Under pressure from the military, Bolsonaro backs down: Rules out closing down the Congress and the Supreme Court

Last week was turbulent for Brazil. A turning point was the replacement of the health minister due to a lack of "alignment" with his boss Jair Bolsonaro. But the president put the pin on it last Sunday. Standing outside the door of the Army Headquarters in Brasilia, he led a rally with his supporters calling for the shutdown of Congress and the Supreme Court. According to the president, Congress and the Court conspired to remove him from office.

On Monday, under pressure from the military wing of the federal government, the president backed down by declaring, "I am the Constitution! "Nobody comes here to talk about the closing of the legislative or the justice system. We are in a democracy," he added. The truth is that the negative effect of the political crisis is added to that of the Coronavirus pandemic, delaying any significant progress for the Brazilian economy, both in the medium and long term.

This is precisely why more and more specialists are convinced that Brazil's economic recovery will be slower than originally expected. To begin with, the International Monetary Fund itself expects GDP to fall by 5.3% by 2020. But the forecasts are complicated for the coming year as well: the increase in the gross domestic product would be only 1.5%, according to the World Bank's forecasts; and 2.9% according to the IMF's.

Gustavo Ribeiro, an economist at a Safra group bank, estimated: "It is highly probable that unemployment will reach 14.5% in the first half of the year. And the country will have to live with double-digit unemployment rates for a long time". He considered that the social policies implemented by the Bolsonaro administration "are not sufficient to prevent the advance of unemployment". And he indicated that the "financial health of the private sector will not quickly return to the pre-crisis levels". A further factor is that the crisis involves a "synchronized recession". In other words, it is affecting all of Brazil's trading partners simultaneously, which implies the difficult improvement of export flows.

It is obvious that COVID-19 will have a devastating impact on the whole world. It will leave millions of people unemployed and a general drop in productivity, in addition to a complex fiscalwork.

Banco Itaú's vision, however, is gentler than that estimated by the Fund. It estimates that the economy will shrink by 2.5% at most, and could quickly be surpassed in 2021 with a growth of 4.7%. The institution believes that the low-interest rates and the very low inflation will promote a return to production and employment faster than the IMF's projections. According to some banking economists, the Fund "overestimates the effect of the pandemic on our country".

Bolsonaro was forced to retract his implicit support for a self-coup with no Congress and no Supreme Court in Sunday's demonstrations. But he remains on the surface of "disintelligence" between the government and state legislators, judges, and governors about easing social isolation.

It is worth noting that the Health Ministry had reported on Monday afternoon that the number of deaths was 383; almost double the daily figures known so far. But that number did not stay in the limelight for long. Half an hour after its publication, the ministry itself said it was a mistake, as the number of people killed by COVID-19 was 113; that is, considerably less than those reported last week. So when the journalists asked the president what the real figure was, he replied: "I am not an undertaker!".

The controversy over the quarantine, which has polarized the Brazilian political world, is still ongoing. "There are those who think that if quarantine is quickly relaxed, the economy would suffer less," said one specialist. But what is at stake, say others, is medium- and loterm growth, despite having a more severe impact in the short term. If there is social isolation, "fewer people will die and there will be more workers in the medium and long term to sustain supply," said Matheus Rabelo, an economist at the Getulio Vargas Foundation.

The Bolsonaro government has made many promises to help vulnerable sectors, but its compliance with those promises has been delayed. The estimates of how the Coronavirus will affect Brazil are not at all encouraging. Studies indicate that there will be 5.7 million Brazilians who will move into extreme poverty if the government does not expand social commitments. That would be 15 million people who would go on to live on US$1.9 a day. The World Bank estimates that the rate of increase in poverty will be 7.7% this year.