- Created: Sunday, 27 May 2018 13:45
- Written by Robert Clough
On 21 May, one million lorry drivers stopped work in Brazil and brought the country to practically a stand still within four days. Blockading highways in 24 states as part of their protest against a continuous rise in diesel and petrol prices, drivers stood firm for four days. The drivers are split between those who work as employees for haulage firms – some 300,000 who had effectively been locked out as their employers sought cuts in the cost of fuel – and the 700,000 self-employed drivers organised in the Brazilian Association of Truckers (Abcam). By the fourth day of the stoppage, the government had capitulated in a deal which the government can ill afford, given the economic crisis gripping Brazil expressed in a steady fall in the exchange rate of the Brazilian real. While the employers’ associations almost immediately agreed the terms on offer from Prime Minister Temer’s coup government, Abcam to date has not. Temer is expected to offer further concessions at a meeting on 27 May.
There is widespread public support for the action despite the hardship it is beginning to cause. Temer has responded by ordering the police and the military to clear the blockades, of which there are an estimated 600 across the country. However, neither the police nor the military are showing much enthusiasm for the task. Meanwhile, Uber drivers and courier bikers have joined the protests. The ruling class is divided, with threats that trucking employers might be prosecuted for organising an illegal lockout.
The crisis stems from a decision by the Temer government in 2016 to allow Petrobras to increase petrol pump prices in line with the global oil market. Between 2012 and 2014 the Rousseff government had forced Petrobras to bear the brunt of higher costs to keep pump prices stable – this was a period when oil prices were over $100 a barrel. Petrobras’s debts rose to over $100bn as a consequence. Investors demanded an end to what was effectively a state subsidy, and Temer agreed. However, oil prices which collapsed to near $30 a barrel started to rise, and by the end of May had risen to $80 a barrel, up from $54 a year earlier. The impact was exacerbated by several increases in petrol taxes, imposed in order to restore government finances: the budget deficit amounted to 10% of GDP by the end of 2016. Petrobras claims that these taxes amount to 45% of the pump price. With oil priced in dollars, a small deterioration in the exchange rate of the Brazilian real has a disproportionate impact – and it has weakened by more than 10% against the dollar over the last year. Price rises, initially monthly, became more frequent, to the point that five took place between 15 and 19 May. Overall, petrol prices before taxes have increased by 27.5% since 1 March, and diesel by 30%.
The coverage of the Brazilian railway network is very limited, so the country is heavily reliant on road transport. Within three days of the start of the strike, airports were starting to close for lack of kerosene. Supermarkets were running out of food, and docks coming to a standstill because there was nothing to load on to ships and no transport to take away what had been unloaded. Bus services were coming to a halt, supermarket shelves emptied, and car factories closed down on the fifth day of the strike because there were no parts for assembly. Cattle ranchers and chicken and pig farmers complained that they were not receiving enough feed for their livestock. In the south of the state of Minas Gerais, 500,000 litres of milk had to be thrown away as it could not be pasteurised in time. Chaos threatened.
Temer had to act. First, Petrobras announced it would cut diesel prices by 10% for 15 days; the government extended this to 30 days. One of the demands of the strikers was an end to two diesel taxes (known as PIS and Cofins). Temer had to agree to withdraw these taxes, at an estimated cost to the government of Rs12bn annually (£2.4bn). A further tax paid by independent truck drivers, Cide, will be zeroised by the end of the year at a cost of £400m. On top of this, the government has agreed to ensure that diesel prices are fixed month by month, and that it will bear the cost of any increases – a further Rs4.9bn cost, or nearly £1bn by the end of the year. Some states are also reducing local fuel taxes – Rio de Janeiro from 16% to 12%.
The total cost of the settlement is estimated to be £5bn per annum. With an election due in October, this will become a political liability. In December 2016 the Temer government passed a law which required rises in the government budget to be limited to inflation for the next 20 years in order to reduce the government deficit. This has already resulted in appalling cuts to health and education. But international investors are alarmed at the prospect of state interference in petrol pricing: Petrobras share prices fell by 15% on the announcement of the price cuts. And even if Abcam agrees an amended deal, other areas of government spending will be hit and the real will be subject to further pressure. Temer’s government, riddled with corruption and with a popularity rating of 5% in April, will struggle to last until the election. If Abcam continues the protest, and if the working class joins in to demand an end to cuts in state expenditure, Temer may fall much earlier.