February 2019 Brazil Political Risk Score by Mark Langevin

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The February 2019 Brazil Risk Score Is 4

And Represents High Country Risk

·       Misery Index/Stable Performance

·       Formal Employment Index/Poor Performance

·       Economic Activity Index/Stable Performance

·       Homicide Rate/Stable Performance

·       Presidential Approval/Stable Performance

The February 2019 Brazil Risk Score of 4 represents higher risk than last month because of the poor performance of formal job creation lack of improvement in economic activity, the homicide rate and presidential approval. The Central Bank’s measure of economic activity showed a very modest increase but this was canceled out by poor job creation. Globo’s Monitor da Violência has not been updated from its last September 2018 measure, but state by state reports show an uneven pattern of improved performance in some states, such as Mato Grosso do Sul and Pernambuco but poor performance is Rio de Janeiro. For now we are scoring the homicide rate as stable, 1.8 per 100,000 until more accurate data is made public. Last, the presidential approval rating is unchanged. Presidential approval was not measured in February, and President Bolsonaro spent much of the month recuperating from surgery. Now that his is back to work and his congressional agenda under intense deliberation it is likely that polls will be conducted in the coming month. For now we score approval as stable.

The high score of 4 returns to the recent mode observed between October to December 2018 and lies close to the series average of 4.75 since July 2018.

Pumping Up Brazilian Oil and Gas Production in 2019 by Mark Langevin

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Brazil has turned a corner. The country is on a path to ramp up oil and gas production to propel the economy forward. The blocks have been auctioned, the contracts signed, and productive investments are coming on line. Remarkably, more blockbuster auctions are coming. Many of us have been writing about the prospects of the pre-salt petroleum bonanza for some time, but it will become undeniable in 2019. The ninth largest producer of liquid fuels is a hop, skip and a jump away from entering the top tier of crude oil producers.

Brazil’s 2018 elections consolidated the political movement to liberalize energy production and distribution. The country’s compounding political and economic crisis may not be over yet, but oil and gas production will increase by significant increments in the coming years and push Brazil over the top to become a major world producer. The ultradeep offshore pre-salt fields now produce more than a half of the country’s oil and gas. The pre-salt exploration and production (E & P) will increase as a proportion of national production but will also accelerate growth behind the increasing deployment of productive investments in the abundant oilfields of the Santos Basin. Pumping up oil and gas production will continue to depend on Petrobras but expect increasing numbers of IOCs and Brazilian private firms to join the push.

The new government of conservative-nationalist president Jair Bolsonaro and his allies support downstream oil and gas liberalization and signal their intentions to move ahead with the previously scheduled  blockbuster pre-salt auction rounds slated for 2019, 2020 and 2021. The left leaning national-developmentalist crowd, previously led by the Workers Party (PT) of former presidents Lula and Dilma Rousseff, are searching for a refreshed image and are considering options to slow down the new government’s plan to downsize government and open the doors to foreign direct investment in downstream oil and gas refining and distribution. This source of opposition may complicate Petrobras’ plans to sell off majority stakes in pipeline subsidiaries and refinery installations, but the move to liberalize will make advances in the coming 24 months. Moreover, E & P liberalization will deepen because the non-recurrent revenues streaming from the gigantic signing bonuses of the pre-salt auctions and the ensuing royalties can play a pivotal role in rectifying Brazil’s fiscal crisis at all levels of government. It is unlikely that anyone, even the Workers Party (PT) and the Federation of Petroleum Workers (FUP), can stop energy policy liberalization in the current fiscal and political context.

Oil and Gas Production

The Brazilian government, including the National Petroleum and Biofuels Agency (ANP), is actively pushing up oil and gas investments in the most promising oilfields with diminishing list of political and regulatory obstacles. Today, the highest producing oil and natural gas wells are all offshore and increasingly in the ultradeep-water pre-salt Lula and Sapinhoá fields in the Santos basin and the Jubarte field in the Campos basin. The evident abundance of the Santos fields now trigger ever greater E & P investments and deployment of commercial production assets, including a record number of FPSOs.

The 2018 numbers disappoint, but the trend is outstanding. Brazilian crude oil production dropped by 1% last year, due in large measure to delays in the deployment of equipment, but pre-salt production continued to march upwards to 1.888 Mboe/d and nwo comprise 55.4% of total national oil and gas production. The Lula oilfield in the Santos basin now leads with some 987 Mbbl/d of crude oil and 38.5 MMm3/d of natural gas. Marlim Sul of the Campos basin features the most offshore producing drill rigs at 88, but the most productive wells are in the Lula field. For example, the Lula field wells 7-LL-27-RJS, 9-LL-12D-RJS, and 9-LL-2-RJS and the 7-SPH-17-SPS in the Sapinhoa field now produce over 39,000 boe/d each. In 2017 only two wells produced over 30,000 bbl/d of crude oil, but in 2018 this number reached seven. Also, the FPSO Cidade de Maricá located in the Lula field is the largest floating crude oil producer with 5 interrelated well producing 150,620 bbl/d, followed by the Cidade de Ilha Bela and Petrobras 58. Brazilian offshore oilfields now host 27 FPSOs. The caravan of FPSOs headed toward the Santos basin will push production over the top during the new government’s term in office (2019-2022).

