SPENDING CAP APPROVED BY LOWER HOUSE AND SENT TO THE SENATE
The Brazilian Chamber of Deputies early Tuesday gave its first-round approval to a constitutional amendment limiting the rise in each year’s government spending to previous-year inflation. As a constitutional amendment, the proposal must now be approved again by the Chamber in a second round vote before being sent to the Senate for two rounds of voting. After a second-round approval to a constitutional amendment limiting the rise of government spending, the Brazilian Chamber of Deputies sent the bill to the Senate. As a constitutional amendment, the proposal must now be approved twice by senators before coming into force. Administration officials said they are confident the amendment will be approved by the end of this year so that it will apply to the 2017 budget.
The main changes are: During the next 20 years, public expenditures may not rise above inflation rates. This limit will also apply to health and education public policies from 2018. The President of Brazil may adjust the spending limits in 10 years. Government agencies that infringe the limit will be prevented from hiring staff and increasing wages. The amendment caps spending at all branches of the federal government. The approval was a victory for the administration of President Michel Temer, who has pledged a policy of fiscal austerity in the face of rising government deficits. Brazil’s debt-to-GDP ratio recently passed the 70 percent mark, considered worrisome by international credit rating agencies.
Yesterday, the Chamber voted 366 to 111 in favor of the amendment, or some 58 votes more than the three-fifths majority needed for passage. The second round in the Chamber is scheduled for October 25. The approval was a victory for the administration of President Michel Temer, who has pledged a policy of fiscal austerity in the face of rising government deficits. Brazil’s debt-to-GDP ratio recently passed the 70 percent mark, considered worrisome by international credit rating agencies. Next rounds of voting are scheduled for November 29 and December 13.
Link to government news agency release
BRAZIL: RECOVERY, REFORM, OPPORTUNITY
The Brazil Council released a white paper on Brazil’s road to restoring investor confidence and stabilizing its economy by pushing a broad agenda of economic and regulatory reforms. The policy paper, titled “BRAZIL: Recovery, Reform, Opportunity,” was released during the 2016 Brazil Economic Conference to a notable audience, including Henrique Meirelles, finance minister of Brazil; Ilan Goldfajn, president of the Brazilian Central Bank; Brazilian and U.S. ambassadors; and CEOs and presidents of various global corporations. To view the white paper and its accompanying infographic in their entirety, click here.
BRAZIL’S CONGRESS OPENS PRE-SALT OIL BLOCKS TO INVESTORS
The Brazilian House of Representatives approved a bill (P.L. 4567/2016) yesterday that removes the obligation of Petrobras’ participation in the exploration and operation of pre-salt oil fields. The deputies approved the main text and left for the next session the vote of some specific provisions (e.g. limiting the size of the oil fields). Currently, the law establishing the pre-salt sharing model establishes that the exploration of the oil fields must have at least 30% of Petrobras’ participation. The project ends the obligation by making optional the company’s decision to participate in the exploration of these fields’ consortia. In addition, the text also removes the requirement that the state-owned company must be the operator of the field. The current regulatory framework of the pre-salt determines that Petrobras will act as operator, which means it is to be directly responsible for all parts of the exploration, prospecting fields to the sale of the oil. The text was approved by 292 votes in favor, 101 against and one abstention. The bill originated in the Senate, authored by Senator Joseé Serra (PSDB-SP), and should follow to President Michel Temer’s endorsement if is not amended to modify the substance of the matter in the next vote.
This is an extraordinary development for Brazil and its campaign to open up the country to more foreign investment. The Brazil Council/AmCham-Rio Oil & Gas group has supported P.L. 4567/2016 since its submission to the Senate by then Senator Jose Serra.The government now expects investments will be unlocked and new companies will be interested in working in this sector in Brazil. The country still needs to clarify the rules governing field boundaries, local content requirements and whether to extend a tax incentive regime beyond 2020 for the oil industry.
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