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Diego Bonomo

Diego Bonomo is a senior advisor in the firm’s London office. Diego, a non-lawyer, has more than 20 years of Brazil regulatory, trade, and foreign affairs experience at leading business associations, think tanks, companies, and academic institutions. Diego also served in the Brazilian government.

Before joining the firm, Diego was Team Leader of the Brazil Trade Facilitation Program at Palladium and Executive Manager for International Affairs at Brazil’s National Confederation of Industry (Confederação Nacional da Indústria, CNI). At the U.S. Chamber of Commerce, he served as Senior Director of the International Division and Senior Director for Policy of the Brazil-U.S. Business Council. Diego also was Executive Director of the Brazil Industries Coalition (BIC), the leading Brazilian business coalition in the United States, and General Coordinator of Foreign and Trade Affairs at the Federation of Industries of the State of São Paulo (Federação das Indústrias do Estado de São Paulo, FIESP). He previously served in the Office of the President of Brazil as advisor to the Minister of Long-Term Planning.

Diego holds a bachelor’s and master’s degree in international relations from the Pontifical Catholic University of São Paulo.

Contact:Read more about Diego BonomoEmail

Executive Summary

  • Artificial intelligence (AI), social media, and instant messaging regulation will be a hot topic in Brazil in 2025, with substantial activity in Congress and the Supreme Court.
  • Cloud, cybersecurity, data centers, and data privacy are topics that could also see legislative or regulatory action throughout the year at different policymaking stages.
  • Technology companies will also be affected by horizontal and sector-specific tax policy-related measures, and Brazil’s digital policy might be impacted by U.S.-Brazil relations under the new Trump administration.

Analysis

2025 is shaping up to be a key year for digital policymaking in Brazil.  It is the last year for President Luiz Inácio Lula da Silva’s administration to pursue substantial policy change before the 2026 general elections.  It is also the first year for the new congressional leadership, in particular the new Speaker of the House and President of the Senate, to put their stamp on key legislation before their own reelection campaigns next year.

Existing Legal Framework: LGT, MCI and LGPD

Brazil’s current approach to digital policy is based on three key federal statutes.  The first one is the General Telecommunications Act of 1997 (“LGT”).  LGT established the rules for the country’s transition from a state-owned monopoly to a competitive, private sector-led telecommunications market.  It is the bedrock of Brazil’s digital economy infrastructure regulation as, among other aspects, it sets rules for radio spectrum and orbit uses.

The second key statute is the Civil Rights Framework for the Internet Act of 2014 (“MCI”).  MCI sets the principles, rights and obligations for internet use, including the net neutrality principle and a safe harbor clause protecting internet service providers from liability for user-generated content absent a court order to remove the content.  The statute also established the first layer of data privacy provisions as well as rules for the federal, state, and local governments internet-related policies and actions.

The third key federal statute is the General Personal Data Protection Act of 2018 (“LGPD”).  LGPD sets rules for the treatment of personal data by individuals, companies, state-owned and state-supported enterprises, and governments.  It slightly amends MCI and adds a more robust layer of data privacy protection.

Each statute has its own regulator, respectively the National Telecommunications Agency (“ANATEL”), Brazil’s Internet Management Committee (“CGI.br”), and the National Data Protection Authority (“ANPD”).

Hot Topics in 2025: AI, Social Media, and Instant Messaging

Two agenda items will likely dominate the policy debate in Brazil in 2025.  The first one is the creation of a new legal framework for AI.  After years of intense debate, the Senate approved its AI bill in December 2024.  The bill sets rights and obligations for developers, deployers, and distributors of AI systems, and takes a human rights, risk management, and transparency approach to regulating AI-related activity.  It also contains contentious provisions establishing AI-related copyright obligations.  In 2025, the House will likely debate and try to approve the bill, which is also a priority for the Lula administration.Continue Reading Brazil’s Digital Policy in 2025: AI, Cloud, Cyber, Data Centers, and Social Media

Executive Summary

  • President Luiz Inácio Lula da Silva concluded his second year with contradicting economic results: high GDP growth and low unemployment combined with rising inflation, high interest rates, and a record devaluation of the Brazilian currency.
  • The Lula administration’s strategy put the country’s fiscal framework in peril and left economic policy agenda items unfinished, while its democracy-strengthening agenda remained largely paralyzed.  There were mixed results in President Lula’s foreign policy.
  • Congress continued to approve economic modernization bills, focusing on sector-specific frameworks and in the implementation of the 2023 historic consumption tax system reform.
  • Companies doing business in Brazil should pay attention to the implementation of the 2023 tax reform, as well as to a proposed new income tax reform.  They should also pay attention to further congressional activity on AI, cybersecurity, social media, and regulatory agencies, among others.