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These recent increases in the number of high productivity wells and FPSOs spurred on increasing production levels in December of 2018 to reveal a measurable trend moving forward. December’s month on month increase was 4.8% and 3 percent in comparison to December 2017. Natural gas production is also expanding at more modest levels with a month on month increase of 1.2 percent and an overall annual growth rate of 1 percent.

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48 E & P firms now operate in Brazil. Petrobras remains the largest oil and gas producer, recording national production of 2.556 boe/d in 2018. Petrobras also operates 16 of the largest 20 oilfields and 19 of the 20 principal natural gas operations. Shell Brasil follows with 414,438 boe/d with Petrogal Brasil in third place with 114,561 boe/d. Repsol Sinopec, Equinor Energy and Equinor Brasil, Sinochem Petroleo, Queiroz Galvão, Total E & P Brasil, Dommo Energia, Chevron, and PetroRio O & G follow. The numbers of E & P firms operating in Brazil is expected to grow as the risks decline and ANP’s permanent “open acreage” auction system gains traction among smaller firms.

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Production increases in the coming years will be propelled by the deployment of drilling vessels, production platforms, and FPSOs deployed to the rich Santos pre-salt fields, but recent and future pre-salt auctions will drive Brazil toward the top ranks of oil and gas producers during the next decade. The speed of Brazil’s oil and gas ramp up depends on world price scenarios and production costs, but the writing is on the wall.

Recent Pre-Salt Auction Rounds

Last year’s 5th pre-salt production sharing auction round offered up four blocks worth $1.705 billion USD in signing bonuses and a commitment of US$250 million in planned investments in the exploratory phase. Bidders raised the government’s take on profit oil by 170% of the minimum established by the ANP. The table below reports the blocks, signing bonuses and profit oil offers. The most interesting result of the auction was the absence of strong bidding by Petrobras. The company won the rights to the Campos basin Sudoeste de Tartaruga Verde block with a minimum trigger ever larger profit oil bids but was shut out from the more promising fields tendered in this bidding round. Shell Brasil, Chevron, ExxonMobil, and BP Energy came away with the largest stakes by jacking up their profit oil bids. Also, QPI Brasil, EcoPetrol and CNOOC tagged along as junior consortia partners. These results indicate that E & P liberalization through regularly scheduled bidding rounds over the pre-salt fields is increasing confidence and triggering massive investments by the major IOCs and significant investments by a growing number of E & P operators in general. These results should not lead anyone to conclude that Petrobras is retrenching from pre-salt E & P, but that the size and falling production costs of these offshore reservoirs are near the center-stage of global oil and gas production.

Table: 5th Pre-salt Auction Round Results

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 The upcoming 6th pre-salt auction round scheduled for November 1, 2019 could place Brazil at the forefront of every IOC investment plan for a decade. The upcoming round features five blocks, 3 of which Petrobras has already registered its preference to hold a 30% stake. The company will apply its preference option on:

  • the Aram block with a $1.36 billion USD signing bonus and a minimum government profit oil take of 24.53%;

  • the Sudoeste de Sagitário block with a signing bonus of $135 million and a minimum profit oil bid of 26.09%;

  • and the Norte de Brava block with a $162 million and a minimum profit oil bid of 36.98%.

The remaining two blocks, Bumeranque and Cruzeiro do Sul, come with signing bonuses of $148 million and $310 million respectively.

Prospects for the 6th Pre-salt Auction Round

The sixth pre-salt bidding round features the continued central role of Petrobras as the prime pre-salt E & P operator, but also opens the door to such IOCs as BP, Chevron, Equinor, ExxonMobil, and Shell to raise the stakes. The auction round offers Shell the opportunity to consolidate its second position in the ranking of oil and gas producers in Brazil, but it also opens the door to one of the other companies to seize the moment and place its own future in the Santos basin’s ultra-deep-water pre-salt reservoirs for decades to come. Moreover, the final resolution of the 2010 Transfer of Rights (TOR) agreement between the government and Petrobras could launch even bigger opportunities for IOCs and thereby accelerate Brazil’s emergence as a top tier oil and gas producer.

The transfer-of-rights legislation (PL8939/17) would activate this process by allowing for the auction of “excess” oilfields not contemplated under the original 2010 agreement between the government and Petrobras. Congress is now considering approval of PL 8939/17 with amendments to frame a resolution to the current impasse between the federal government and Petrobras over the 2010 accord. However, the new administration faces notable political obstacles to passage, including addressing the fiscal concerns of Brazilian state and municipal governments.

