• Most Popular

    Brazil Sets Itself Up for 20 Years of Lean Cows

    Brazilians protest in São Paulo against PEC 55 - Vladimir Platonow/ABrAs of Tuesday, December 13, Proposed Constitutional Amendment (PEC) 55 – formerly PEC 241 – is the law of the land in Brazil. The amendment sets a cap on most federal expenditures for the next 20 years. Outlays on healthcare, education, pensions, infrastructure, and defense will only be permitted to rise with the rate of inflation inevitably decreasing real spending per capita.[1]

    Tuesday’s vote ends a lengthy approval process in which PEC 55 had to pass in each house twice and obtain votes from at least three-fifths of both body’s congressmen. PEC 55 overcame its fourth and final hurdle passing in the Brazilian Senate by a vote of 53 to 16, just four more than was required.

    The proposal passed its first test on October 11, when the Chamber of Deputies approved the measure 366 to 111.[2] Later that month, the amendment navigated the Chamber again, this time by a slimmer margin, 359 to 116.[3] Then, on November 29, the Senate passed PEC 55 for the first time by a margin of 61 to 14, setting the stage for the most recent and ultimate vote.[4]

    But even after its lengthy journey through the Brazilian Congress, PEC 55 (241) remains an extremely divisive measure.

    Brazilians protest in São Paulo against PEC 55 - Vladimir Platonow/ABr

    Proponents of the amendment point to the need to regain market confidence and keep inflation under control to avoid a future debt crisis.[5] President Michel Temer sees capping government expenditures to reign in deficit spending as critical in achieving this goal.

    The need for market confidence is linked to foreign investors and their proposed ability to “generate jobs and income.”[6] Many Brazilians would agree with economist Raul Velloso’s assessment that government expenditures have “a lot of fat” and that a spending cap will bring expenses back into line.[7]

    But the amendment has its detractors on both the right and left. Conservative critics claim that the spending cap does not safeguard against the growing deficit because it avoids Social Security, which currently covers more than 40 percent of mandatory public spending.[8]

    Others see the cap as a direct subversion of the current constitution, which mandates 18 percent and 13.7 percent of annual tax revenue go to education and health. This perspective is further substantiated by the Brazilian Senate’s Legal Counsel conclusion that the amendment is unconstitutional.[9]

    Lastly, many on the left worry that the amendment will do little to generate economic growth and will harm the poor, who disproportionately rely on services provided by the government.[10]

    Thus PEC 55 will undoubtedly be a source of contentious debate in the years to come. But first, it is important for everyone to understand the exact contents of this important amendment. Below we provide a brief summary of each of the nine articles. The specific articles (art.) are from 101 to 109.

    PEC 55 (formerly 241)

    Article 101: establishes the coverage of amendments “New Tax Regime” to cover the three branches of government as well as the Public Prosecutor’s Office and the Public Defender’s Office for the next 20 fiscal years.[11]

    Article 102: explicitly states the expenditure of the agencies mentioned above will be tied to 2017’s fiscal year based on 2016’s annual expenditure, the budget will then only be adjusted for inflation.[12]

    Article 103: gives the president the right to “change in the method of correction of limits by presidential mandate” after the first ten years of the amendment being enacted.[13]

    Article 104: covers how non-compliance will be addressed which is largely through limiting the offending agencies ability to take actions, such as promotions, hiring more personnel, or financing programs, that would lead to an increase in expenses.[14]

    Article 105: states that the “minimum applications in actions and services” for public health maintenance and development will be equal to the 2017 fiscal year expenditure.[15]

    Article 106: establishes that the affects of the amendment will be enforced from 2018 to the last financial year of the new Tax Regime (2037.[16])

    Article 107: states that the amendment does “not constitute an obligation [of] future payment by the Union” and does not “revoke, dispense or suspend” its constitutional obligations that have “fiscal goals or expenditure ceilings.”[17]

    Article 108: stipulates that any legislative proposal that moves to “create or alter” compulsory expenses must be accompanied by a budget and finance impact report.[18]