Analysis

President Luiz Inácio Lula da Silva’s main goal in 2024 was to deliver a strong economic performance that could be translated into positive political results for his party and allies in the mid-term local elections.  These elections were a crucial stepping stone towards his likely reelection campaign in 2026.

Contradictory Economic Results

Market players began 2024 expecting Brazil to grow 1.52 percent, an economic slowdown from the 2.92 percent GDP growth in 2023.  By December, these expectations improved to 3.42 percent, pointing to an accelerating economy.

At the same time, these players began 2024 expecting annual inflation to be 3.90 percent, within the inflation target’s upper range of 3 to 4.5 percent.  However, by December, expectations deteriorated to 4.89 percent.  The official inflation was confirmed at 4.83 percent, an annual increase above the target ceiling.Continue Reading Brazil Under Lula: The Second Year

Executive Summary

  • On November 27, Brazil’s Finance Minister Fernando Haddad announced a package of spending cut measures and the outline of an income tax reform.  The package was a reaction to market unease over the perceived weakness of the country’s fiscal framework, which built up over the past year.
  • The announced spending cuts were poorly received by market players prompting the Brazilian real to reach a record devaluation against the U.S. dollar.  They perceived the announcements as lacking spending cut ambition and including future spending through income tax exemption.  There is also uncertain congressional support and no fixed timeframe for the approval of these measures.
  • Investors might reap short-term gains from the heated economy and low-priced assets in Brazil, but a fiscal framework in peril points to medium-term problems, including high inflation and reduced economic growth.

Analysis

On November 27 and after two months of internal government discussions, Brazil’s Finance Minister Fernando Haddad announced a package of spending cuts in an effort to rescue the country’s fiscal framework.  In addition, Haddad announced President Luiz Inácio Lula da Silva’s administration proposal for an income tax reform.

The following day, Haddad and five other ministers provided details on these measures.  The package was not well-received by market players, with the Brazilian real reaching a record devaluation against the U.S. dollar.

Brazil’s fiscal framework, proposed by the Lula administration in March 2023 and approved by Congress in August 2023, has been progressively weakened due to the Brazilian federal government’s lax fiscal policy and refusal to address structural spending issues.Continue Reading Brazil’s Fiscal Framework in Peril: Impact on Businesses

Executive Summary

  • Nation-wide elections for mayors and city councilors will likely impact Brazil’s national politics, its federal government, and the upcoming elections for the Speaker of the House and President of the Senate – all of them relevant for investors.
  • The local elections will be seen as a referendum on President Luiz Inácio Lula da Silva’s policies, as well as a test of the opposition’s strength, including former President Jair Bolsonaro’s current political standing.
  • The outcome of these elections might impact the Lula administration’s policy trajectory, the strength of the pro-business majority in Brazil’s National Congress, and the functioning of federal regulatory agencies in 11 key economic sectors.

Analysis

On October 6, Brazil will hold its nation-wide elections for mayors and city councilors.  All 5,569 Brazilian cities will elect the head of the local executive branch, as well as all city council members for a four-year term.

While this electoral cycle focuses on local issues, and mayors and city councilors have a limited policy impact on businesses, the local elections will likely have a significant impact on national politics, the federal government, and the upcoming elections for the Speaker of the House of Deputies and the President of the Federal Senate – all of them relevant to investors.

Impact on federal government

Election watchers will be looking at the performance of the main political groups based on three indicators: the total number of mayors and city councilors they elect; wins in the 27 state capitals; and wins in the so-called “G103”, the 103 cities with a population of more than 200,000.