In 2010, the government announced a plan to sell off a record number of Petrobras shares and struck an agreement with the company to develop and produce 5bn boe from the pre-salt fields. Petrobras paid $42.5bn for the rights, valued at $8.50 per undeveloped barrel of oil at that time. The agreement permits renegotiation depending on the commercial viability and value of the fields in question. According to estimates by the government-hired independent consultancy Gaffney, Cline & Associates, this excess oil could amount to 9-15bn barrels of recoverable hydrocarbons. If tendered, these oilfields could reap over $30bn in signing bonuses for the federal government as it tries to close the budget deficit and bail out failing states and municipal governments.

Congressional approval for the transfer of rights related auction is one of the government’s top 35 priorities for the first 100 days. Mines and Energy minister Bento Albuquerque remarked that he would focus on seeking passage of TOR legislation to trigger both the final agreement between the government and Petrobras as well as the scheduling for a special pre-salt auction round later in 2019. The final agreement between the government and Petrobras could result in a $14 billion USD payment to the company. The minister noted that the auction (possibly the first among several) could be held in the second half of 2019 and the government’s take would play an important role in smoothing out the impending and very difficult fiscal adjustment. The ANP estimates that a final agreement could surrender up 17.2 billion boe for future auctions.

The move to resolve the TOR agreement once and for all is also accompanied by congressional efforts to eliminate the production sharing regime, or at least provide the National Energy Policy Council (CNPE) with the option to use either concession or production sharing contracts given each tendered block. Last year federal deputies Mendonça Filho (DEM) of Pernambuco and Eli Correa (DEM) of Sao Paulo introduced legislation, PL 1191/2018 and PL 11211/2018, aimed at eliminating the pre-salt polygon production sharing auctions. Mendonça Filho also introduced PL 11192/2018 to eliminate the production sharing regime altogether and allow existing PS contracts to be converted into concessionary agreements. This legislative strategy may end up distracting policymakers away from the task of passing the TOR legislation, but it does open up the possibility of enacting greater flexibility for the government to decide between concession and PS contracts in future auctions.

Priming the Pump

The Brazilian government is lucky. Policymakers do not need to do too much now to attract E & P investment, just keep on the policy path and make the necessary rule changes to mitigate the risks and maximize the return to Brazil and its citizens. Some argue, including former presidential contender Ciro Gomes (PDT), that the liberalization of the pre-salt production limits Brazil’s developmental opportunities. This penchant places great burden on Petrobras and understates the developmental potential of a mixed E & P profile that features Petrobras, the largest IOCs, and dozens of smaller companies that rely on innovation to scale the value chain. Populating the value chain and increasing the competition over resources and markets may also prime the pump of development in Brazil. The sheer reach of E & P investment in the coming decade will set Brazil apart and create a value chain rich in opportunities and jobs. The Brazilian government should work with all stakeholders to guarantee that Brazilians get their fair share of these opportunities and jobs through investment and merit. Increasing opportunities and jobs may never eliminate Brazilians opposition to the complete privatization of Petrobras but pumping up the country’s oil and gas production will provide the political foundation for future increments of liberalization. The real question is whether Petrobras remains content with its central role in E & P, or whether it parlays its gains from the pre-salt production into innovative, low carbon energy production-systems that will transform Brazilian development in the long term.

January 2019 Brazil Risk: Moderate Rating by Mark Langevin

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The January 2019 Brazil Risk score Is 7 And Represents Moderate Country Risk.

  • Misery Index/Improved Performance

  • Formal Employment Index/Improved Performance

  • Economic Activity Index/Stable Performance

  • Homicide Rate/Poor Performance

  • Presidential Approval/Improved Performance

The January 2019 Brazil Risk score indicates improvement or stable performance on the key economic indicators as well as improved performance on presidential approval given the election of Jair Bolsonaro in last October’s second round presidential election and the subsequent high level approval of his transition in November and December of 2018 (up to 75% of respondents approved of the transition as measured by the IBOPE/CNI December 2018 poll). President Bolsonaro’s honeymoon with voters may not last if the economy, especially unemployment, continues to lag behind expectations and crime continues to shape citizens’ evaluations of their government leaders. The homicide rate continues to climb in the months surrounding the election and transition to a new federal executive. This singular indicator is troublesome and may persuade the Bolsonaro administration to take active, legally dubious measures to mitigate violent crime. The recent outbreak of violence in the state of Ceará underscores the policy challenge and the importance of this variable in shaping political development and ultimately Brazil’s country risk in the coming months. Taken together, these indicators suggest a moderate level of country risk in January 2019.

Methodology

Each of the five monthly indicators is scored on a discrete scale: 0 for poor performance, 1 for stable performance, and 2 for improved performance. The scores are totaled for a measure on a scale of 0 to 10 with the former representing the absence of economic and political stability (higher country risk) and the latter representing economic expansion and stability (lower country risk).

The presidential approval is scored as 0 for approval between 0 and 40%, 1 for 41 to 60%, and 2 for approval exceeding 61%. For example, in November of 2018 then president Michel Temer’s approval (excellent or good) was 4% and therefore scored 0.

