Brazil Strike Mires Economy as Temer Fails to Placate Truckers

(Bloomberg) -- Large parts of Latin America's largest economy are seizing up.

Truckers across Brazil have been striking for four days, furious at the price of diesel. Highways have been blocked. Fresh meat and fruit are becoming scarce. And, what's more, the administration of lame-duck President Michel Temer is struggling to neutralize the threat to a fragile recovery from a record recession.

On Thursday, drivers lined up for hours to get gasoline as the work stoppage showed little sign of ending. Carrefour Brasil said it was limiting purchases at its supermarkets nationwide and sugar mills stopped due to the lack of diesel. Several auto assembly plants are idle without parts to build cars, and the largest port in Latin America is running out of soyabeans to load onto vessels. At one Copacabana McDonald's, there were no buns for the Big Macs.

Authorities have been unable to calm the chaos. The protests caught Temer off guard with less than five months remaining before October elections. The government's attempts to pacify the situation have been fumbling: The state-run oil company, Petrobras, cut the price of diesel by 10 percent for two weeks, but that retreat spooked investors and also failed to appease the truckers.

“This is a crumbling government that isn't able to negotiate with society or the truck drivers,” said Richard Back, a political analyst at XP Investimentos in Sao Paulo. "Their head is in October, not May."

But the crisis is now. The strike erupted Monday, set off by fuel-price increases of about 50 percent over a year, which squeezed truckers' profit margins. Jose da Fonseca Lopes, head of the truckers' association Abcam, told reporters in Brasilia on Thursday that it would end only when fuel taxes were eliminated.

Temer wants to be remembered as the president who got Brazil back on track after the worst recession in the nation's history, but a strike that mires the economy would undermine that and harm the chances of pro-market candidates this year. The government's struggle to solve the crisis -- and even to remain functioning -- highlights how ineffective it has become in recent months.

Congress started voting on measures that would eliminate some of the numerous levies on fuels, but on Thursday, many lawmakers decided to fly home from Brasilia amid concerns the strike would ground their planes. Senate President Eunicio Oliveira later said he was returning to the capital after he, too, had left, and called for a meeting with Senate leaders on the fuel crisis at 7 p.m. local time.

The wobbly response spooked investors. Concern that Petrobras was caving to political pressure and might abandon its market-based fuel policy caused the company's shares to plummet as much as 16 percent, the most in a year. The Sao Paulo stock exchange index fell as much as 2.3 percent Thursday.

Petrobras chief Pedro Parente met with Temer and Finance Minister Eduardo Guardia in Brasilia on Thursday morning to discuss the situation. Parente later told analysts on a conference call that the government hadn't asked Petrobras to change its fuel-price policy, and that the firm doesn't plan on making any other moves on the issue.

Landing Restrictions

Brazil, which is larger than the continental U.S., is specially vulnerable to disruption in transportation. It relies heavily on trucks to move cargo as it has only a small network of railways that cater mostly to shipping raw materials such as iron ore or soybeans.

Throughout the country, lines have formed at gas stations some of which, according to press reports, are charging double the normal price. The airport in Brasilia is allowing only planes that have sufficient fuel for their onward journey to land.

State-controlled mail company Correios suspended deliveries with set times and increased the number of days estimated for standard delivery of packages. Other members of the transport sector -- including Sao Paulo's union of motorcycle delivery workers -- plan to join the strike, newspaper Folha de S. Paulo reported.

General Motors, Honda, and Toyota had said they have had to halt production for a lack of parts and faced difficulty distributing vehicles to dealerships. The automakers association said that if the strike continues all manufacturers will shut down operations.

And the national crisis still could become deeper: Brazil's largest oil-worker labor federation said Thursday that members are also set to walk off the job in a strike that would hit refineries and sea terminals, crucial to the rattled economy.

--With assistance from Christiana Sciaudone, Maria Luiza Rabello, Leonardo Lara, Sabrina Valle, Samy Adghirni, David Biller, Felipe Saturnino and Matthew Malinowski.

To contact the reporters on this story: Rachel Gamarski in in Brasilia at rgamarski@bloomberg.net;Raymond Colitt in Rio de Janeiro at rcolitt@bloomberg.net;Gabriel Shinohara in Brasilia at gsolhashinoh@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Stephen Merelman