifício Via Esplanada Condomínio Alpha Tower NW Suite 1010 Salas 103 a 106 Vila Olímpia Phone: (202) 822-6420 CEP 70070-600 CEP 04551-000 Fax: (202) 822-6423 Fone: (61) 3327-2606 Fone: (11) 3079-4533 www.patri.com.br Fax: (61) 3327-1619 Fax: (11) 3079-2202 [email protected] meet next week (pending confirmation) and a new report will be drafted on the bill. Senators also agreed to vote on the bill next week, before the June 12th World Cup kickoff. National Education Project: On Tuesday, Congress approved bill (PL) 8035/10 - National Education Project (PNE), which sets 20 goals for education over the next ten years in hopes of improving Brazilian educational metrics. Among the goals are: the eradication of illiteracy; increasing childcare facilities in high school, vocational education programs and public universities; universal school care for children 4-5 years of age; and increasing opportunities for full-time teaching for at least 25% of students in basic education. The main difference in the bill, compared to the previous plan that ended in 2010, is a minimal commitment of funding on public education equal to 10% of Gross Domestic Product (GDP), almost twice as much as the current budget (5.3%). The bill has still to be signed into law by President Rousseff.