Brazil in 2014: Will Rousseff change course?

January 7, 2014

Paulo Soter0 – CNN, 12/30/2013

Editor’s note: Paulo Sotero is director of the Wilson Center Brazil Institute. The views expressed are his own. This is the latest in the ‘14 in 2014‘ series, looking at what the year ahead holds for key countries.

Three consecutive years of disappointing economic performance, with an average GDP growth of barely 2 percent and deteriorating fiscal and external accounts, should be enough to convince President Dilma Rousseff to move Brazil away from the inward policies and micromanaging style she introduced after succeeding her popular mentor, Luiz Inácio Lula da Silva, in January 2011. The same mindset has affected Brazil’s international affairs, with similar results.

A leader with little appetite or patience for diplomacy and focused by necessity on domestic challenges, Rousseff implemented a modest foreign policy agenda when compared to her predecessor and became the first Brazilian president to fire a foreign minister, over a preventable incident. There are both negative and positive incentives for Rousseff to change course as she faces reelection in October 2014.

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Brazil swap rates surge on industrial output gain; Real declines

August 2, 2013

Blake Schmidt & Josue Leonel – Bloomberg, 08/01/2013

Brazil’s swap rates climbed the most in six weeks as higher industrial production spurred speculation that the central bank will sustain the pace of increases in borrowing costs to curb inflation.

Swap rates due in January 2015 rose 25 basis points, or 0.25 percentage point, to 9.84 percent in Sao Paulo, the biggest increase since June 18. The real dropped 1.2 percent to 2.3042 per U.S. dollar, the weakest level since March 2009.

Industrial output rose 1.9 percent in June from a month earlier, exceeding the 1.3 percent median forecast of economists surveyed by Bloomberg. Policy makers raised the target lending rate by a half-percentage point July 10 to 8.50 percent, the third advance this year. The central bank said in minutes of the meeting that it is appropriate to maintain the pace of increases in borrowing costs to curb inflation.

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Wasn’t a weaker currency supposed to help Brazil?

June 4, 2013

Kenneth Rapoza – Forbes, 06/03/2013

When the Brazilian real was strengthening like gangbusters against the dollar, all the way to R$1.55 back in July of 2008, the government both loved it and hated it.

They loved it because it meant the world loved Brazil and Brazil, with its nagging (and misplaced) inferiority complex, was mighty proud of its strong currency.  Fast forward to the Lehman Brothersand pending fall out in late 2008-09 and the strong currency became a curse. It became part of the “currency war”, a term made quite popular over the last two years by Brazilian Finance Minister Guido Mantega.

The Fed and European Central Bank were weakening their currencies.  Investors were looking for yield were finding it in places like Brazil. Money poured in. The real kept gaining on the dollar and euro.  Mantega and big businesses complained.  They couldn’t be competitive at R$1.70. They needed R$2.00 to $1, everyone was told.

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Aussie overvalued, Brazil won’t let real rise, O’Neill rays

April 18, 2013

Yoshiaki Nohara & Masaaki Iwamoto – Bloomberg, 04/18/0213

Australia’s currency is overvalued and Brasil’s weak economy means it won’t allow the real to appreciate, according to Goldman Sachs Asset Management Chairman Jim O’Neill.

“The currency I find the most interesting is the Australian dollar,” O’Neill, 56, said at a Goldman Sachs seminar in Tokyo today. “The Australian dollar is significantly overvalued.”

O’Neil said it is “easy to dislike every major currency.”Read more…


Brazil yields to traders pouncing on gains: currencies

March 14, 2013

Joseph Ciolli & Ye Xie – Bloomberg, 03/14/2013

Efforts by Brazil to tame inflation are providing foreign-exchange traders with the biggest returns in the world by purchasing reais with funds borrowed in dollars.

Investing in real forward contracts funded by the greenback has gained 5.3 percent this year, the most of any of the 44 other currencies tracked by Bloomberg. Wagers that Brazil’s currency will rise outpaced those expecting a decline by an average of $5.6 billion this year, data from the Sao Paulo-based BM&F exchange and compiled by Bloomberg show. As recently as September there were net bets against the real.

Finance Minister Guido Mantega, who popularized the term “currency war” in 2010, told Bloomberg News last month he’s abandoning the strategy that drove the real down 19 percent in two years as the government shifts its focus to containing inflation. The central bank signaled on March 6 that it’s ready to raise interest rates from a record low 7.25 percent after dropping a pledge to hold borrowing costs steady for what it had called “a prolonged period of time.”

