Nov 29 2024 | Nº. 145

Editorial

This week, the Brazilian Supreme Court, by order of Justice Alexandre de Moraes, unsealed the bombshell indictment of former president Jair Bolsonaro and members of his inner circle previously accused of conspiring against Brazilian democracy. The report details how the plot to assassinate President Luiz Inácio da Silva and other officials after the 2022 election was planned with Bolsonaro’s full knowledge and represented the culmination of longstanding efforts to discredit Brazil’s electoral system in preparation for a violent seizure of power. Bolsonaro has vehemently denied the accusations, claiming his actions were always within the bounds of Brazil's Constitution. He insists that he rejected any notion of a coup and stressed that if anyone had suggested such an idea to him, he would have dismissed it out of hand. Nevertheless, this indictment marks the third serious legal problem for Bolsonaro this year. If convicted, he could face decades behind bars.

In political terms, by reminding voters of the stakes of Brazil’s polarization, Bolsonaro’s issues should redound to Lula’s benefit. But the government faces its own challenges. On Wednesday evening, Finance Minister Fernando Haddad addressed the nation of television and radio to present the administration’s plan to trim government spending and raise revenues in order to balance the budget. The overriding goal has been to assuage market concerns about mounting fiscal deficits. The proposed package includes new auditing measures for social welfare programs, a change to how minimum wage increases are calculated, and limits to when and how members of the armed forces can retire and transfer their pensions to next of kin. Haddad also confirmed measures targeting so-called "super salaries" of a small number of government employees and a promise to fulfill Lula's campaign pledge to exempt individuals earning up to R$ 5000 per month from paying income taxes.

Rather than calm markets, Haddad’s announcement has apparently triggered a fresh round of concern, driving the dollar to its highest exchange rate with the Brazilian real ever. Most analysts attributed the surge to the ambitious tax exemption promise, which many say undermines Haddad’s message of fiscal responsibility. The tightrope Haddad must walk has become even narrower this week, reflecting the challenge of balancing Lula’s political priorities with the type of fiscal management that appeals to investors at home and abroad. It remains unclear whether Haddad—or anyone else—can deliver on these seemingly conflicting aims.

Highlights

• Abortion at risk. The Constitution and Justice Committee of the Chamber of Deputies (Brazil’s lower house) approved this Wednesday, November 28, with 35 votes in favor to 15 against, a proposed amendment to the constitution that, in practice, completely prohibits abortion in Brazil. If this amendment to the constitution is approved, Brazil will prohibit even abortions in cases of rape, which are currently considered legal by the Brazilian Supreme Court. The proposal, originally presented in 2012 by Congressman Eduardo Bolsonaro, son of former President Jair Bolsonaro, is considered a setback by organizations and movements who defend the right to abortion. To be approved, the amendment needs to receive a two-thirds majority in an open session on two separate occasions in both the Senate and the Chamber of Deputies.

• Political disinformation. The Brazilian Supreme Court began a trial on Wednesday, November 27 on a series of provisions of the Brazilian Civil Rights Framework for the Internet, which regulate aspects of freedom of expression and the functioning of social networks in the country. This debate had been taking place in Congress until it was halted by a stalemate among members of national legislature in 2023. The fact that the Supreme Court is taking responsibility for dealing with this matter could further strain relations between the judiciary and the most conservative sectors of the Brazilian legislature, who complain about what they consider to be undue interference by the Supreme Court. Another tension is that involving the judiciary and big tech companies.

• Agricultural protectionism. French farmers protested this week against the possibility of the approval of a trade agreement between the European Union and Mercosur. Following the demonstrations, Alexandre Bompard, the Global CEO of the Carrefour brand, announced that his supermarkets would no longer sell Brazilian meat. In response, Brazilian meatpacking plants cut off supplies to the chain's stores throughout the country. The Brazilian government supported the producers' reaction, and Congress threatened to vote on reciprocal measures in relation to France. The tug-of-war highlighted the sensitive points in the search for a trade agreement between the two markets.