    Article 109: adds to 108 by mandating a proposal that intends to increase expenses is to be suspended up to 20 days and be analyzed by a fifth of the House representatives for its compatibility with the New Tax Regime.[19]

    For a more detailed analysis read “Temer’s PEC 241 a Bold Work of Unoriginality” by Jordy Garcia at http://www.coha.org/temers-pec-241-a-bold-work-of-unoriginality/

    Notes:

    [1] Zeeshan Aleem, “Brazil just enacted the harshest austerity program in the world,” Vox, December 15, 2016. Accessed December 19, 2016. http://www.vox.com/world/2016/12/15/13957284/brazil-spending-cap-austerity

    [2] Brazil Plans to Limit Public Spending for 20 Years (La Diaria, October 12, 2016)

    http://ladiaria.com.uy/articulo/2016/10/brasil-se-dispone-a-limitar-el-gasto-publico-por-20-anos/

    [3] Santos Santana, Elissandro dos. School Occupation Against PEC 241 (CubaDebate, October 31, 2016)

    [4]Lima, Vandson. Murakawa, Fabio. Senate Approves, by 61 o 14, PEC of Spending Ceiling in 1st Shift (Valor, November 29, 2016)

    http://www.valor.com.br/politica/4791447/senado-aprova-por-61-votos-14-pec-do-teto-de-gastos-em-1-turno

    [5] Fargundez, Ingrid. Approved in the Chamber, PEC 241 Goes to the Senate: Understand the Controversies of the Text (BBC, October 25, 2016)

    http://www.bbc.com/portuguese/brasil-37603414

    [6] Alessi, Gil. Understand PEC 241 (or 55) and how it can affect your life (El País, December 13, 2016)

    http://brasil.elpais.com/brasil/2016/10/10/politica/1476125574_221053.html

    [7] Fargundez

    [8] ibid.

    [9] ¿Qué es la PEC 55 y por qué genera rechazo popular? (Telesur, December 13, 2016)

    http://www.telesurtv.net/news/Brasil-Que-es-la-PEC-55-y-por-que-genera-rechazo-popular-20161213-0001.html

    [10] Garcia, Jordy. Temer’s PEC 241 a Bold Work of Unoriginality (COHA, October 28, 2016)

    Temer’s PEC 241: A Bold Work of Unoriginality

    [11] Constitutional Amendment 55 (Senado Federal, October 26, 2016) P. 1

    https://www25.senado.leg.br/web/atividade/materias/-/materia/127337

    [12] Ibid. P. 1-4

    [13] Ibid. P. 5

    [14] Ibid. P. 5-6

    [15]Ibid. P. 6

    [16]Ibid. P. 6-7

    [17] Ibid. P. 7

    [18] Ibid.

    [19] Ibid.

    Jordy Garcia is  a research associate at the Council on Hemispheric Affairs (COHA) – http://www.coha.org/

    Tags:

    NEXT STORY
    Dozens Killed in Brazil’s Worst Prison Massacre in Two Decades
    PREV STORY
    To House Its Poorest, Brazil Must Go Beyond Home Ownership And Look Abroad For Inspiration

    You May Also Like

    Jaguar that survived the fire in Brazilian Pantanal.

    World’s Largest Tropical Wetland, the Brazilian Pantanal, Being Converted into Ashes

    Fires are raging in the wetlands of west-central Brazil, leaving behind a vast swath ...

    author_avatar
    Newsroom
    Tapajós National Forest set on fire, which is the cheapest way to get rid of the trees

    It Doesn’t Change: For 500 Years, the Elite Has Been Dilapidating Brazil’s Natural Riches

    Brazil. The fifth largest country in the world. Besides housing the world’s largest rainforest ...

