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JPMorgan Say Unrest May Have Long Lasting Effects On Public & Policy Debate

BRAZIL
  • The government’s work grew harder after Sunday’s violent invasion of Brasília’s three main buildings by individuals that do not support the government. While one could argue that such events were more noise than signal, JPMorgan see reason to be concerned about what comes next. They note that the startling scenes that unravelled on Sunday may increase polarization, and may have long lasting effects on public and policy debate.
  • From a market perspective, the institutional problem will come on top of economic ones. The first fiscal decision of the year was to extend the fuels tax break for PIS/Cofins, forgoing 0.5% of GDP annual revenues – a defeat for the economic team, as Minister of Finance Haddad had defended the reinstatement of gasoline taxes.
  • Details of a fiscal plan may be announced this week as Minister Haddad has been reinforcing the need to deliver a lower-than-budgeted fiscal deficit this year. It will be important to understand the details of the plan, as composition matters.
    • The more permanent revenue increases and expenditure cuts are announced, the more credible the medium-term adjustment tends to be, whereas temporary measures, although marginally positive, tend to be less relevant for the sustainability of the government’s fiscal accounts.
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