1. Basic interest rate drops to 4.5% for the fourth time

The Central Bank reduced the annual interest rate by .5% to 4.5%, the fourth consecutive drop in 2019. The reduction confirmed the expectations of the financial market. The administration did not mention further cuts, which can be interpreted as the end of a cycle. The next meeting of the Monetary Policy Committee will take place in February 2020. Their report published on Wednesday indicates the current state of the economic cycles requires caution, even though data shows the economy is slowly recovering. Despite the increase of the official inflation rate in November – driven primarily by the price of beef – analysts don’t project skyrocketing inflation rates next year. The Central Bank’s projections show that inflation may drop from 3.84% in 2019 to 3.6% in 2020, following the trend of record lows. However, the reality is different. In operations by individuals, the average interest rate is at 49.7% annually. When it comes to company credit, the rate is at 17.6%. Politically, the administration is concerned. A poll by Instituto Datafolha published on Sunday shows that the Brazilian people are worried about the inflation rate and that approval of Jair Bolsonaro’s administration has halved to 22% among people who have a monthly income less than two times the minimum wage. Read the analysis on the relationship between the Bolsonaro administration and low-income voters at Brasília Report.

Valor Econômico: Banco Central reduz a taxa básica de juros de 5% para 4,5%
Valor Econômico: Economistas divergem sobre novos cortes de juros
Folha de S.Paulo: Economia segura queda de aprovação ao governo Bolsonaro

2. Soybeans drive Brazil to top spot in world grain production

Brazilian grain production could reach a record 246.6 million metric tons this season – primarily due to soybean production – according to Brazil’s state-run National Supply Company. The country increased its farming area by 64.2 million hectares, a 1.5% increase in comparison to the previous harvest. Soybean production could reach a new record of 121.1 million metric tons, according to the administration. In comparison with the previous harvest, the volume will increase 5.3%, making Brazil a world leader in grain production. Brazilian agriculture is already a leader in grain exports – ahead of the U.S. – but it will be the first time the country leads in grain production. Sales of soybeans to foreign countries is estimated to reach 72 million metric tons, 2 million more than the 2018/19 harvest.

Valor Econômico: Com soja, safra recorde de grãos dá liderança para o Brasil
O Globo: Safra de grãos deve ser a maior da história

3. New rules for basic sanitation move ahead in Congress

This week, federal representatives approved a bill on a new legal framework for basic by 276 votes to 124. Legislators ignored another bill that had already been approved by the Senate that would give states and cities the freedom to maintain contracts with state companies. The Chamber of Deputies rejected the previous bill and included the National Water Agency as the regulatory body for these contracts. This convinced administration supporters and resulted in the majority of the chamber voting in favor of the bill, as well as giving representatives the right to validate the last version of the bill before sending it to President Jair Bolsonaro. If representatives had voted in the Senate, senators would have the final say. The new legal framework promotes privatization and free competition in the sector, determining direct contracts with public companies and tenders. The bill also sets 2033 as the deadline for the universalization of the service, giving 99% of the population drinkable water and 90% sewage treatment.

Valor Econômico: Deputados fazem manobra para mudar regra em saneamento

4. Parties consider reducing electoral fund to R$ 2.5 billion

Congress is considering reducing funding for the electoral fund to R$ 2.5 billion (USD $608.3 million) from R$ 3.8 billion (USD $924.7 million) due to the risk of running out of public funds for electoral campaigns next year. Negotiations for the change began soon after the administration indicated that President Jair Bolsonaro is willing to veto any increase of funding to politicians. In the Chamber of Deputies – where the bill is being considered for inclusion in the 2020 Federal Budget – Legislators believe it is better to negotiate with the administration rather than risking losing everything. The initial proposal by the government was to give R$ 2 billion (USD $486.6 billion) to campaigns. During negotiations, however, representatives decided to increase the funding by almost double. The people’s reaction to the increase also put pressure on representatives. The increase in campaign funding happened thanks to budget cuts in ministries such as Health (R$ 500 million; USD $121.6 million), Infrastructure – including Housing and Sanitation (R$ 380 million; USD $92.4 million) and Education (R$ 280 million; USD $68.1 million). The final amount could be determined in Tuesday’s session. The Electoral Fund distributed R$ 1.7 billion (USD $413.6 million) to political candidates in 2018. Private funding for electoral campaigns is prohibited by law.

Folha de S.Paulo: Congresso já estuda reduzir verba do fundo eleitoral

5. Bolsonaro calls climate activist a ‘brat’

President Jair Bolsonaro was criticized for yet another controversy that made international headlines. On Sunday, Swedish activist Greta Thunberg criticized the murder of Guajajara indigenous people in Maranhão. Greta, who is 16 years old, said that indigenous people who protect the forest are being killed in Brazil and that “it is shameful that the world remains silent” about the crimes. Questioned about Greta’s statement, Bolsonaro replied: “What is the name of that foreign girl? Tabata. What is it? Greta. She said indigenous people are dying because they defend the Amazon. It is amazing how much space the press gives to this kind of pirralha.” ‘Pirralha’ means brat or pest in Brazilian Portuguese. Hours later, Press Secretary Otávio Rêgo Barros claimed that “from a grammatical point of view” Bolsonaro’s statement “is not inaccurate. She is a ‘pirralha’: she is a small person who is a child.” Following the incident, Greta changed her Twitter bio to “Pirralha.” On Wednesday, the activist was announced as Time magazine’s Person of the Year for 2019.

O Estado de S. Paulo: Bolsonaro chama ativista sueca de pirralha
Folha de S.Paulo: Chamada de pirralha por Bolsonaro, ativista é destaque na Time

Brasilia Report

Click here for the Brasilia Report, a weekly analysis prepared by JeffreyGroup Senior Advisor in Brasilia, Gustavo Krieger.