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Brazil swap rates rise as inflation accelerates; real advances

March 8, 2013

Bloomberg – Gabrielle Coppolla & Josue Leonel, 03/08/2012

Brazil`s swap rates climbed to a eight-month high as a report showed annual inflation accelerated in February, fueling speculation the central bank will lift borrowing costs this year.

The real rallied to its highest level since May on speculation the central bank will let the currency appreciate to contain inflation. The government’s IPCA index of consumer prices climbed 6.31 percent in February from a year earlier, the highest annual rate in 14 months. The median forecast of economists surveyed by Bloomberg was for a 6.20 percent pace.

“IPCA has been surprising the market, and it shows that there’s a significant inflation risk,” Roberto Padovani, the chief economist at Votorantim CTVM in Sao Paulo, said in an telephone interview. “The increase may prompt the central bank to raise rates in April.”

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Brazil bank prioritizes inflation fight

February 25, 2013

Erin McCarthy, Brian Baskin – The Wall Street Journal, 02/24/2013

The Brazilian central bank’s priority is fighting inflation, and not spurring growth, its president said in an interview before policy makers meet to set interest rates, even as Latin American’s biggest economy struggles to escape a long stretch of slow growth.

Brazil’s economy expanded around 1% in 2012, down from 7.5% as recently as 2010. At the same time, annualized inflation hit 6.2% in mid-February, close to the maximum the government has said it would tolerate.

Analysts say the perception of dueling policies aimed at stimulating the economy and tamping down inflation have created confusion in the market, causing the Brazilian real to gyrate from multi-month lows to highs in the space of a few months.

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Brazil’s FDI covers current account shortfalls in 2012

January 23, 2013

Reuters, 01/23/2013

Foreign direct investment in Brazil more than covered the country’s current account deficit in 2012, the central bank said on Wednesday, in a sign of continued confidence in Latin America’s largest economy despite sluggish growth.

Brazil attracted $65.272 billion in foreign direct investment in 2012, above a central bank estimate of $63 billion that was revised upward several times last year. The country drew $66.6 billion of FDI in 2011.

That investment fully covers a current account deficit of $54.246 billion last year — more than the bank’s forecast of $52.5 billion.

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Wrong numbers

January 18, 2013

The Economist , 01/19/2013

For Brazilians, disappointing economic news just keeps coming. After weak third-quarter GDP figures shocked market economists and government at the end of November, both cut their predictions for growth in 2012 to just 1%. Then the government admitted it would only hit its closely watched target for the primary fiscal surplus—of 3.1% of GDP—by omitting some infrastructure spending from the sums, bringing forward dividends from state-owned firms and raiding the sovereign wealth-fund it set up in 2008. Now inflation figures have brought more gloom. During 2012 prices rose by 5.84%—above market expectations, and, for the third year running, close to the ceiling of the range (2.5-6.5%) targeted by the Central Bank.

In fact, the headline figure underestimates inflationary pressures. If the federal government had not capped petrol prices, and municipalities frozen public-transport fares before October’s local elections, last year’s figure would have been closer to 6.5%. In 2013 both those prices are likely to rise. The end of a sales-tax holiday for cars will boost inflation, too. Most analysts now think that inflation will be around 6% this year. Week by week, they are revising down their forecasts for economic growth in 2013, now at about 3%.

The government’s response to the bad news stoked fears that Brazil may be in for a long spell of high inflation and low growth. Stung by criticism, Dilma Rousseff, the president, pointed out that Brazil is still growing faster than Europe. That is true, but hardly a very illustrious comparison: most other emerging economies, including in Latin America, are doing far better.

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Why Brazil’s once-booming economy is losing its shine

January 17, 2013

Catherine Boyle – CNBC, 01/16/2013

Brazil, long viewed as one of the most promising emerging markets, has seen its crown slip slightly in recent months. The country has been enshrined as Latin America’s economic powerhouse for more than a decade, fuelled by vast resource wealth and investment from China.

Yet its dominance is under threat as other emerging markets compete fiercely on cost.

“The last decade was very good for Brazil,” James Lockhart Smith, head of Latin America, Maplecroft, told CNBC.

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