• Militarization of security. The Military Police occupy a disproportionately large space in the budget of state governments in the area of ​​public security. A survey conducted this year shows that almost 60% of state resources in the sector are allocated to the Military Police, who are responsible for overt policing. The Civil Police and the technical-scientific police, which perform the functions of judicial policing, investigation and solving crimes, together account for 30%. The data reveal a preference for the branch of the police most associated with confrontations and deaths, which fall mainly on Black, poor and other populations living in the outskirts of cities, to the detriment of intelligence and investigation.

News from the WBO, Organizations and Social Movements

Dom and Bruno. A group of Brazilian civil society organizations, including the WBO, achieved an important victory by getting the Inter-American Commission on Human Rights to recommend that the Brazilian State effectively implement precautionary measures to protect Indigenous defenders from the Javari Valley in the Amazon, with a focus on territorial security, accountability for crimes, and promoting the memory of Bruno Pereira and Dom Phillips, who were murdered in the region in 2022. Read the full statement at the link.

Delegation to Washington. The CIPÓ Platform, in partnership with the WBO and the Secretariat for Institutional Relations of the Presidency of the Republic, will be carrying out a visit by Brazilian congressional members to Washington from December 4 to 6. The agenda includes addressing attacks on democracy, climate action, and sustainable development. The group will participate in meetings with U.S. congressional members, including Bernie Sanders, as well as the Inter-American Development Bank, the World Bank, and the Inter-American Commission on Human Rights. During the delegation's trip, the policy brief “Congressional Diplomacy for Climate Action and Sustainable Development: Challenges and Opportunities” will be launched, produced by the CIPÓ Platform, with support from the Heinrich Böll Foundation and the Climate and Society Institute. Click on the link to learn more.

No amnesty. The Brazil Office is one of the organizations that signed the campaign calling for the amnesty bill for crimes committed against the democratic rule of law to be shelved. The amnesty bill may be taken up again by the Special Committee of the House of Representatives at any time. The pressure on the Speaker of the House, Arthur Lira, is enormous, and the organizations believe that this is the definitive moment to prevent this bill from moving forward before the end of the year. Click on the link to learn more and sign.

Associate researchers. WBO Research Fellow Guilherme Casarões published the article “Bolsonaro May Need his ‘Trump Card’” in Americas Quarterly. Jana Silverman, a former WBO Research Fellow, discussed “The World in the Time of Trump” in a live broadcast of Manifesto Petista, available at the link.

Event in São Paulo. The Social Network for Justice and Human Rights will celebrate its 25th anniversary with the launching of the book Human Rights in Brazil – 2024 on December 4th, starting at 6:30 pm, at SESC Consolação in São Paulo. The event will be accompanied by a musical show. Admission is free, but tickets must be reserved online, on the SESC website or in person, at SESC itself.

Feature Article

Public Banks and Financing the Climate Transition

By  Rafael Giovanelli* and Sergio Leitão**

“If this is the case, shouldn’t we charge a higher price for capital from banks that do not have green investments?” This is the phrase by Roberto Campos Neto, president of the Central Bank in a lecture given on November 9, 2024, in Switzerland at an event of the Bank for International Settlements, which functions as a kind of central bank for central banks, including guiding regulatory practices. On that occasion, Campos Neto highlighted the importance of financing in the transition to a low-carbon economy, advocating the incorporation of climate issues into the mandates of national financial authorities, in addition to making criteria more expensive for banks that do not finance sustainable activities, requiring larger reserves to generate credit operations, as the above sentence indicates.

The direction indicated by the president of the Brazilian Central Bank for tackling the climate emergency is correct. In fact, it is necessary to improve the regulation of the financial system so that it is possible to transform financing portfolios and the resources that today drive businesses based on deforestation or fossil fuels are redirected to sustainable and profitable activities, such as renewable energy or biodiversity production chains. Brazil can show the world that this is possible by reforming national laws on public funds and development banks to unlock, with the money we already have, a low-carbon economy. In this cutting-edge strategy, we would return to society a new decarbonized production model.

