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Brazil President Jair Bolsonaro gave local and foreign investors high hopes in January but now appears incompetent and erratic. (Photo: Alan Santos/Brazil's Presidency)
BNDES president Joaquim Levy resigned after Brazil President Jair Bolsonaro's shocking public rebuke. (Photo: André Telles/BNDES)
Finance Minister Paulo Guedes, Congress Speaker Rodrigo Maia and Petrobras CEO Roberto Castello Branco. (Latinvex collage from Brazil government and Congress photos).
Wednesday, June 19, 2019
Commentary

Brazil Business: Bolsonaro Disappoints


Erratic, incompetent Brazilian president disappoints big time.

LATINVEX EDITORIAL

As Jair Bolsonaro marks his first six months as Brazil’s president on July 1, there is unfortunately little to celebrate and plenty to be disappointed about.

His cornerstone pension reform is still being debated in Congress. If it passes it will be largely thanks to Speaker Rodrigo Maia and despite Bolsonaro, who has utterly failed to lobby for it effectively.

Meanwhile, the goodwill Bolsonaro gained from his key economic appointments are starting to wither away thanks to his own actions as well as those by his sons and extremist members of his administration.

INSULTING LEVY

After Joaquim Levy, the well-respected president of Brazilian development bank BNDES, appointed Marcos Pinto as capital markets director at the bank, Bolsonaro publicly rebuked and threatened to fire Levy.

Pinto had worked as chief of staff to the president of BNDES between 2005 and 2006 and also served as the youngest head of the Brazilian Securities and Exchange Commission of Brazil (CVM) in 2010.

This is what Bolsonaro told reporters as he was leaving the presidential palace on Sunday, June 16: "Levy named Marcos Pinto to a role at BNDES. I've had it with Levy. I am telling him: Fire his face Monday or I will fire you without passing through [Finance Minister Paulo] Guedes."

Apparently Bolsonaro’s ire was caused by the fact that Pinto had worked for a previous government -- one of the Workers Party (PT), which he sees as his rival.

The problem is that Pinto is not a politician but a capable technocrat, just as Levy is. Levy served as finance minister for one year (2015-2016) in the government of President Dilma Rousseff, from the PT.

Yet, his appointment to head BNDES was widely praised and helped Bolsonaro earn plenty of support among local and foreign investors.  Levy, who had given up a good job as the Chief Financial Officer of The World Bank to become head of BNDES in January, had an impressive track record in both Brazil’s public and private sector.

The attack against Levy came after friction with Bolsonaro’s environment minister Ricardo Salles, who had repeatedly attacked the $1.3 billion Amazon Fund, which was set up to fight deforestation and is financed by Norway and Germany. The fund is administered by BNDES and Levy said on June 7 that Brazil would make no changes to the governance of the Amazon Fund without consulting Norway and Germany, Reuters reported.

Faced with the outrageous public rebuke from Bolsonaro, Levy chose to resign, causing widespread concern. The Financial Times warned that it could unsettle investors who fear a return of state intervention in the economy. Market analysts were disappointed by the resignation and expressed concern that the incident weakens Guedes, the chief architect behind the government's ambitous reform plans, O Globo reported.

It didn’t exactly help that Levy’s successor, Gustavo Montezano, is seen as lacking the same weight. His background includes serving as a deputy to privatization secretary Salim Mattar and before that Chief Operating Officer at Engelhart Commodities Trading Partners, a firm owned by Banco BTG Pactual SA’s partners, according to his profile.

Meanwhile, Folha de S. Paulo and The Rio Times report that Montezano was sentenced to pay compensation for material and moral damages to a condominium in which he lived in Sao Paulo three years ago after breaking down the gate after the doorman refused him and his entourage of 30 guests entry amidst behavior similar to what a judge called “beach gangs.” Not exactly the ideal person to lead Brazil’s development bank.

