Paulo Guedes hopes for fiscal reform and privatization proposals in 2020

On July 5th, Paulo Guedes, ministry of economy in Brazil, gave an interview to CNN Brazil and spoke about his expectation on fiscal reform and privatization proposals still in 2020. He explained that fiscal reform was a priority to the current administration, but the crisis of covid-19 redirected attention to solving issues of population’s health, employment and income. To him, current crisis projections of 10% PIB reduction of need to be reconsidered to a 6% fall, since the country’s exports were kept within good performance throughout the crisis.

Regarding fiscal reform, Guedes explained that a broad proposal will be presented to congress still in 2020. His intention is to broaden the bases of tax incidence with lower tariffs, easening the burden on labour taxation and, consequently on businesses. One of his proposals is to create an IVA tax (tax over aggregated value), and taxing digital services, but congress has not engaged in this digital taxation debate.

Guedes expects to advance on privatization projects in the sectors of electricity, water & sanitation, oil & gas, and coastal navigation. He looks at the subsidiaries of the state bank Caixa for a large IPO proposal. The expectation is that the privatization program also includes companies such as Eletrobras, Correios, EPL, Valec, EBN and Infraero.

However, according to the political analyst Thiago de Aragao, foreign investors do not expect Guedes’ privatization program to take off as quickly as expected by the minister, despite his good will and intentions. This common delay seen in the brazilian market is due to the complex institutional arrangement in the country, seen somewhat as a form of mechanism in place to validade and balance interests.

Ultimately, the positions of delegates in the national congress need to be assessed to further understand the likelihood of some of these privatizations. Whereas articulations for privatization of Eletrobras seem to be very unclear in congress, the recent approval of the sanitation law (PL 4.162/2019, waiting for sanctioning) opens up to new opportunities.

References

Estadao. O que o mercado precisa saber sobre as ultimas declaracoes de Paulo Guedes. Published on July 06 2020 by Isaac de Oliveira. Available at: https://einvestidor.estadao.com.br/mercado/ultimas-declaracoes-paulo-guedes/. Access on: July 11 2020.

Estadao. Investidor estrangeiro ve como irreal promessa de Guedes de 4 privatizacoes em 90 dias. Published on July 09 2020 by Thiago de Aragao. Available at: https://einvestidor.estadao.com.br/coluna/thiago-de-aragao/guedes-privatizacoes-investidor-estrangeiro/. Access on: July 11 2020.

Senado. Novo marco legal do saneamento basico aguarda sancao presidencial. Published on June 26 2020. Available at: https://www12.senado.leg.br/noticias/videos/2020/06/novo-marco-legal-do-saneamento-basico-aguarda-sancao-presidencial. Acces on: July 11 2020.

Foreign investors debate the Amazon forest

Hamilton Mourao (vice-president) and federal ministers (listed below) participated in a videoconference with foreign capital investors (also listed below) to discuss matters related to the Amazon forest. Mourao coordinates the Conselho da Amazonia (national council for the issue of Amazonia), and he proposes to recover the structure of environmental fiscalization. He says that today, the fiscalization agencies do not have the capacity to combat the illegal actions of deforestation. The current administration inherited the reduced structures of IBAMA (Institute for Environment) and ICMBio (Institute for Biodiversity), currently facing problems related to budget and hiring restrictions.

Brazilian entrepreneurs are worried about the negative image that the national environmental policy is gaining internationally. In the beginning of this week, 38 Brazilian entrepreneurs sent a letter to the vice-president, asking for measures to contain deforestation. According to INPE (Institute for Spacial Research), registration of fire incidents in the Amazon forest in june of 2020 reache the highest numbers since the year 2007.

Fund: The Amazon fund (Fund Amazonia) is managed by BNDES (National Bank for Social and Economic Development), and had contributions interrupted by Germany and Norway in 2019 after the scandals related to fires in the forest.

Programs: Ricardo Salles (minister of environment) points to projects which international investors can help Amazon preservation: Floresta+ (payment for environmental services) and Adote1Parque (partnership between the 132 conservation units in Brazil).

Follow up: Another meeting with Brazilian entrepreneurs is expected for Friday (July 10), and Ricardo Salles informed that next week a new decree will be ready for presidential signature, which will suspend authorization of use of fire in the Amazon forest and Pantanal. Other biomes will remain with exceptions currently authorized in legislation.