    author_avatar
    Giem Guimarães
    It seems the future never arrives in Brazil What Lies Ahead in Brazil? Brazil Has No Exemplary Past or Present. But What Lies Ahead for the Country? Europeans, US, developed country, developing country. Bolsonaro, future B. Michael Rubin For years, experts have debated what separates a developing country from a developed one. The GDP (Gross Domestic Product) of a country is one simple way to measure its economic development. Another way to measure a country's progress is the extent of public education, e.g. how many citizens complete high school. A country's health may be measured by the effectiveness of its healthcare system, for example, life expectancy and infant mortality. With these measurement tools, it's easier to gauge the difference between a country like Brazil and one like the U.S. What's not easy to gauge is how these two countries developed so differently when they were both "discovered" at the same time. In 1492 and 1500 respectively, the U.S. and Brazil fell under the spell of white Europeans for the first time. While the British and Portuguese had the same modus operandi, namely, to exploit their discoveries for whatever they had to offer, not to mention extinguishing the native Americans already living there if they got in the way, the end result turned out significantly different in the U.S. than in Brazil. There are several theories on how/why the U.S. developed at a faster pace than Brazil. The theories originate via contrasting perspectives – from psychology to economics to geography. One of the most popular theories suggests the divergence between the two countries is linked to politics, i.e. the U.S. established a democratic government in 1776, while Brazil's democracy it could be said began only in earnest in the 1980s. This theory states that the Portuguese monarchy, as well as the 19th and 20th century oligarchies that followed it, had no motivation to invest in industrial development or education of the masses. Rather, Brazil was prized for its cheap and plentiful labor to mine the rich soil of its vast land. There is another theory based on collective psychology that says the first U.S. colonizers from England were workaholic Puritans, who avoided dancing and music in place of work and religious devotion. They labored six days a week then spent all of Sunday in church. Meanwhile, the white settlers in Brazil were unambitious criminals who had been freed from prison in Portugal in exchange for settling in Brazil. The Marxist interpretation of why Brazil lags behind the U.S. was best summarized by Eduardo Galeano, the Uruguayan writer, in 1970. Galeano said five hundred years ago the U.S. had the good fortune of bad fortune. What he meant was the natural riches of Brazil – gold, silver, and diamonds – made it ripe for exploitation by western Europe. Whereas in the U.S., lacking such riches, the thirteen colonies were economically insignificant to the British. Instead, U.S. industrialization had official encouragement from England, resulting in early diversification of its exports and rapid development of manufacturing. II Leaving this debate to the historians, let us turn our focus to the future. According to global projections by several economic strategists, what lies ahead for Brazil, the U.S., and the rest of the world is startling. Projections forecast that based on GDP growth, in 2050 the world's largest economy will be China, not the U.S. In third place will be India, and in fourth – Brazil. With the ascendency of three-fourths of the BRIC countries over the next decades, it will be important to reevaluate the terms developed and developing. In thirty years, it may no longer be necessary to accept the label characterized by Nelson Rodrigues's famous phrase "complexo de vira-lata," for Brazil's national inferiority complex. For Brazilians, this future scenario presents glistening hope. A country with stronger economic power would mean the government has greater wealth to expend on infrastructure, crime control, education, healthcare, etc. What many Brazilians are not cognizant of are the pitfalls of economic prosperity. While Brazilians today may be envious of their wealthier northern neighbors, there are some aspects of a developed country's profile that are not worth envying. For example, the U.S. today far exceeds Brazil in the number of suicides, prescription drug overdoses, and mass shootings. GDP growth and economic projections depend on multiple variables, chief among them the global economic situation and worldwide political stability. A war in the Middle East, for example, can affect oil production and have global ramifications. Political stability within a country is also essential to its economic health. Elected presidents play a crucial role in a country's progress, especially as presidents may differ radically in their worldview. The political paths of the U.S. and Brazil are parallel today. In both countries, we've seen a left-wing regime (Obama/PT) followed by a far-right populist one (Trump/Bolsonaro), surprising many outside observers, and in the U.S. contradicting every political pollster, all of whom predicted a Trump loss to Hillary Clinton in 2016. In Brazil, although Bolsonaro was elected by a clear majority, his triumph has created a powerful emotional polarization in the country similar to what is happening in the U.S. Families, friends, and colleagues have split in a love/hate relationship toward the current presidents in the U.S. and Brazil, leaving broken friendships and family ties. Both presidents face enormous challenges to keep their campaign promises. In Brazil, a sluggish economy just recovering from a recession shows no signs of robust GDP growth for at least the next two years. High unemployment continues to devastate the consumer confidence index in Brazil, and Bolsonaro is suffering under his campaign boasts that his Economy Minister, Paulo Guedes, has all the answers to fix Brazil's slump. Additionally, there is no end to the destruction caused by corruption in Brazil. Some experts believe corruption to be the main reason why Brazil has one of the world's largest wealth inequality gaps. Political corruption