Adding to the uncertainty that most emerging markets are experiencing, a local event is stirring up volatility in Brazilian stocks. Presidential and legislature elections will take place in the country in October, and three candidates have real chances of taking office. The favorite is current President Dilma Rousseff, who is running for re-election, and then we have Aecio Neves and Eduardo Campos.
How does this matter to Brazilian ADRs?
A key point here is the degree of government intervention. Investors sense that if President Dilma Rousseff is re-elected, government intervention will continue, damaging companies’ profitability level. The other two candidates are seen as more market-friendly, and they still have a chance, especially with the current slowdown in the economy. So let’s see how three ADRs are performing.
First, here’s a Brazilian forestry leader and the world’s largest producer of hardwood market pulp, Fibria Celulose . It has an annual production capacity of approximately 5.3 million tons.
Challenges abound for the next presidential term. There are several symptoms indicating that the “new development model,” the “new paradigm of the political economy,” or all the other pompous names one wishes to assign to the policies of the current government, have not produced the expected results. There is a widespread feeling both here and abroad that we are improvising and kicking the can down the road. For how long will this last?
Given this situation, the following question is raised: Will the candidates for the Presidency present political platforms that allow the voter to understand their vision with regards to these challenges and learn about the political choices each one intends to make to address them? Or will we once again watch, as per the norm in recent disputes, a campaign devoid of programmatic content, reduced to propaganda based on real or alleged personal positive attributes of the candidates and vague proposals of distributing more benefits (fancifully without costs and without sacrificing any other desirable goal)?
It is true that political platforms must be translated into more accessible language to ordinary voters, and that in order for a campaign to be successful, it must mobilize feelings around a simplified driving idea. Or such is the conventional political wisdom in Brazil. This notion, however, not only inhibits voters from being more informed, but also weakens the mandate of the government elected by the voters.
A former director at Brazil’s central bank said he expects President Dilma Rousseff to make key changes in macroeconomic policy, including cuts in government spending, if she gets re-elected for a second term later this year.
Paulo Vieira da Cunha, who was on the bank’s board from 2006 to 2008, said he also expects that after the election Rousseff will replace Finance Minister Guido Mantega, who has been heavily criticized by investors for overly optimistic economic forecasts and what they see as accounting gimmicks in the country’s budget.
Vieira da Cunha called for a return to the pragmatic style of former President Luiz Inacio Lula da Silva, who was elected as a left-winger but was widely regarded as a pro-growth and pro-business president.
As in the rest of the world, Brazilians who become politicians are invariably wealthy, or become wealthy, before they serve in public office. But many build their fortunes through questionable means, and, not surprisingly, as a result Brazilians have developed a sentiment of distrust towards politicians.
Half a year after demonstrators climbed onto the roof of Brazil’s Congress in Brasilia, the country’s capital, demanding a clean-up of political deadwood and an end to corruption, the relationship between the Brazilian people and its leaders remains strained. The protests initially began as a public uproar against a hike in bus fares in several major Brazilian cities, and were briefly called a “revolution” by more enthusiastic observers. Ultimately they were demonstrations against politicians.
At firstblush, it is just what the doctor ordered. Brazil’s new “Law to Combat Corruption”, which went into effect on January 29th, honours the country’s commitment to curb palm-greasing under the OECD’s anti-bribery convention. By focusing on the corruptors—which could be any firm operating in Brazil, including foreign ones without a permanent presence—it complements the “Administrative Improbity Law” of 1992 that targeted crooked public officials. And it comes at an auspicious time, as the government prepares to dole out more contracts linked to the football World Cup in June and the 2016 Olympic Games in Rio de Janeiro—and against the backdrop of scandals involving alleged backhanders paid by Alstom and Siemens, two European engineering giants, to Brazilian officials.
In many ways the Brazilian statute is harsher than similar remedies elsewhere. Fines slapped on firms can reach 20% of their gross annual revenue or, if turnover is hard to determine, 60m reais ($25m). Unlike America’s Foreign Corrupt Practices Act (FCPA), it requires no proof of bosses’ intent or knowledge: so long as the charged firm benefits from corrupt acts committed by an employee (even one acting through a subsidiary or a subcontractor) it is on the hook. Unlike Britain’s Bribery Act, it does not regard robust internal safeguards as a statutory defence (only as a potential mitigating factor). Unlike either, it allows courts to dissolve a company in particularly egregious cases.