Risk Scale

Low - 8-10

Moderate - 5-7

High - 3-4

Very High - 0-2

Elections, Abstention, and Democracy in Brazil by Mark Langevin

Brazil confronts a pivotal general election for president, congress, and state governors and legislatures in October. Nearly all voters deride the body politic, but few agree on who might be best suited to place Brazil on the right track. Pundits and political activists savor the uncertainty and excitement of the campaign season, but increasing numbers of Brazilian voters abhor their choices and question the legitimacy of their governing institutions. Brazilian democracy faces a reckoning of historic proportions.  The politics of retribution and political tribalism are in full bloom, generously fertilized by the impeachment of former president Dilma Rousseff of the Workers Party in 2016 and the ensuing trial and conviction of former president and Workers Party leader Luiz Inácio Lula da Silva on corruption charges earlier this year. Despair and disgust frame the conversations of Brazilians as they consider who might be the best president of the country at such a difficult time. A third of voters want Lula to return to the presidency, a third claim he is a criminal and the cause of  Brazil’s compounding crisis , and a third may choose to ignore the political process altogether. In the end, voters who abstain may play the determining factor in who wins and who loses.  Voting is mandatory in Brazil, so those who wish to abstain can cast null ballots or simply fail to show up and try to “justify” their absence or pay a meager fine. Brazil’s participation rate is high by most standards, but the 2016 municipal elections revealed an accelerating, albeit unorganized movement to abstain. The abstention rate, including blank and null ballots, for the second round of the  2014 presidential election  reached 27 percent. The rate increased to 32.5 for the second round of the  2016 mayoral elections . In recent polling, 43 percent of respondents planned to abstain or were undecided. Some will eventually cast a valid vote, but the second round of the presidential election may trigger a measurable jump in abstention. Normally abstention rates drop during the second round of the presidential election, but this year’s contest may be different.  The winning candidate on October 28th may receive fewer votes than the number of Brazilians who abstain because the leading candidates suffer from very high rejection rates. These high levels of disapproval could push abstention in the second round well beyond a third of the voting age population (VAP). This possibility threatens to further erode political accountability between elected officials and the citizens.  Given this possibility, candidates must decide how best to galvanize and mobilize their base supporters while encouraging undecided or unconvinced voters to sit on the sidelines rather than decide to vote for their opponents at the last minute.  The spectacle of high abstention in the case of the Brazilian presidential election’s second round voting between the top two finishers of the first round will unhinge flame throwers and mud slingers, mostly from followers and through social media. Brazilian law forbids candidates and campaigns from making false statements against their opponents, but legal standards will not stop those who benefit most from the politics of abstention.  Campaigns angling for higher abstention do not need high priced marketing firms, it is enough, even better to unleash their zealous followers on social media to attack opponents (just as United States President Donald Trump carried out in the 2016 U.S. presidential campaign). Yes, the tactic can backfire and heighten opposition to candidates using such blunt tools, but it can just as easily pave the way to victory. It is a strategic decision, a campaign commitment to alienate voters and depress turnout at the ballot box.  Abstention can elect candidates, but it also undermines the winner’s legitimacy. Whoever wins in October could be burdened with this form of collateral damage, but most candidates are willing to deal with this outcome later. In the heat of the campaign they make decisions about how to use voters’ despair, disgust and distrust to win the election.   In Brazil these factors contour the electoral landscape and could decide the outcome of the second-round voting of the presidential election because it permits candidates who cannot attract a majority of the VAP to win by plurality. While there are thirteen registered presidential candidates, seemingly a candidate for every voter, abstention may also play a role in deciding the outcome of the first round on October 7. At this point all of the principle candidates (listed below) have very high disapproval ratings that surpasses their electoral possibilities.  According to  Poder360 , 65 percent of voters who know of Jair Bolsonaro would never vote for him. Far fewer voters know who Fernando Haddad is, but 57 percent that do would not vote for him. Alckmin, Ciro and Marina all share the same level of name recognition with rejection levels of 56, 63, and 60 percent respectively. The principle candidates share high rejection levels, but there are few signs that someone from the back of the pack, say Alvaro Dias of the Podemos party, can jumble the electoral scenario.    If candidates cannot lower their rejection levels, then who stands a better chance of winning the presidency given a high rate of abstention?   Each candidate faces different sets of challenges and opportunities with respect to anticipated high levels of abstention. Below are brief analyses of the principal candidates and their approach to abstention.   1.  Jair Messias Bolsonaro     Social Liberal Party (PSL)   So far, conservative-nationalist  Jair Bolsonaro  has made the most of this scenario because of his adroit use of social media to rivet and inspire his base of young, educated (mostly white) male voters who share his prejudice against women, Brazilians of color, and the LGBT community while adoring his  rant and rave populist style . Bolsonaro’s strategy rests on dividing the population between those who praise him (and refer to him as the “Myth”) and those he tries to scapegoat for Brazil’s assortment of economic and political setbacks (such as the political establishment supporting Geraldo Alckmin and Lula’s Workers Party). He attempts to appear as an outsider, despite his nearly three decades as a federal deputy, and works constantly to “share” voters’ contempt for Brasilia. He often uses violent rhetoric to connect with his supporters, most of whom share his outlook, propensity for authoritarianism, and violent vocabulary in social media posts.  Bolsonaro attracted more votes than any other candidate for federal deputy of Rio de Janeiro in 2014 because of his expertise in using social media to identify and organize a devout community of supporters. Also, he used his fame and social media reach to help elect his three sons to office. However, Bolsonaro has never run for executive office.  