Rousseff says Brazil will recover, avoid credit downgrade

October 29, 2014

Walter Brandimarte – Reuters, 10/28/2014

Newly re-elected President Dilma Rousseff said on Tuesday that the Brazilian economy will recover in her second term and avoid a downgrade of its credit rating.

In television interviews two days after narrowly defeating market darling Aecio Neves, Rousseff repeated her offer to sit down with business leaders to hear their views on the state of the economy and discuss changes in policy.

Earlier on Tuesday, a senior analyst at Moody’s Investors Service said the ratings agency was in no rush to decide whether to cut Brazil’s rating but could act quickly if it determines that Rousseff is not making significant changes in her second term.

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At Brazil auto show, industry wonders if it can get any worse

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.”

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Rousseff will struggle to restore Brazil’s economic good times

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.

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In Brazil Election, a Stark Choice on Economic Direction

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.

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Brazil $101 Billion Swaps Position Looms Before Election

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.

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How to Fix Brazil’s Broken Economy

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.

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Real Drops to Lowest Since 2008 as Rousseff Leads in Voter Polls

October 24, 2014

Paula Sambo and Filipe Pacheco – Bloomberg, 10/23/2014

Brazil’s real fell to the lowest since December 2008 after polls showed President Dilma Rousseff led candidate Aecio Neves three days before the election runoff.

The real declined 0.5 percent to 2.50 per dollar at the close of trade in Sao Paulo after earlier today falling 1.2 percent. The Ibovespa tumbled 3.2 percent, leading losses among major stock benchmarks and erasing this year’s gain.

“Investors are more and more pricing in a victory for Rousseff,” Andre Perfeito, the chief economist at Gradual Investimentos in Sao Paulo, said by telephone. “Many traders are still cautious, but these polls show she is ahead, and people are considering that in trading the currency.”

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