But then graft is a bigger ill in Brazil, which ranks 77th out of 177 countries in the corruption-perceptions index compiled by Transparency International, a Berlin-based lobby. Bribes discourage domestic as well as foreign investment, according to José Ricardo Coelho or FIESP, São Paulo state’s main business lobby, which has embraced the new law with gusto. If accompanying regulations are implementation are clear and consistent, Mr Coelho argues, the law will be a boon for business.
Low expectation is the best thing going for Dilma Rousseff as she prepares for her first appearance as Brazil’s president at the annual conclave of global business leaders in Davos this week. Her absence from the World Economic Forum over the past three years was explained by officials in Brasília as a political decision, indicative of her low regard for the annual assembly of the masters of globalization. Things have changed.
Government sources now say the president never intended to snub the meeting and recognises that she needs to improve the perceptions of participants about Brazil. Indeed, three successive years of economic growth below 2 per cent, disastrous manipulation of fiscal numbers, persistent inflationary pressure and excessive government intervention have soured investors’ attitudes. Without a change in the inward and state-heavy orientation of the Rousseff government’s economic policies, mediocre prospects are projected in the foreseeable future.
Will the Brazilian leader surprise the audience of sceptics awaiting her in the Alps? A PricewaterhouseCoopers survey of 1,344 executives from 68 countries released on the eve of the WEF is an open invitation for Dilma to do so. Despite Brazil’s disappointing performance in recent years, 12 per cent said they were inclined to invest in the country this year – a drop of 5 per cent compared with 2013 but still the fourth largest proportion among those surveyed, behind only China (33 per cent), the US (30 per cent) and Germany (17 per cent).
For the average young Brazilian professional fresh out of college, the dream job is to work for the government. Last year alone, some 12 million Brazilians applied for 180,000 public sector posts through selective exams. In most cases, no previous experience in the specific fields for which certification is requested is required, and the starting pay can be up to $5,000 a month, not including benefits, which are usually higher than the salary. A 2012 report published in O Globo newspaper, based on the data from the 2010 Census by the Brazilian Institute of Geography and Statistics (IBGE), showed that public servants in 88% of government-filled posts earn considerably more than employees in the private sector, not to mention that by law public-sector workers cannot be fired nor have their pay cut.
Such ferocious competition even resulted in a phenomenon which in part explains the private sector education boom in Brazil over the 2000s — there are at least 500 companies in the country offering preparation courses for public servant wannabes, a spin-off industry that grows at a rate of 40% annually.
Brazil’s main opposition party moved closer to selecting a presidential nominee on Monday, after its candidate in the last election backed Senator Aecio Neves, former governor of Minas Gerais, the country’s second-most populous state.
Jose Serra, a two-time presidential runner-up who took 44 percent of votes in the 2010 race against President Dilma Rousseff, said on his official Facebook page that the center-right PSDB should not lose time in nominating Neves.
Serra’s go-ahead clears the stage for 2014, when Neves is expected to take on Rousseff. Her popularity suffered with public protests this year, but has rebounded thanks to low unemployment and well-regarded social programs.
They were heckled and called slaves of a communist state when they first landed, but in the poorest corners of Brazil the arrival of 5,400 Cuban doctors is being welcomed as a godsend.
The program to fill gaps in the national health system with foreign doctors, mainly from Cuba, could become a big vote-winner for President Dilma Rousseff as she eyes a second term in next year’s election despite fierce opposition from Brazil’s medical class.
The move to tap Cuba’s doctors-for-export program begun by former leader Fidel Castro became a priority for Rousseff after massive protests against corruption and shoddy public transport, education and healthcare services rocked Brazil in June.
Brian Winter & Cesar Bianconi – Reuters, 11/22/2013
Seen from Brazil’s modernist, glass-walled presidential palace, 2014 looks like a minefield.
The economy, already sputtering, will probably slow even further. A downgrade of Brazil’s credit rating seems possible, if not likely. The World Cup of soccer, which Brazil will host in June and July, could end up revealing to billions of TV viewers the shoddy government planning and transportation bottlenecks that have frustrated investors here for years.
To top it all off, leftist President Dilma Rousseff is up for re-election in October – meaning if any of those things go horribly awry, she might lose her job.