Inflation Dragon vs Warrior Legend

Published on 05/25/2022 06:00

    (Credit: Cristiano Gomes/CB/DA Press)


(Credit: Cristiano Gomes/CB/DA Press)

Pardon the pun – Glober Rocha forgive us – President Jair Bolsonaro is convinced that his biggest opponent in the election is inflation. The numbers underscore this fear, as rising prices, especially for fuel and food, could lead former president Luiz Inacio Lula da Silva to a first-round victory. What is being discussed in the government is the adoption of price emergency measures, either through a pure and simple freeze, or through tax incentives. This new change of direction for Petrobras has that goal.

The National Consumer Price Index 15 (IPCA-15), which is a preview of the country’s official inflation, reached 0.59% in May, after recording a rate of 1.73% in April, with a total of 12, 20% in 12 months, according to the Brazilian Institute of Geography and Statistics (IBGE) . In light of this, Bolsonaro decided to demonize Petrobras, who would be the Great Inflation Dragon. He put on the armor of a legend warrior and stopped another boss of the company, the third. José Mauro Ferreira Coelho lasted 40 days in office, being fired over the phone by the new Minister of Mines and Energy, Adolfo Sacheda. In his place, Bolsonaro appointed Caio Mario Pais de Andrade, the current Special Secretary for Bureaucracy, Administration, and Digital Government at the Ministry of Economy.

Caio Mario Pais de Andrade is an IT, real estate and agribusiness entrepreneur, who holds a degree in Social Communication from Paulista University, a graduate degree in Management and Administration from Harvard University and an MBA from Duke University. He was president of Serpro until August 2020, when he became part of the Ministry of Economy. But he is a novice in the field of energy and oil.

The nomination still needs approval from Petrobras’ board of directors. Two former presidents of the company, Roberto Castillo Branco and Joaquim Silva y Luna, were also dismissed. Both are due to high fuel prices.

Cayo de Andrade’s mission is a two-headed snake: on the one hand, to keep fuel increases until the elections (there is even talk of freezing prices for cooking gas and diesel); On the other hand proceed with the project of privatization of the company. In both cases, it will be necessary to change the composition of the SOE board of directors and the legislation in force. The government’s narrative of making this change is beginning to take shape. Since the epidemic has been brought under control thanks to mass vaccination, the pretext for change will be the impact of the Ukrainian war on fuel, fertilizer and food prices.

The Ukrainian war will be a pretext for other populist measures, aimed at artificial price gouging, tax cuts, and easing the impact of inflation on the local budget, especially among the lower-income population, which is drifting toward the opposition. What seemed improbable: the economy minister, Paulo Guedes, made an alliance with Centrão politicians to stop price hikes and grant benefits to businesses and low-income families. Extradition of Petrobras, which was controlled by the army, to the economic zone, with the possibility of privatization, the dream of consuming major oil companies.

spending ceiling

Since the market is not silly and knows that any medium and long-term economic project depends on elections, the first reaction was negative: Petrobras shares closed more than 3% lower on Ibovespa, the main stock index. Exchange from Sao Paulo. In New York, due to the new stock exchange, shares started yesterday, down more than 11% in the Premarket. The recovery and appreciation of Petrobras, which has again become a very profitable company, is linked to the international parity policy adopted in 2016, during the government of Michel Temer.

Former president Lula supports criticism of Petrobras’ pricing policy, but opposes the privatization of the company. Yesterday, commenting on the change in company leadership, he suggested that Bolsonaro separate fuel costs from the dollar exchange rate: “He could have a meeting with the National Energy Policy Council, bring Petrobras to the table, bring Petrobras’ board of directors and make a decision.” We will not pay the international price, we will pay the price of gasoline here in Brazil.”

Lula also attacked the spending cap policy, salvaging old rhetoric against bankers and state elites: “Why did they agree spending limits? Because bankers are greedy. They demanded the government to guarantee what they were entitled to. They tried to create problems ‘investment in health, education, science and technology.'” according to PT The spending cap was a form of the Brazilian economic elite and the political elite did it to prevent the poor from increasing benefits, social policies, education and health to ensure that bankers did not fail to receive the things the government owed them.

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