For example, 3% of the revenue from income tax and industrialized products is annually directly allocated to the Constitutional Funds for Financing the North (FNO), Northeast (FNE) and Central-West (FCO), which are responsible for inducing the development of each of these regions. For 2024 alone, the programming of these Funds was expected to be more than R$60 billion. The Banco do Brasil administered R$11 billion, Banco da Amazônia (Basa), R$13 billion, and Banco do Nordeste (BNB), R$37 billion. However, most of these resources are not directed towards a low-carbon economy.

Between 2020 and 2024, when administering the FNE, Banco do Nordeste (BNB) allocated, on average, 15% of the resources to FNE Rural, a program that supports agricultural activities, including the suppression of native vegetation in the Caatinga and Cerrado. More than R$22.5 billion were earmarked for this program, while the amounts earmarked for bioeconomy, forestry activities, and agroecology did not reach, together, 0.1% of the Fund's annual budgets in that same period. The amounts earmarked for the recovery of degraded areas and the development of sustainable activities were below R$30 million per year, an amount insufficient for sustainable activities to compete with carbon-intensive businesses.

In addition, rural credit operations entail considerable risks for environmental conservation, requiring extra care from public banks. Between 2020 and 2023, deforestation in the Cerrado jumped from 7.9 thousand km² to 11 thousand km², an increase of 40%, making it the most devastated biome in the country. This increase was driven by the expansion of the soybean frontier in Matopiba, a region that occupies areas of agricultural expansion in the states of Maranhão, Tocantins, Bahia, and Piauí.

In 2022, the Banco da Amazônia (Basa) allocated R$9 billion from the FNO to agriculture, equivalent to 76% of its contracts. Pará and Rondônia received R$5.3 billion and together accounted for half of the deforestation in the Amazon rainforest that year. This scenario requires careful diligence from financial institutions in their credit operations, after all, it is necessary to ensure that public funds are not used in activities that advance the arc of deforestation and worsen the climate crisis.

But we need to go beyond concern for environmental risks to achieve the climate transition: we need a profound change in the portfolios of development banks. The assumption is that there are more resources driving sustainable businesses than resources driving carbon-intensive activities. In other words, we need definitions on amounts, timelines, and goals for redirecting public money. Granting small amounts is not enough. Meanwhile, most of the budget of hundreds of billions of reais of BNDES, Basa, and BNB remained dedicated to sources of greenhouse gas emissions, a transition that has not been completed.

But we need to go beyond just addressing environmental risks to achieve climate transition: we need a profound change in the portfolios of development banks. The assumption is that there will be more resources driving sustainable businesses than resources driving carbon-intensive activities. In other words, we need to define values, timelines and goals for redirecting public money. Granting small amounts is not enough. As long as most of the budget of hundreds of billions of reais of BNDES, BASA and BNB remains dedicated to sources that emit greenhouse gases, the transition will not happen.

A good proposal to correct these dysfunctions in public financing was presented in Complementary Bill No. 176/2024 by Federal Deputy Nilto Tatto (PT/SP). According to the project, by 2030, 60% of the financing portfolios of BNDES, Basa, BNB and BB should be allocated to sustainable activities, reaching 100% by 2045. Public financing should prioritize projects in renewable energy, forest restoration, agroecology, adding value to the exploitation of biodiversity, among other sustainable activities. Loans of public money to businesses that depend on new deforestation or that produce more fossil fuels would be prohibited.

Financing the climate transition was also a central theme at COP-29, held in Baku, Azerbaijan. Great expectations were created about a new global financing target, with consistent support from developed countries to developing countries in tackling climate change. Brazil, however, does not need to wait for international aid to do its part. We can move forward with national resources through development banks. Public money, whose function is to induce growth, is crucial to financing the climate transition and building a new economy. It takes courage and determination to redirect it. This is the promising path we need to follow from now on.

*Rafael Giovanelli is Research Manager at Instituto Escolhas

**Sergio Leitão is the Executive Director of Instituto Escolhas.

Feature articles express the opinions of the author and do not necessarily reflect the opinions of the editors or WBO.