List of federal ministers who participated in the videoconference with international investors:

  • Walter Souza Braga Neto (Casa Civil)
  • Tereza Cristina (Agriculture)
  • Ricardo Salles (Environment)
  • Ernesto Araujo (External Relations)
  • Fabio Faria (Communications)
  • Roberto Campos Neto (Central Bank)

List of capital investment groups who participated in the videoconference with Brazilian government representatives:

  • Legal and General Investment Management (United Kingdom)
  • Nordea Asset Management (Sweden)
  • SEB Investment Management (Sweden)
  • Storebrand Asset Management (Norway)
  • KLP (Norway)
  • Robeco (Netherlands)
  • AP2 Second Swedish National Pension Fund (Sweden)
  • Sumitomo Mitsui Trust Asset Management (Japan)

Limitations of this article: all information in this briefing was gathered through G1 news portal, although I focused in compiling information of a technical nature. My intention is to provide a basic framework for policy analysis on the issue, but more research needs to be done. Meanwhile, feel free to contact me if you have any questions.

References

Conselho da Amazonia [Online] Available at: https://www.gov.br/planalto/pt-br/conheca-a-vice-presidencia/conselho-da-amazonia. Published on: April 23 2020. Access on: July 09 2020. Planalto. Presidency. Vice-presidency.

A frente do Conselho da Amazonia, Mourao tera como foco ‘proteger, preservar e desenvolver’ a regiao. [Online] Available at: https://g1.globo.com/politica/blog/valdo-cruz/post/2020/02/11/a-frente-do-conselho-da-amazonia-mourao-tera-como-foco-proteger-preservar-e-desenvolver-a-regiao.ghtml. Published on: February 11 2020. Access on: July 09 2020. G1 Politica, Blog do Valdo Cruz.

Cobrado por empresarios, Mourao diz que agira para melhorar political ambiental. [Online] Available at: https://g1.globo.com/politica/blog/valdo-cruz/post/2020/07/07/empresarios-enviam-carta-a-mourao-pedindo-combate-ao-desmatamento-e-ele-diz-que-agira-para-melhorar-politica-ambiental.ghtml. Published on: July 07 2020. Access on: July 09 2020. G1 Politica, Blog do Valdo Cruz.

Mourao e ministros fazem videoconferenca com investidores estrangeiros para falar da Amazonia. [Online] Available at: https://g1.globo.com/politica/noticia/2020/07/09/mourao-e-ministros-fazem-videoconferencia-com-investidores-estrangeiros-para-falar-de-amazonia.ghtml. Access on: July 09 2020. G1 Politica, por Guilherme Mazui.

Investidores querem ver resultado, e governo busca reduzir desmatamento, diz Mourao. [Online] Available at: https://g1.globo.com/politica/noticia/2020/07/09/investidores-querem-ver-resultado-e-governo-busca-reduzir-desmatamento-diz-mourao.ghtml. Access on: July 09 2020. G1 Politica, por Guilherme Mazui e Pedro Henrique Gomes.

Instituto aponta aumento de 54% em alertas de desmatamento na Amazonia nos ultimos dez meses. [Online] Available at: https://g1.globo.com/natureza/noticia/2020/06/16/instituto-aponta-aumento-de-54percent-em-alertas-de-desmatamento-na-amazonia-nos-ultimos-dez-meses.ghtml. Published on: June 16 2020. Access on: July 09 2020. G1 Natureza.

Methods for policy analysis

Just came across this twitter post from @ThiagoGdeAragao on reading political scenarios and thought it is worth sharing (and certainly applying!).

According to him, what we see, debate, hate and love in politics in only the tip of an iceberg – there are many variables underneath the surface.

First, we must understand that each individual placed in a position of power carries with him/herself cultural and historical predispositions, preferences and different levels of understanding in reference to particular topics. This “situated knowledge”, as Donna Haraway would call, is complemented with thermometers for morality and ethics, embedded with levels of value flexibility. These factors condition one’s behavior and judgement towards the different matters at stake. Then, the matters themselves, such as reforms, public policies and projects, become secondary.

An increasing layer of complexity is added to the analysis when considering that each politician has an electoral base with varying interests, geographies and priorities mixed in different values and perception modes.

When a matter arrives at the hand of a congressman, the decision-making process for that particular topic is influenced by his/her personal beliefs, their party’s ideological inclination and interests, and their understanding of the issue under discussion. Such variables are further impacted by the perception of the person who first proposed the project and the sets of variables that branch from the initiative (personal interests and situated knowledges, party’s interests, electoral interests, etc.).

When engaging in an issue, politicians are influenced by their conscient ideologies (one’s rethoric) and unconscious ideologies (what is not acknowledged); and will consider how the topic suits their electoral base, how it impacts future elections, and how the issue impacts their own morality and the perception of others onto their morality. Also, ranking of interests and timing control mechanisms are established in order to prioritize voting and strategize agreements.

Seems complicated? Well, it is. But perhaps, having a framework template to map topics of interest is a good start to political scenario “sensemaking”.