Rather, he has only mobilized small pluralities of voters to win election in Rio de Janeiro. He now faces a much more challenging electoral calculus that forces his campaign to simultaneously increase the number of devoted followers while pushing the buttons of voter alienation and abstention. He is unlikely to convince half of the Brazilian VAP to support his mudslinging campaign, but he could squeeze through a second round with historic levels of abstention. Indeed, Bolsonaro hopes to square off with the Workers Party candidate, be it Lula or Fernando Haddad, to polarize, alienate, and move as many voters as possible to the sidelines. His path to victory depends on a 35 percent or more level of abstention.  He is the candidate of abstention.   2.  Fernando Haddad  (in lieu of Lula)          Workers Party (PT)   The Workers Party candidate counts on strong pillars of electoral support from labor and social movements, well organized public-sector workers, small family farmers and rural workers, and the Northeast region.  Haddad’s re-election campaign as mayor of the city of Sao Paulo failed miserably, but he stands a favorable chance of making it to the second round with Lula’s express endorsement. The Workers Party expanded its base support in the 2006 and 2010 presidential elections, but has since fallen on its sword with fewer electoral victories at the state and municipal levels. Haddad and his party cannot dissuade Bolsonaro voters or induce them to abstain, but they can throw mud on other candidates to depress the number of valid votes in the first round. Such an effort would be directed at Geraldo Alckmin, but might also include more nuanced attacks on Marina Silva and Ciro Gomes. Such a strategy might assure Haddad’s place in the second round, but play right into Bolsonaro’s underlying mission to depress second round voting. Rather than push abstention, Haddad’s campaign will tread lightly to lower his rejection levels in anticipation of making it to the second round. However, this strategy depends on Haddad preserving his second place approval status in opinion polling during the next month.   3.  Geraldo Alckmin     Brazilian Social Democratic Party (PSDB)   Geraldo Alckmin is in a pickle. He enjoys the support of the Brazilian political establishment and economic elite, but inspires little confidence among voters. His long experience as governor of the state of Sao Paulo demonstrates that he is a competent public administrator who also suffers from the same evils of nearly all major politicians in Brazil, complicit associations with kickback corruption. Alckmin’s record and alliance with the legislative centrão or “big center” places him at a disadvantage in an election framed by voter despair, disgust and distrust for career politicians. He is an uninspiring, stained candidate who earned a spot in the second round of the 2006 presidential contest only to lose votes in the run-off with Lula. How can Alckmin win if most voters are disgusted with the political establishment and suspicious of economic leaders who speak of cutting back on public services and reducing workers’ employment rights?  Alckmin’s path toward victory is very narrow and necessarily passes through both Bolsonaro and Haddad.  Rather than alienate, he must convince the undecided that he is the solution to the country’s political polarization and instability. Alckmin is the candidate of stability, but this is unlikely to please those considering the option to abstain.   4.  Ciro Gomes     Brazilian Democratic Labor Party (PDT)   Ciro Gomes failed to galvanize significant political alliances to thrust his candidacy toward the center-stage of the presidential campaign season, but he is seeking to cut through the politics of polarization and the prevalence of despair and disgust shared among most voters. Gomes hallmarked his campaign by claiming he will relieve the debts of the 63 million Brazilians listed on the  SPC , the bad credit list. It is a gimmick, but it also dramatizes the candidate’s priorities of rebooting the economy by restoring credit and consumer demand among the nation’s working families. In times of sluggish growth, high unemployment, and astronomically high credit card interest rates, Ciro might be on to something. The gimmick appeals to bread and butter voters who have fallen on hard times and lost their credit. Millions of Brazilians voters share this experience and are considering abstention.   This clever campaign move engages relevant voters with an instrumental decision; do you want better credit? Expect some to respond at the ballot box. This constitutes a mobilizing, anti-abstention strategy that effectively sidesteps the polarization between Bolsonaro and the Workers Party candidate, and then attempts to flip undecided, uninspired voters.   5.  Marina Silva     Sustainability Network (Rede)   Marina Silva’s third run at the presidency does not inspire. She was the surprise candidate of the 2010 election, but disappointed in the 2014 campaign by failing to make it to the second round against incumbent Dilma Rousseff. In 2018 she suffers from anemic organizational capacity and a shrinking base of support that looks like it tops at around 10 percent. She could benefit from abstention coupled with candidate fragmentation in the first round, but these same conditions might undermine her second round performance, especially given the bigger electoral support base of Bolsonaro and Haddad at this point. Her path is complex and includes getting to the second round by just squeezing by the third and fourth place candidates with some 12-13 percent of the vote, then negotiating a “big alliance” with Alckmin’s “big center” to mobilize the political establishment to endorse her in the second round campaign. At this point Marina Silva does not present a strategy to directly confront the possibility of high abstention as Ciro Gomes has done. She has the vision and the credibility to win, but lacks the vigor of a candidate willing to mobilize new sets of voters or throw enough mud at the leading candidates.   The Costs of Abstention   Vibrant democracies capable of overcoming economic, political and social bottlenecks through majoritarian-based reforms require ample political participation and voter turnout to legitimize the mandates of those who win elections and must carry the burden of change. Brazil needs more participation and voter turnout to propel the next government to overcome the entrenched interests and reform the failed institutions of governance and public service delivery. This campaign season features dozens of political parties, some old and some new, and a full set of presidential candidates, many qualified and committed to advancing Brazil through their particular set of policy priorities. Candidates deserve attention, scrutiny, and each voter’s decision to support or reject their proposals at the ballot box. The looming spector of abstention threatens Brazilian democracy and should become a major issue for political debates and media reporting.  The movement to abstain, although understandable, automatically casts indirect votes for those that win elections. Abstention undermines the legitimacy of public institutions and fuels the authoritarian inclinations of those who herd pluralities rather than cultivate majorities. Abstention stems from the problems that plague Brazilian democracy, but it is not a solution. Abstention charges measurable costs. Vote.   

