Why Brazil's January 8 probe hinders the economic reform agenda

Nearly four months after taking office, the administration of Brazil's President Luiz Inácio Lula da Silva is facing problems on the economic reform front.

On Wednesday, congress approved a probe into the January 8 attacks, when radical supporters of Lula’s predecessor, Jair Bolsonaro, vandalized congress, the presidential palace and the supreme court. But the probe could distract from the planned reforms.

"The government's agenda in congress will be now highly dependent on the goodwill of the lower house head, Arthur Lira, who has the power to decide the advance of parallel agendas. But everything depends on the political scenario developing [during the probe]," Carlos Melo, professor of political science at São Paulo business school Insper, told BNamericas.  

Earlier this month, the government submitted a new fiscal framework to congress to replace a spending limit and facilitate public investments. A vote on the framework was expected for May. The government also pushes for a lower house vote on a tax reform still in the first half. Investors consider the reform essential to simplify the byzantine tax system.

"Historically, congressional investigations have always contaminated the agenda and there is a real possibility that this current investigation will delay voting on other topics in congress," Mário Sérgio Lima, a senior political analyst at Medley Global Advisors, told BNamericas.

The probe will be carried out by a parliamentary commission and take 180 days.

Lula's administration tried to avoid the start of the investigation to keep the focus on the reforms and improve investors’ sentiment.

In addition, the administration wants to deflate a conspiracy theory among Bolsonaro supporters, according to which the new government let the attack happen because the vandalism and subsequent intervention of security forces would strengthen its image.

This narrative gained traction after footage emerged showing Gonçalves Dias, who had become institutional security minister just before the attack, calmly inside the presidential palace watching on.

Dias resigned recently. He claimed his hands were tied because the ministry was still dominated by Bolsonaro allies.