December 20, 2019


1. Brazilian country risk drops to its lowest rate since 2010

Brazil’s country risk index rating – an index measured by credit default swaps – is at its lowest point since November 2010. Country risk measures the level of confidence investors have in developing countries – the higher the rate, the bigger the risk. A drop indicates that investors are more confident regarding repay debts. In 2010, Brazil was recognized by Moody’s, S&P and Fitch as a good payer of debts, which helps attract foreign investment. According to S&P, even though they expect the gap between the debt and the GDP to continue to grow over the next three years, investors also expect an improved fiscal situation with the approval of the pension reform and other structural reforms that play a key part in the country’s economic agenda. Read the analysis of the results of the Bolsonaro administration at Brasilia Report.

Folha de S.Paulo: Risco-país é o menor em nove anos

2. President’s son accused of money laundering

Investigations by the Public Prosecutor’s Office of Rio de Janeiro have revealed that Senator Flávio Bolsonaro – the president’s son – laundered R$ 2.3 million (USD $562,000) through both real estate transactions and a chocolate shop in the state capital. Prosecutors say large amounts of cash were used to “legalize” Flávio’s financial transactions. When Flávio was a state representative, he would retain a portion of his employees’ salaries in a maneuver known as “rachadinha” – slang for sharing in Brazilian Portuguese. Along with money laundering, prosecutors are also investigating Flávio’s involvement in crimes of embezzlement, concealment of assets and criminal conspiracy. The senator denies having participated in any wrongdoing and has criticized the judge and the prosecutors responsible for the case. He has also filed a suit with the Supreme Court to suspend the investigation. When questioned about the case, President Jair Bolsonaro said he “had nothing to do” with the case. Investigations have already yielded 24 search and seizure warrants affecting Bolsonaro family members as well as the president’s ex-wife, Ana Cristina Valle, and Flávio’s former employees in the Legislative Assembly. Prosecutors say that Flávio and his wife, Fernanda, bought two estates in Copacabana for R$ 140,000 (USD $34,26) and R$ 170,000 (USD $41,548). One of the apartments was sold a year later for R$ 573,000 (USD $140,043), generating a profit of 237% while other estates in the same region saw a price increase of just 9%. In the following year, the other apartment was sold for R$ 550,000 (USD $134,415) – a profit of 292%.

Folha de S.Paulo: Flávio Bolsonaro lavou dinheiro em imóveis e loja
O Globo: Policial pagou prestação de apartamento de senador
Folha de S.Paulo: “Não tenho nada a ver com isso”, diz pai e presidente

3. Congress approves Federal Budget of R$ 3.7 trillion for 2020

This week, Congress approved the Federal Budget for 2020, set at R$ 3.7 trillion (USD 904.2 billion). However, of of this total, R$ 917.1 billion (USD $224 billion) will be used to pay public debts. Senators and representatives also approved the use of R$ 2 billion (USD $488.8 billion) for the Electoral Fund, a public fund used for electoral campaigns in the next year. Representatives, who wanted R$ 3.8 billion (USD $982.7 billion) for the fund, backed down following public outcry. This week, a poll by Datafolha showed that 45% of people are not happy with the work by members of Congress, an increase in comparison to 32% in April. Even though the amount destined to the Electoral Fund was reduced, President Jair Bolsonaro has indicated that he might veto the amount. Addressing his supporters, Bolsonaro said that if he approves the amount, both PT and PSL (his former party) will benefit. Both parties are currently opposed to the administration. Besides the Electoral Fund, the budget has another way of funding political campaigns – the Party Fund – which distributes R$ 1 billion (USD $244.4 million) to political parties every year.

O Estado de S. Paulo: Congresso aprova Orçamento de 2020
Folha de S.Paulo: Bolsonaro critica PSL e PT e indica veto a fundo eleitoral
Folha de S.Paulo: Reprovação do Congresso volta a subir e atinge 45%

4. Administration to create tax on mobile bank transactions

The federal government is considering implementing a tax on bank transactions made using mobile devices to create another source of income to reduce payroll taxes. Economy Minister Paulo Guedes made the statement earlier this week. According to him, this has always been discussed. “We have always considered that, in order to reduce payroll taxes, we needed to create a tax on transactions. We needed to tax digital transactions,” he said. The original proposal by the administration was to create a tax on financial transactions in order to reduce the amount of taxes companies pay on employee salaries. The idea was to tax all financial transactions, including deposits, withdrawals and cash payments. Members of Congress have already expressed opposition to the idea. Guedes’ statement caught banks and fintech companies by surprise, since the Central Bank has been trying to promote competition in the sector through new technologies. According to one bank manager, the tax is “complete nonsense” and “only generates turmoil.”

Valor Econômico: Guedes quer tributar transações por celular
O Estado de S. Paulo: Guedes descarta CPMF, mas quer tributar transação digital
Valor Econômico: Bancos veem contrassenso em CPMF digital

5. CEOs only use 26% of their time on most relevant issues

Brazilian executives only use 26% of their time to deal with important issues. Over half of their workday is occupied by trivial matters, according to a study by consulting company Blue Management Institute, which interviewed 100 executives in 71 companies that generate over R$ 1 billion (USD $244.4 million) a year. According to the research, CEOs work an average of 11 hours a day and spend at least an hour commuting to work. Due to this schedule, they have only six and a half hours to sleep and another five to deal with personal matters. “CEOs spend nearly two thirds of their life at the office,” says Daniel Motta, from the consulting company. The study also shows that executives spend 30% of their time in meetings that last an average of one hour and 18 minutes. A large part of their day is also spent dealing with administrative issues. CEOs prefer dealing with people in person or by phone, although the majority of them (84%) use digital devices.

Valor Econômico: CEO brasileiro passa quase 2/3 da vida no escritório

Brasilia Report

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