October 29, 2014
Brad Haynes and Albert Alerigi – Reuters, 10/29/2014
Automakers in Brazil are facing the sharpest slowdown since 1999 and it could be a year or more before things turn the corner.
It is tough to find a sunny 2015 forecast at the Sao Paulo Auto Show this week, where companies accustomed to a market growing by double digits are now considering three straight years of declining sales.
“It looks like the market is in for a difficult time until 2016,” said Koji Kondo, Toyota Motor Corp’s (7203.T) chief executive in Brazil, citing labor costs, rising taxes and infrastructure bottlenecks as a persistent problem. “It’s hard for Brazil’s economic conditions to recover in the short term.”
October 28, 2014
Dan Horch – The New York Times, 10/27/2014
Business leaders and market strategists are hoping that Brazil, one of the world’s largest economies, can regain its footing in the wake of the re-election of Dilma Rousseff as president.
After Ms. Rousseff’s victory, markets, as expected, swooned on Monday. Brazil’s currency, the real, fell 2.7 percent against the dollar, while the stock market fell 2.8 percent, largely in reaction to the election. For the year, the Brazilian markets have been stuck in a malaise, down 2 percent this year, after a slide of 15.5 percent in 2013.
Since Ms. Rousseff took office in January 2011, the stock market has fallen 27 percent. Taking the currency’s depreciation into account, the loss for a foreign investor, in dollar terms, has been nearly 50 percent.
October 27, 2014
Alonso Soto – Reuters, 10/27/2014
President Dilma Rousseff narrowly won re-election by spending heavily and promising to extend the fight against poverty but she will need to restore order to public finances in her second term to get Brazil’s stalled economy back in gear.
Rousseff edged out opposition candidate Aecio Neves in Sunday’s election runoff, helped by strong support from the poor despite her struggles to tame high inflation, attract investment and revive an economy in its fourth year of lackluster growth.
With the bruising re-election campaign behind her, Rousseff now faces the daunting task of returning the shine to an economy that was once a Wall Street darling but has been hit by policy missteps and global economic headwinds that hurt demand for Brazilian exports.
October 24, 2014
James B. Stewart – The New York Times, 10/24/2014
Sunday’s presidential election in Brazil may be too close to call, but investors have already voted with their reais and dollars — and it’s Aécio Neves in a landslide.
Rarely, if ever, has such a pro-growth, market-friendly candidate emerged as a serious presidential contender in a developing country, let alone one as large and influential as Brazil, which has the world’s seventh-largest economy as measured by gross domestic product. With every twist in the polls, the Brazilian stock market surges (if Mr. Neves is ahead) or plunges (if not) while largely ignoring fundamentals like commodity prices, the faltering Brazilian economy or global crises.
Perhaps nothing has more endeared Mr. Neves to investors than his announcement on Oct. 5, right after qualifying for this weekend’s presidential runoff, that he would name Arminio Fraga his finance minister. Mr. Fraga is an unabashed champion of market capitalism and pro-growth government policies. He has a Ph.D. in economics from Princeton and drew international praise as the head of Brazil’s central bank from 1999 to 2002, steering the Brazilian economy through a difficult period that coincided with the implosion of the dot-com bubble and a recession in the United States. He was a managing director at George Soros’s fund in New York, and after leaving Brazil’s central bank, he helped start the hedge fund Gávea Investimentos. A unit of JPMorgan Chase acquired a controlling stake in 2010.
October 24, 2014
Cristiane Lucchesi, Ye Xie, Josue Leonel – Bloomberg, 10/24/2014
Fourteen months after Brazil began selling billions of dollars-worth of derivative contracts to shore up its currency, the strategy is proving ineffective and raising concern in financial markets.
The real fell to a six-year low yesterday and is the world’s most volatile currency. Some analysts say the swaps, which are equivalent to selling dollars in the futures market and now amount to 27 percent of foreign reserves, are approaching critical levels. The opposition’s presidential candidate has indicated he’d discontinue their use.
“The swaps program has reached its limit and it needs urgent review since it is losing efficiency and credibility,” said Tony Volpon, the managing director and head of emerging markets research at Nomura Holdings Inc., Japan’s largest brokerage.
October 24, 2014
Joshua Kempf and Mark Kennedy – Foreign Policy, 10/23/2014
The last two decades made obvious a life’s-not-fair fact: Big countries can get away with bad economic policy. Size matters to investors, global corporations, and entrepreneurs because a winning payout is large and can justify the costs of bureaucracy, compliance, and corruption.
China, India, and Brazil attract big investor dollars not because they are business paradises — check out their World Bank’s “Doing Business” rankings. To understand how business leaders think, let’s imagine you built a company with 85 percent market share in more business friendly Estonia. Congrats, they’ll say, those size revenues are in a multinational’s second footnote once removed.
Which brings us to Brazil. Despite its numerical advantages, Brazil has stagnated, and is expected to have just 0.4 percent economic growth this year. What’s wrong? Many analysts have pointed out the obvious: Brazil needs to improve its education, healthcare, and infrastructure. Few economists would disagree, but these are deeply rooted problems with decades-long solutions. Brazilians go to the polls on Sunday to select a president. What reforms can be done during one term to unleash Brazil’s charmed bequest, its size? Here’s the policies we think should be on the agenda.