Brazil confronts a pivotal general election for president, congress, and state governors and legislatures in October. Nearly all voters deride the body politic, but few agree on who might be best suited to place Brazil on the right track. Pundits and political activists savor the uncertainty and excitement of the campaign season, but increasing numbers of Brazilian voters abhor their choices and question the legitimacy of their governing institutions. Brazilian democracy faces a reckoning of historic proportions.

The politics of retribution and political tribalism are in full bloom, generously fertilized by the impeachment of former president Dilma Rousseff of the Workers Party in 2016 and the ensuing trial and conviction of former president and Workers Party leader Luiz Inácio Lula da Silva on corruption charges earlier this year. Despair and disgust frame the conversations of Brazilians as they consider who might be the best president of the country at such a difficult time. A third of voters want Lula to return to the presidency, a third claim he is a criminal and the cause of Brazil’s compounding crisis, and a third may choose to ignore the political process altogether. In the end, voters who abstain may play the determining factor in who wins and who loses.

Voting is mandatory in Brazil, so those who wish to abstain can cast null ballots or simply fail to show up and try to “justify” their absence or pay a meager fine. Brazil’s participation rate is high by most standards, but the 2016 municipal elections revealed an accelerating, albeit unorganized movement to abstain. The abstention rate, including blank and null ballots, for the second round of the 2014 presidential election reached 27 percent. The rate increased to 32.5 for the second round of the 2016 mayoral elections. In recent polling, 43 percent of respondents planned to abstain or were undecided. Some will eventually cast a valid vote, but the second round of the presidential election may trigger a measurable jump in abstention. Normally abstention rates drop during the second round of the presidential election, but this year’s contest may be different.

The winning candidate on October 28th may receive fewer votes than the number of Brazilians who abstain because the leading candidates suffer from very high rejection rates. These high levels of disapproval could push abstention in the second round well beyond a third of the voting age population (VAP). This possibility threatens to further erode political accountability between elected officials and the citizens.

Given this possibility, candidates must decide how best to galvanize and mobilize their base supporters while encouraging undecided or unconvinced voters to sit on the sidelines rather than decide to vote for their opponents at the last minute.  The spectacle of high abstention in the case of the Brazilian presidential election’s second round voting between the top two finishers of the first round will unhinge flame throwers and mud slingers, mostly from followers and through social media. Brazilian law forbids candidates and campaigns from making false statements against their opponents, but legal standards will not stop those who benefit most from the politics of abstention.

Campaigns angling for higher abstention do not need high priced marketing firms, it is enough, even better to unleash their zealous followers on social media to attack opponents (just as United States President Donald Trump carried out in the 2016 U.S. presidential campaign). Yes, the tactic can backfire and heighten opposition to candidates using such blunt tools, but it can just as easily pave the way to victory. It is a strategic decision, a campaign commitment to alienate voters and depress turnout at the ballot box.

Abstention can elect candidates, but it also undermines the winner’s legitimacy. Whoever wins in October could be burdened with this form of collateral damage, but most candidates are willing to deal with this outcome later. In the heat of the campaign they make decisions about how to use voters’ despair, disgust and distrust to win the election. 

In Brazil these factors contour the electoral landscape and could decide the outcome of the second-round voting of the presidential election because it permits candidates who cannot attract a majority of the VAP to win by plurality. While there are thirteen registered presidential candidates, seemingly a candidate for every voter, abstention may also play a role in deciding the outcome of the first round on October 7. At this point all of the principle candidates (listed below) have very high disapproval ratings that surpasses their electoral possibilities.

