Political Dispute Could Lead Brazil to Unprecedented Shutdown in 2021

RIO DE JANEIRO, BRAZIL – Congress’ delay in establishing the Joint Budget Committee (CMO) raised a red flag among the Economic team. This has delayed the processing of the draft Budget Guidelines Law (PLDO) for 2021 and next year’s Budget Law.

A member of the economic area states that Brazil has started years with no budget passed, but never without the LDO, which sets the guidelines for budget execution. There is also concern over a potential shutdown – unprecedented in Brazil.

Last week, National Treasury Secretary Bruno Funchal stated in a videoconference that the government may be forced to suspend all spending next year unless the Budget Guidelines Law (LDO) is passed before the end of this year. This suspension would also include the payment of pensions and social benefits.

The situation is reminiscent of the clash between Donald Trump and the U.S. Congress over the inclusion in the budget of funds to build a wall on the Mexican border. In late 2018, the discussion delayed approval of the budget, paralyzing government activities for 35 days. Activities were only restarted after Trump abandoned the wall and sealed an agreement with the Democratic opposition.

In Brazil, the delay in passing the budget is due to a dispute over the command of the Joint Budget Committee – which typically initiates works in the first semester. Initially, an agreement among deputies had placed Elmar Nascimento (DEM – Democrats), an ally of current Chamber president Rodrigo Maia, as CMO chairman. But Centrão’s head, Arthur Lira (Progressistas – Progressives), argues that the position should be held by someone from the most represented party in the collegiate – in this case, the PL (Liberal Party), also part of the Centrão (center and center-right political parties bloc).

The Budget approval may be deferred to 2021. But unless the Budget Guidelines Law is passed in 2020, the government will lack legal backing to execute provisional spending – given that the provisions governing this type of spending are also part of the LDO.

No funds

Meanwhile, the Funds PEC (Proposed Constitutional Amendment), presented by the government to Congress still in 2019 as part of the so-called Federative Pact, is also on hold. The proposal extinguishes a number of public funds as part of an effort to provide greater budget flexibility. The PEC’s rapporteur, Senator Otto Alencar (PSD – Social Democratic Party), states that the proposal has not been included in the government’s post-Pandemic priorities and is highly unlikely to be voted on in 2020.

Source: Exame

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