Pre-election spending in Brazil: A final splurge

October 2, 2014

J.P. – The Economist, 10/01/2014

That governments splurge in election years is a hallowed democratic tradition. True to form, Brazil’s left-wing administration, led by President Dilma Rousseff who is seeking a second term in an election on October 5th, has gone on a spending spree. Just how big became apparent on September 30th, when the treasury released its August accounts.

The primary deficit (before interest payments) reached 14.4 billion reais ($5.9 billion) in that month, the fourth in a row in which the government has failed to put aside cash to pay creditors. The consolidated primary surplus in the eight months to August stood at just 0.3% of GDP. Most of that came from the states; the central government managed just 1.5 billion reais, a piffling 0.05% of GDP and the worst result for the period since 1998. The overall budget deficit climbed to 4% of output, the highest level since Ms Rousseff’s predecessor and mentor, Luiz Inácio Lula da Silva, embarked on a huge stimulus package in 2009, as the global financial crisis took hold.

Part of the fiscal deterioration is a good sign, after a fashion. The government has at last decided to stop “pedalling”, as critics mockingly call the dubious procedure of putting off payments to state-owned banks charged with disbursing benefits such as unemployment insurance, or cash handouts for the poor (which Ms Rousseff raised three months ago). In recent months these lenders have had to finance such payments from their own funds. Now the treasury has finally footed the bill.

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Brazil’s Real Drop to Five-Year Low as Rousseff Support Climbs

October 1, 2014

Filipe Pacheco – Bloomberg, 10/1/2014

Brazil’s real fell to a five-year low on concern Latin America’s largest economy will struggle to recover as a voter poll showed President Dilma Rousseff winning her re-election bid.

The real declined 0.3 percent to 2.4549 per U.S. dollar at 10:03 a.m. in Sao Paulo, the lowest level on a closing basis since December 2008. The currency declined 9.5 percent in the third quarter, the worst performance among 24 emerging-market currencies after Russia’s ruble.

Rousseff has taken the lead and would win a second term in Brazil’s election this month against former Environment Minister Marina Silva, according to a Datafolha poll released yesterday after markets were closed. Speculation that a new government would revive economic growth and curb inflation helped push the real to a one-month high on Aug. 29.

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U.S. Reaches Deal With Brazil Ending Cotton Dispute

October 1, 2014

Alan Bjerga – Bloomberg News, 09/30/2014

The U.S. and Brazil reached a $300 million agreement to resolve a dispute over cotton subsidies that has bedeviled the two nations for more than a decade.

The accord signed today in Washington involves a one-time U.S. payment to the Brazil Cotton Institute in return for that nation dropping all claims against the U.S., the U.S. Trade Representative said in a statement. Brazil will also not pursue any new World Trade Organization cotton claims while a five-year farm bill Congress passed in February is in effect.

“Today’s agreement brings to a close a matter which put hundreds of millions of dollars in U.S. exports at risk,” U.S. Trade Representative Michael Froman said in a statement with Agriculture Secretary Tom Vilsack. “The United States and Brazil look forward to building on this significant progress in our bilateral economic relationship.”

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Rousseff Ahead, LGBT Rights in Focus in Brazil Election

September 30, 2014

Geoffrey Ramsey – Pan American Post, 09/30/2014

It appears that the Brazil observers who stuck with President Dilma Rousseff as the favorite to win the upcoming elections — despite Marina Silva’s rise in the polls — may turn out to be right in the end. Recent surveys have shown the incumbent making a rebound head of this weekend’s first round vote, and suggest she will come out ahead of Silva in a likely second-round matchup.

On Friday, Datafolha released a new survey showing that support for the president in the first round had risen from to 40 percent from 37 percent a week earlier, while Silva’s first-round support fell to 27 percent from 30 percent.  In a second round, Datafolha showed 47 percent for Rousseff and 43 for Silva.

Other, smaller pollsters have published figures that seem to support this trend to varying degrees, as Reuters reports. On Monday, polling firm MDA released a survey suggesting that the president would win a runoff with 47.7 percent of the votes, compared to 38.7 percent for Silva. Another survey, by Vox Populi, showed Rousseff beating Silva 46 to 39 percent in a runoff.

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Can Election Put Brazil Back on Path to Fast Growth?

September 30, 2014

Paulo Trevisani – The Wall Street Journal, 09/30/2014

Brazilians face many options in the Oct. 5 vote, but for economists and investors the options are clear: It is reform or die.

Latin America’s largest economy has weakened in the past four years and now growth is near zero, inflation is high and business confidence is depressed. Central-bank interventions keep the currency from a free fall.

But with unemployment low and many voters satisfied with greatly expanded welfare programs, incumbent President Dilma Rousseff may well end up getting a second term.

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Brazil Central Bank Cuts Inflation Forecast on Slow Growth

September 30, 2014

Matthew Malinowski and Mario Sergio Lima – Bloomberg, 09/29/2014

Brazil’s central bank cut its 2014 inflation forecast, saying the world’s second-biggest emerging market will grow at a “disinflationary” pace over the next quarters.

Consumer prices will rise 6.3 percent this year if policy makers keep the benchmark Selic (BZSTSETA) at 11 percent, according to the reference outlook in the quarterly inflation report published today. The inflation forecast compares with a 6.4 percent estimate for 2014 in the June report. Consumer prices will rise 5.8 percent in 2015, compared with a 5.7 percent forecast in June. Policy makers also said the economy will expand 0.7 percent this year, down from the previous estimate of 1.6 percent.

“Taking into account the growth outlook for the next quarters, the committee assesses that the output gap over the next quarters will remain in disinflationary territory,” policy makers said. They reiterated inflation will converge toward its 4.5 percent target in 2016.

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Brazilian Stocks, Currency Plummet as Presidential Election Looms

September 30, 2014

Jeffrey T. Lewis and James Ramage – The Wall Street Journal, 09/29/2014

Brazil’s stock market and currency were sent reeling Monday by signs President Dilma Rousseff is pulling ahead of her main challenger in the country’s presidential election next month.

The Brazilian real weakened to its lowest level against the dollar in nearly six years Monday, declining 2.4% to 2.4777 reais, before paring losses to 2.4543 reais later in the day. The country’s benchmark Ibovespa stock index fell as much as 5% in early trading and was down 2.2% early in the afternoon.

Brazil’s losses were among the worst in a broad selloff that hit financial markets across the developing world. Developing economies have been caught up in fears the Federal Reserve is moving closer to raising interest rates, a move that would make higher-yielding currencies, such as those in emerging markets, less attractive to investors. Concerns about protests in Hong Kong have also sent investors into less-risky assets.

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