According to Poder360, 65 percent of voters who know of Jair Bolsonaro would never vote for him. Far fewer voters know who Fernando Haddad is, but 57 percent that do would not vote for him. Alckmin, Ciro and Marina all share the same level of name recognition with rejection levels of 56, 63, and 60 percent respectively. The principle candidates share high rejection levels, but there are few signs that someone from the back of the pack, say Alvaro Dias of the Podemos party, can jumble the electoral scenario. 

If candidates cannot lower their rejection levels, then who stands a better chance of winning the presidency given a high rate of abstention?

Each candidate faces different sets of challenges and opportunities with respect to anticipated high levels of abstention. Below are brief analyses of the principal candidates and their approach to abstention.

1. Jair Messias Bolsonaro

Social Liberal Party (PSL)

So far, conservative-nationalist Jair Bolsonaro has made the most of this scenario because of his adroit use of social media to rivet and inspire his base of young, educated (mostly white) male voters who share his prejudice against women, Brazilians of color, and the LGBT community while adoring his rant and rave populist style. Bolsonaro’s strategy rests on dividing the population between those who praise him (and refer to him as the “Myth”) and those he tries to scapegoat for Brazil’s assortment of economic and political setbacks (such as the political establishment supporting Geraldo Alckmin and Lula’s Workers Party). He attempts to appear as an outsider, despite his nearly three decades as a federal deputy, and works constantly to “share” voters’ contempt for Brasilia. He often uses violent rhetoric to connect with his supporters, most of whom share his outlook, propensity for authoritarianism, and violent vocabulary in social media posts.

Bolsonaro attracted more votes than any other candidate for federal deputy of Rio de Janeiro in 2014 because of his expertise in using social media to identify and organize a devout community of supporters. Also, he used his fame and social media reach to help elect his three sons to office. However, Bolsonaro has never run for executive office.  Rather, he has only mobilized small pluralities of voters to win election in Rio de Janeiro. He now faces a much more challenging electoral calculus that forces his campaign to simultaneously increase the number of devoted followers while pushing the buttons of voter alienation and abstention. He is unlikely to convince half of the Brazilian VAP to support his mudslinging campaign, but he could squeeze through a second round with historic levels of abstention. Indeed, Bolsonaro hopes to square off with the Workers Party candidate, be it Lula or Fernando Haddad, to polarize, alienate, and move as many voters as possible to the sidelines. His path to victory depends on a 35 percent or more level of abstention.  He is the candidate of abstention.

2. Fernando Haddad (in lieu of Lula)

      Workers Party (PT)

The Workers Party candidate counts on strong pillars of electoral support from labor and social movements, well organized public-sector workers, small family farmers and rural workers, and the Northeast region.  Haddad’s re-election campaign as mayor of the city of Sao Paulo failed miserably, but he stands a favorable chance of making it to the second round with Lula’s express endorsement. The Workers Party expanded its base support in the 2006 and 2010 presidential elections, but has since fallen on its sword with fewer electoral victories at the state and municipal levels. Haddad and his party cannot dissuade Bolsonaro voters or induce them to abstain, but they can throw mud on other candidates to depress the number of valid votes in the first round. Such an effort would be directed at Geraldo Alckmin, but might also include more nuanced attacks on Marina Silva and Ciro Gomes. Such a strategy might assure Haddad’s place in the second round, but play right into Bolsonaro’s underlying mission to depress second round voting. Rather than push abstention, Haddad’s campaign will tread lightly to lower his rejection levels in anticipation of making it to the second round. However, this strategy depends on Haddad preserving his second place approval status in opinion polling during the next month.

3. Geraldo Alckmin

Brazilian Social Democratic Party (PSDB)

Geraldo Alckmin is in a pickle. He enjoys the support of the Brazilian political establishment and economic elite, but inspires little confidence among voters. His long experience as governor of the state of Sao Paulo demonstrates that he is a competent public administrator who also suffers from the same evils of nearly all major politicians in Brazil, complicit associations with kickback corruption. Alckmin’s record and alliance with the legislative centrão or “big center” places him at a disadvantage in an election framed by voter despair, disgust and distrust for career politicians. He is an uninspiring, stained candidate who earned a spot in the second round of the 2006 presidential contest only to lose votes in the run-off with Lula. How can Alckmin win if most voters are disgusted with the political establishment and suspicious of economic leaders who speak of cutting back on public services and reducing workers’ employment rights?  Alckmin’s path toward victory is very narrow and necessarily passes through both Bolsonaro and Haddad.  Rather than alienate, he must convince the undecided that he is the solution to the country’s political polarization and instability. Alckmin is the candidate of stability, but this is unlikely to please those considering the option to abstain.