If the election results in a larger number of mayors and city councilors formally supported by President Luiz Inácio Lula da Silva, this will likely be seen as voters’ endorsement of his policies.  While voters might not focus on specific policies – including, among other aspects, a lax fiscal policy, increased taxation, and state capitalism-type measures – individual perceptions on cost of living and economic prosperity tend to play a role in voting decisions.  In this scenario, the Lula administration will likely continue its current policy trajectory.  However, if the total number of mayors and city councilors supported by the president is equal to or lower than the existing number, the result will probably be seen as a rebuke of the Lula administration and might result in pressure to change current policies.Continue Reading Impact of Brazil’s Local Elections on Businesses

Executive Summary

  • President Luiz Inácio Lula da Silva’s administration has pursued a vigorous effort to increase revenue as part of Brazil’s fiscal framework implementation.  At the same time, the administration has avoided spending cuts.
  • This strategy seems to be reaching its political limit, creating an incentive for the administration to weaken the fiscal framework approved by Brazil’s National Congress last year.
  • This sends mixed signals to investors and results in an overburdened monetary policy, which may lead to reduced investment, growth, and job creation in the medium term.

Analysis

On August 30, 2023, President Luiz Inácio Lula da Silva signed into law Brazil’s new fiscal framework.  The framework was presented by his administration in March last year, and approved by Brazil’s National Congress in less than five months.  It was the administration’s top economic policy priority to stabilize public debt, create an incentive for the Central Bank to reduce the benchmark interest rate, and reignite economic growth and job creation.  It was also highly anticipated by market players to assess the administration’s commitment to fiscal responsibility.

Framework Mechanics

The framework established a “fiscal anchor” based on an annual primary budget surplus target, beginning with a deficit of 0.5 percent of GDP in 2023 and growing in 0.5 pp increments per year until reaching a surplus of 1.0 percent of GDP in 2026.  It is a linear trajectory to put the country’s fiscal policy back in a scenario of annual primary budget surpluses (i.e., excluding debt servicing.)  These targets were codified in the 2024 annual budget authorization legislation signed into law on December 29, 2023.Continue Reading Brazil’s Weakening Fiscal Framework and its Impact on Businesses

Executive Summary

  • President Luiz Inácio Lula da Silva’s administration has been making announcements and adopting actions that signal conflicting economic policy directions, and that might indicate a potential shift towards State capitalism-type rather than free market and free enterprise policies.
  • After its return to democracy in 1985, Brazil’s first attempt at State capitalism collapsed and resulted in a two-and-half-year, domestic policy-generated recession that reduced the country’s GDP by 8.1 percent between 2014 and 2016.
  • Policies and actions adopted by the Lula administration have some similarities with this first attempt, in particular when it comes to government intervention in large business conglomerates.  However, President Lula faces significant political and institutional constraints.
  • Structural and microeconomic reforms also pursued by the administration offer an opportunity for businesses and investors, but State capitalism-type policies increase risks of capital misallocation, government and market inefficiencies, and corruption.

Analysis

As President Luiz Inácio Lula da Silva’s administration approaches its 18-month mark, federal government announcements and actions begin to signal a potential shift to move Brazil towards a State capitalism-type economy and reverse the free markets and free enterprise approach adopted by the past two administrations.  When seen in conjunction with the recently-approaved new fiscal framework and historic tax reform, these signals provide a mixed message to businesses and investors.  They point, at the same time, to more and less government intervention in markets.Continue Reading Brazil’s State Capitalism Revisited: Mixed Signals to Businesses and Investors

January 10, 2024

Latin America

Executive Summary

  • President Lula da Silva concluded his first year successfully delivering on economic and social policies, and with good economic growth and job creation results.
  • In contrast, he achieved mixed results in foreign policy and made little progress in his goal to curb what he perceives as threats to Brazilian democracy by the far right.
  • The large, pro-business conservative majority in Congress continued to deliver both so-called “structural reforms” and new or improved sector-specific legal frameworks.
  • 2024 will be an electoral year, but President Lula and Congress have a busy policy agenda.
  • Companies doing business in Brazil should pay attention to the implementation of the 2023 tax reform, which will be crucial to deliver on the reform’s promises to simplify the tax system and reduce compliance costs for companies.  They should also pay attention to further tax-related proposals to reform income and payroll taxes and potential legal frameworks on AI, cybersecurity, space activities, bioinputs, carbon market, offshore wind power, and green hydrogen, among others.

Analysis

President Luiz Inácio Lula da Silva’s main goal of 2023 was to reignite economic growth and job creation with a particular focus on promoting gender equality, social inclusion, and environmental sustainability (details here).