PETROBRAS MEDDLING

The Levy incident came only two months after Bolsonaro had spooked investors after meddling in the affairs of state oil company Petrobras, Brazil’s and Latin America’s largest company on the Latinvex 500.

In April, Petrobras canceled a diesel price hike after Bolsonaro called for “fair” prices out of concern for truckers, Reuters reported.

Bolsonaro had called Petrobras Chief Executive Roberto Castello Branco late on a Thursday evening to address the sharp price hike.

Petrobras preferred shares fell 8 percent, their biggest drop in 10 months, and the move was enough to put the neo-liberal credentials of Bolsonaro's government in question, Bloomberg reported.

“Bolsonaro is engaged in exactly the same dangerous populism as Dilma (Rousseff),” a source close to Petrobras told Reuters, referring to the former leftist president who served from 2011 to 2016. “If you want to question the policy, then do that through the board of directors. But price decisions are made by the management, not the president of the republic.”

A few days later – after significant backlash – Bolsonaro backtracked.

"I cannot and I will not interfere in Petrobras," Bolsonaro said in a written statement, read aloud by presidential spokesman Otavio Rego Barros and quoted by Reuters.

Meanwhile, Bolsonaro also raised eyebrows by proposing that the Brazilian currency, the real, be merged with the Argentine peso. He even doubled down on the comments after Brazil’s central bank denied any such plans were being drawn up.

“Really? You’re going to devalue the real? The dollar worth R$6.00? Inflation coming back? I hope not,” tweeted Congress Speaker Maia.

Brazilian economist Monica de Bolle, director for Latin American studies and emerging markets at the School of Advanced International Studies at Johns Hopkins University and senior fellow at the Peterson Institute for International Economics, also criticized the proposal.

"There is no need to go into the criteria for optimal currency areas to explain how silly the idea of a Brazil-Arg common currency is,” she tweeted“Argentina’s economy is very highly dollarized. Case closed."

FOREIGN POLICY

Bolsonaro has also made several foreign policy blunders that threatened Brazilian business.

He seemed to think little about the consequences of moving the Brazilian embassy to Jerusalem. But his own Vice President Hamilton Mourao, a retired Army general, told Reuters that Bolsonaro’s plan to move the embassy was a bad idea because it would hurt Brazilian exports to Arab nations, including an estimated $5 billion in halal food sales. In the end, Bolsonaro backtracked and instead opened a trade office in Jerusalem.

Similarly, he had attacked Chinese investments in Brazil during his campaign, but had to backtrack once he was president. China is one of the largest investors in Brazil and its largest trading partner.

“China has a great hunger for commodities that Brazil produces and for investment to control some phases of the logistics, and so we must make the best of it,” Vice President Mourao told Reuters.

In May, Mourao visited China to convey the Brazilian government’s interest in deepening relations between the two countries.

WEAK, SPLIT GOVERNMENT

It was always clear that Bolsonaro would face a challenge in Brazil’s congress since he lacked a majority there. But investors did expect that he would be able to govern efficiently through coalitions.

Instead he has shown a disdain for legislators, causing Congress Speaker Maia to accuse Bolsonaro of “playing president” instead of actually governing – a sentiment shared by The Economist, which calls the Brazilian leader an “apprentice president.”

“Brazil needs a functioning government ... and the president is playing around with the presidency of Brazil,” Maia complained.

To make matters worse, the Bolsonaro government itself is split among factions that appear to be warring. The three key factions include the pro-business group led by Guedes, a nationalist-extremist group (which includes Bolsonaro himself and his sons Eduardo, Carlos and Flavio) and a group of military people seen as pragmatists, led by Vice President Mourao.

Last week, Maia called the government a "nuclear reactor of crises" that was hampering much-needed reforms, according to the Financial Times.

Compounding the problems are a weak economy, which may even be in recession.

Brazil needs a strong president who can help move a pro-business agenda through Congress.

What has become clear the past six months is that the erratic and incompetent Bolsonaro is not that leader.


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