4. Ciro Gomes

Brazilian Democratic Labor Party (PDT)

Ciro Gomes failed to galvanize significant political alliances to thrust his candidacy toward the center-stage of the presidential campaign season, but he is seeking to cut through the politics of polarization and the prevalence of despair and disgust shared among most voters. Gomes hallmarked his campaign by claiming he will relieve the debts of the 63 million Brazilians listed on the SPC, the bad credit list. It is a gimmick, but it also dramatizes the candidate’s priorities of rebooting the economy by restoring credit and consumer demand among the nation’s working families. In times of sluggish growth, high unemployment, and astronomically high credit card interest rates, Ciro might be on to something. The gimmick appeals to bread and butter voters who have fallen on hard times and lost their credit. Millions of Brazilians voters share this experience and are considering abstention. 

This clever campaign move engages relevant voters with an instrumental decision; do you want better credit? Expect some to respond at the ballot box. This constitutes a mobilizing, anti-abstention strategy that effectively sidesteps the polarization between Bolsonaro and the Workers Party candidate, and then attempts to flip undecided, uninspired voters.

5. Marina Silva

Sustainability Network (Rede)

Marina Silva’s third run at the presidency does not inspire. She was the surprise candidate of the 2010 election, but disappointed in the 2014 campaign by failing to make it to the second round against incumbent Dilma Rousseff. In 2018 she suffers from anemic organizational capacity and a shrinking base of support that looks like it tops at around 10 percent. She could benefit from abstention coupled with candidate fragmentation in the first round, but these same conditions might undermine her second round performance, especially given the bigger electoral support base of Bolsonaro and Haddad at this point. Her path is complex and includes getting to the second round by just squeezing by the third and fourth place candidates with some 12-13 percent of the vote, then negotiating a “big alliance” with Alckmin’s “big center” to mobilize the political establishment to endorse her in the second round campaign. At this point Marina Silva does not present a strategy to directly confront the possibility of high abstention as Ciro Gomes has done. She has the vision and the credibility to win, but lacks the vigor of a candidate willing to mobilize new sets of voters or throw enough mud at the leading candidates.

The Costs of Abstention

Vibrant democracies capable of overcoming economic, political and social bottlenecks through majoritarian-based reforms require ample political participation and voter turnout to legitimize the mandates of those who win elections and must carry the burden of change. Brazil needs more participation and voter turnout to propel the next government to overcome the entrenched interests and reform the failed institutions of governance and public service delivery. This campaign season features dozens of political parties, some old and some new, and a full set of presidential candidates, many qualified and committed to advancing Brazil through their particular set of policy priorities. Candidates deserve attention, scrutiny, and each voter’s decision to support or reject their proposals at the ballot box. The looming spector of abstention threatens Brazilian democracy and should become a major issue for political debates and media reporting.

The movement to abstain, although understandable, automatically casts indirect votes for those that win elections. Abstention undermines the legitimacy of public institutions and fuels the authoritarian inclinations of those who herd pluralities rather than cultivate majorities. Abstention stems from the problems that plague Brazilian democracy, but it is not a solution. Abstention charges measurable costs. Vote.

 

Foot Dragging or Strategic Withdrawal? The Cotton Dispute and Executive Compliance by Mark Langevin

New paper from Mark Langevin in the Journal of World Trade

US – Upland Cotton (DS267), known as the cotton dispute, revealed the limits of the World Trade Organization’s Dispute Settlement Understanding and pitted US agricultural and trade policies against Brazil’s comparative advantages in cotton cultivation. More than any other case, this trade dispute exposed the underlying challenges to advancing the Doha Development Agenda. This article explores US compliance with the Dispute Settlement Body’s successive rulings from 2005 to 2009 by examining executive compliance efforts in the face of congressional foot dragging, and how such efforts shaped the evolution of this trade conflict and framed its resolution in October of 2014. The examination confirms the pivotal role that congress played in preventing full compliance, but also reveals the importance of executive administrative discretion, legislative advocacy, and trade policy orientation in determining the outcome of the cotton dispute and its eventual impact upon US global trade liberalization leadership, including the US government’s strategic withdrawal from the Doha round.

Read the entire paper here.

O backstop brasileiro: a modernização da agricultura brasileira e a sua contribuição para o desenvolvimento nacional by Mark Langevin

O backstop brasileiro: a modernização da agricultura brasileira e a sua contribuição para o desenvolvimento nacional

Revista Jurídica da Presidência

v. 19, n. 119 (2018

Mark S. Langevin

Resumo

Este trabalho analisa o papel da agricultura brasileira para o desenvolvimento econômico do país ante o atual cenário de recessão. Primeiramente, faz-se uma análise dos ganhos mensuráveis do Brasil no desenvolvimento agrícola nas duas últimas décadas. Depois, são avaliadas as contribuições desse setor para os desenvolvimentos econômico e social no século XXI. Então, aborda-se o Caso do Algodão a fim de ilustrar a modernização agrícola brasileira e suas contribuições para o desenvolvimento e para a política comercial. Por fim, são explorados os desafios da inclusão social e da sustentabilidade ambiental como obstáculos primários para o aprofundamento do desenvolvimento agrícola brasileiro no século XXI.

Lei aqui.