Growth and Job Creation

Market players begun 2023 expecting Brazil to grow 0.78% and improved their expectation up to 2.92% by December.  While the official GDP growth rate will only be published later in 2024, the improved expectation points to a reasonably stable economic policy and a successful year for the administration.

In January 2023, players also expected annual inflation to reach 5.36%, but reduced it to 4.46% by December, a signal that monetary policy conducted by an independent Central Bank has yielded a positive result.  The benchmark interest rate (SELIC), set at 13.75% since August 2022, was steadily reduced to 11.75%.Continue Reading Brazil Under Lula: The First Year

Latin America

Scope and format

The Brazilian National Congress approved a historic tax reform that revamps the existing consumption tax system, in place since the 1960s.  The reform generally simplifies the Brazilian tax system, reducing the compliance cost for business.  However, it also creates a new tax on certain goods and services.

The reform takes the form of a constitutional amendment and requires implementing legislation and regulation. The administration must introduce implementing legislation to Congress within 180 days.  Implementation dicussions will be relevant because they will set the new system tax rates and, in some cases, scope, as well as detail exceptions.

Although primarily focused on the consumption tax system, the reform also includes provisions related to taxes on property and financial operations.

Why a constitutional amendment?
Brazil adopts a descriptive constitutional model in which the principles and limits of the tax system, as well as all federal, state, Federal District and municipal taxes, and their respective scope and revenue distribution, are detailed in the Constitution.  Therefore, any substantial change of the system requires a constitutional amendment.

Need for reform

Over decades, the consumption tax system increased in complexity and compliance costs, ranking Brazil as one of the most inefficient tax jurisdictions among large economies.

The system, built upon thousands of tax-related norms and judicial interpretations, generated legal uncertainty and capital misallocation, creating negative incentives for investment, exports, and economies of scale and proximity, among others.  It also generated numerous tax disputes, with estimates as high as 75 percent of Brazil’s GDP, increased tax inequality, and reduced private sector competitiveness.

Many of the existing inefficiencies were created by federal government policies, or state and local governments providing tax incentives to attract investment, as well as economic sectors lobbying Congress and the administration for special tax regimes.

The need for a redesign of the consumption tax system was clear since the 1990s, when Brazil successfully curbed hyperinflation.  With a stable currency, structural issues impacting business competitiveness resurfaced.  These issues were grouped under the catch-all “Brazil Cost” concept, with the tax system as a prominent component of it.Continue Reading Brazil’s Historic Tax Reform: A Primer

The Government of Brazil has initiated a public consultation offering companies, business associations or civil society organizations an opportunity to comment on the country’s proposed new foreign trade strategy.

The consultation was initiated by the Foreign Trade Board (CAMEX), Brazil’s federal government interagency mechanism to coordinate the country’s trade policy. …

Continue Reading Brazilian Government Opens Consultation on New Foreign Trade Strategy

As early as this week, the Federal Senate of the Brazilian National Congress may vote a potentially historic tax reform, revamping a tax system that has been in place since the 1960s and has increased in complexity, inefficiency, and compliance cost over the years.

The reform is a draft constitutional amendment (PEC) that requires a favorable vote by at least three-fifths of the members of each chamber of Congress in two rounds of voting (308 in the House of Deputies and 49 in the Senate).

The House approved the amendment on July 7, 2023, with 382 and 370 votes in the first and second rounds, respectively.  The Senate must now vote on the amendment.

Pressure Politics in the Senate

The reform is largely focused on consumption taxes, creating a full-fledged value-added tax (VAT) for Brazil, although it also includes changes in property taxes.  Its outline, political economy, and approval process was discussed in this blog post.

The Senate rapporteur’s report includes key changes to the House-approved draft text.

The Senate is under pressure to establish a tax ceiling for the VAT.  President Luiz Inácio Lula da Silva’s administration is pursuing a strategy to increase government revenue in order to achieve the country’s ambitious new fiscal framework goals.  Private sector groups are concerned the administration might push for a VAT rate higher than the existing tax level, increasing the burden on companies.  They are also concerned about the scope of the proposed Selective Tax on goods and services with negative health and environmental externalities.  The opposition in Congress in echoing these fears.Continue Reading Key Vote on Tax Reform Expected in Brazil’s Senate