robs government coffers of desperately needed funds for education and infrastructure, in addition to creating an atmosphere that encourages everyday citizens to underreport income and engage in the shadow economy, thereby sidestepping tax collectors and regulators. "Why should I be honest about reporting my income when nobody else is? The politicians are only going to steal the tax money anyway," one Brazilian doctor told me. While Bolsonaro has promised a housecleaning of corrupt officials, this is a cry Brazilians have heard from every previous administration. In only the first half-year of his presidency, he has made several missteps, such as nominating one of his sons to be the new ambassador to the U.S., despite the congressman's lack of diplomatic credentials. A June poll found that 51 percent of Brazilians now lack confidence in Bolsonaro's leadership. Just this week, Brazil issued regulations that open a fast-track to deport foreigners who are dangerous or have violated the constitution. The rules published on July 26 by Justice Minister Sérgio Moro define a dangerous person as anyone associated with terrorism or organized crime, in addition to football fans with a violent history. Journalists noted that this new regulation had coincidental timing for an American journalist who has come under fire from Moro for publishing private communications of Moro's. Nevertheless, despite overselling his leadership skills, Bolsonaro has made some economic progress. With the help of congressional leader Rodrigo Maia, a bill is moving forward in congress for the restructuring of Brazil's generous pension system. Most Brazilians recognize the long-term value of such a change, which can save the government billions of dollars over the next decade. At merely the possibility of pension reform, outside investors have responded positively, and the São Paulo stock exchange has performed brilliantly, reaching an all-time high earlier this month. In efforts to boost the economy, Bolsonaro and Paulo Guedes have taken the short-term approach advocated by the Chicago school of economics championed by Milton Friedman, who claimed the key to boosting a slugging economy was to cut government spending. Unfortunately many economists, such as Nobel Prize winner Paul Krugman, disagree with this approach. They believe the most effective way to revive a slow economy is exactly the opposite, to spend more money not less. They say the government should be investing money in education and infrastructure projects, which can help put people back to work. Bolsonaro/Guedes have also talked about reducing business bureaucracy and revising the absurdly complex Brazilian tax system, which inhibits foreign and domestic business investment. It remains to be seen whether Bolsonaro has the political acumen to tackle this Godzilla-sized issue. Should Bolsonaro find a way to reform the tax system, the pension system, and curb the most egregious villains of political bribery and kickbacks – a tall order – his efforts could indeed show strong economic results in time for the next election in 2022. Meanwhile, some prominent leaders have already lost faith in Bolsonaro's efforts. The veteran of political/economic affairs, Joaquim Levy, has parted company with the president after being appointed head of the government's powerful development bank, BNDES. Levy and Bolsonaro butted heads over an appointment Levy made of a former employee of Lula's. When neither man refused to back down, Levy resigned his position at BNDES. Many observers believe Bolsonaro's biggest misstep has been his short-term approach to fixing the economy by loosening the laws protecting the Amazon rainforest. He and Guedes believe that by opening up more of the Amazon to logging, mining, and farming, we will see immediate economic stimulation. On July 28, the lead article of The New York Times detailed the vastly increased deforestation in the Amazon taking place under Bolsonaro's leadership. Environmental experts argue that the economic benefits of increased logging and mining in the Amazon are microscopic compared to the long-term damage to the environment. After pressure from European leaders at the recent G-20 meeting to do more to protect the world's largest rainforest, Bolsonaro echoed a patriotic response demanding that no one has the right to an opinion about the Amazon except Brazilians. In retaliation to worldwide criticism, Bolsonaro threatened to follow Trump's example and pull out of the Paris climate accord; however, Bolsonaro was persuaded by cooler heads to retract his threat. To prove who was in control of Brazil's Amazon region, he appointed a federal police officer with strong ties to agribusiness as head of FUNAI, the country's indigenous agency. In a further insult to the world's environmental leaders, not to mention common sense, Paulo Guedes held a news conference on July 25 in Manaus, the largest city in the rainforest, where he declared that since the Amazon forest is known for being the "lungs" of the world, Brazil should charge other countries for all the oxygen the forest produces. Bolsonaro/Guedes also have promised to finish paving BR-319, a controversial highway that cuts through the Amazon forest, linking Manaus to the state of Rondônia and the rest of the country. Inaugurated in 1976, BR-319 was abandoned by federal governments in the 1980s and again in the 1990s as far too costly and risky. Environmentalists believe the highway's completion will seal a death knoll on many indigenous populations by vastly facilitating the growth of the logging and mining industries. Several dozen heavily armed miners dressed in military fatigues invaded a Wajãpi village recently in the state of Amapá near the border of French Guiana and fatally stabbed one of the community's leaders. While Brazil's environmental protection policies are desperately lacking these days, not all the news here was bad. On the opening day of the 2019 Pan America Games in Lima, Peru, Brazilian Luisa Baptista, swam, biked, and ran her way to the gold medal in the women's triathlon. The silver medal went to Vittoria Lopes, another Brazilian. B. Michael Rubin is an American writer living in Brazil.

