President temer’s microeconomic surprises
Michel Temer’s government has brought many surprises to those who know his party, PMDB, political history. Broadly speaking he has shown to be more strategic and resilient than one would suspect before he came to office. His three times as House Majority Leader and more than a decade as a party leader have given him all the skills and insights to deal with old chiefs in federal politics, especially within the Congress.
There is no doubt he has been using all the weapons he has accumulated during this time to keep his office and rule. This was the expected. The unexpected is what he is doing in the Economics, both macro and micro.
The Social Security reform presented by the current government is a step forward in relation to what had been on the table before, during Lula and Dilma terms. It is no big news, but it has gone beyond the more accepted proposal between specialists. When it comes to Labor and Taxing reforms, he has been more daring. The president has backed up a limitation to growing public expenditure, against the previous position of his own party PMDB. In a ranking prepared by consultancy firm Prospectiva, PMDB elected executives show up among the worst performances in taxing for the past 20 years. Well worse than, for example, PT itself.
On top of that, Temer has astonished with his support to the Labor reform, despite the strong connection his party has with unions and trade unions that depend upon money provided by federal regulation. Moreover, his party has old bonds with employers’ associations such as FIESP, FIRJAN, CNI, that also rely on government money.
Above all, the most striking feature about president Temer’s government is his willingness to modify regulations and microeconomics policies. While macroeconomics changes occur in a context of broad political dispute and wide impact on the society, microeconomic regulations changes are more focused and involve playing with clear and strong resistance. There are many examples.
Oil & Gas and Petrobras reforms are outstanding. Same goes for infrastructure rules concessions – airports, energy, etc. After a 10-year discussion, it is no longer mandatory that Anvisa (the health regulatory agency) has a saying on requirements for health products patents by the national agency INPI.
A recent regulatory reform in the electricity sector has occurred. By presidential decree, it is no longer needed to verify signatures in a series of public documents and contracts. Also, the government has created a new code for mining and proposed a regulatory agency for the sector.
In good part, these measures imply a strong structural long-term impact in their areas. They all certainly mean to improve the business environment, to achieve a more transparent relation between the State and society, and to foster competition. They all are clearly part of a more liberal microeconomic agenda, and they have evolved with less political battle than the macroeconomic reforms.
This series of measures are remarkable not only by its contents but also by the fact that they have intruded in a sector of the economy and state-owned companies that have been long linked to PMDB strong interests and political control, such being the case with the electricity sector.
Another recent decision, which is not directly related but somehow is emblematic of the others, is the request made from Brazil to become a full member of the OCDE. This issue had been debated during the years 1990 and was dealt with by the present government during its worst political crisis. In case it is approved by the members of the organization, the new Brazilian OCDE status will link Brazil to an array of agreements and standards that are followed by the most developed capitalist’s economies in the world.
It is a lock-in strategy, that aims to bind Brazil from the outside to an agenda that is not common sense internally. This impressive microeconomic reforms agenda highlights Temer’s apparent lack of ability to deal with the big public corporations to which he has been making concessions since day one. In July 2016, he granted a 41% wage raise for judges and Judiciary employees. The same month and year saw him concede 12% raise for Public Prosecutors Officers. Both occurred two months prior to the approval of a Constitutional amendment that limits public expenditure for the next 20 years.
In December, Temer raised the wages of public servants at the Federal Revenue, Public Defender’s Office, Diplomacy and military officials, while announcing that Brazilian GDP had receded 2%. It seems that the president has chosen not to confront these categories at the same time when facing public opinion, lobbies e oppositions parties with the reforms. Must have had good reasons.
*Ricardo Sennes is a managing partner at Prospectiva and a specialist in political and economic scenarios, the formulation and implementation of public policies, and the evaluation of their impacts on companies. He has experience in industrial policy, industrial promotion, and international integration. Sennes possesses a doctoral degree and a master’s degree in political science from the University of São Paulo (USP) and serves as the general coordinator of the university’s leading international affairs think tank (Gacint). He is currently a non-resident partner of the Atlantic Council’s Latin America program, a member of FIESP’s Council of Strategic Affairs, and a member of the council overseeing of the journal Foreign Affairs (Mexico and the United States).
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