    Brazil Has No Exemplary Past or Present. But What Lies Ahead for the Country?

    For years, experts have debated what separates a developing country from a developed one. ...

    author_avatar
    B. Michael Rubin

    Trump’s Wall Brings Brazil and Argentina Closer to Mexico and Latin America

    Brazil and Argentina say they are going to pursue closer ties with Mexico and ...

    author_avatar
    Newsroom
    Getting ready to work

    Moody’s Lowers Brazil’s Credit Rating, But Doesn’t Anticipate a Double-Dip Recession

    Brazil’s economy is clearly growing again after a severe recession and will be shielded ...

    author_avatar
    Newsroom
    Motoboys protest in Brazil's capital city, Brasília. Photo: Marcelo Camargo/Ag Brasil

    Badly Hit by Covid-19, Brazil and Latin America May Become Trapped in a Gig Economy

    Coronavirus has hit the healthcare systems and societies of the global south even harder ...

    author_avatar
    Luciana Zorzoli
    A fisherman inspects the area of the new hydroelectric - Photo: Gustavo Faleiros

    Once Expelled from Belo Monte, Brazil’s River People Are Back to Their Old Spot

    All is not quiet on Brazil’s western frontier. Families that were displaced from their ...

    author_avatar
    Maximo Anderson
    An indigenous community in Brazil wearing masks against coronavirus

    With Close to 1,000 Deaths, Brazil Indians Get an App to Keep Track of Covid-19

    Indigenous and environmental organizations in Brazil launched an app aimed at alerting indigenous communities ...

    author_avatar
    Newsroom

    Floating Exchange Rate Is Here to Stay, Says Brazilian President

    Nelson Barbosa, the executive secretary of Brazil’s Ministry of Finances, speaking at a seminar ...

    author_avatar
    Marli Moreira
    Brazilian president meets kitchen crew after barbecue with foreign ambassadors - Beto Barata/PR

    Presidential Barbecue Tries to Save Brazil’s Meat Reputation Before the World

    Brazilian President Michel Temer is trying to reassure foreign trade partners that the corruption ...

    author_avatar
    Newsroom