Public finances in Brazil: going for broke

October 21, 2013

The Economist, 10/18/2013

IN THIS week’s print issue we wrote about the huge increase in government-subsidised credit in Brazil in recent years, funnelled through state-controlled institutions such as the national development bank, BNDES, and Caixa Econômica Federal, a state retail bank. This is weakening the banks’ balance-sheets and cutting their credit ratings—and damaging the credibility of official statistics as the government manoeuvres to try to hide the impact on its own finances.

On October 14th the finance minister signalled a change of course, saying that over the next few years the government would gradually stop capitalising BNDES with transfers from the treasury. But as we explained in print, the electoral appeal of cheap consumer credit and the government’s desire to use BNDES to fund a big upcoming infrastructure-concession programme make it doubtful that such good intentions will become reality.

Equally worrying for Brazil’s public finances is the news that the federal government is about to make it easier for states and municipalities to take on more debt. The Fiscal Responsibility Law of 2000 bailed out local governments who had taken on debts they could not repay, with one of the conditions being the acceptance of strict limits on total future indebtedness. The law is generally regarded as having been an essential precondition for Brazil’s subsequent economic stabilisation and growth, including keeping inflation under control, gaining investment-grade status, rescuing tens of millions from dire poverty and creating a vast new lower-middle class.

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A ripple begets a flood

October 18, 2013

The Economist – 10/19/2013

IN 2008 Luiz Inácio Lula da Silva, then Brazil’s president, boasted that by the time the “tsunami” unleashed by Lehman Brothers’ collapse hit his country’s shores it would dwindle to a “little ripple”. The stimulus programme he put in place helped to carry Brazil through the credit crunch relatively unscathed. But five years later public money is still pumping into its economy, with ever more negative consequences. Public debt is rising. State banks are taking more of the credit market. And the government is warping accounting standards in its attempts to disguise all this.

Concerned that consumers are overstretched, private banks have held back on lending in recent years. But since 2008 the corporate loan book of BNDES, the national development bank, has grown by 24% annually, far above nominal-GDP growth of 11%. Caixa Econômica Federal, a state retail bank, has expanded lending by 42% annually for the past three years (see chart). By June state banks had 50.3% of all outstanding credit, up from 33% in 2008—the first time they passed the halfway mark since a wave of bank privatisations in 1999.

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Barbosa forsees an end to Brazil’s economic stimulus policy

September 23, 2013

Claudia Trevisan – Estado de S. Paulo, 09/21/2013

Nelson Barbosa, former Deputy Minister of Finance, noted on Friday that in the coming months the government of Brazil will be presented with the challenges of suppressed inflation, high costs of credit by state banks, and the likely depreciation of the Brazilian real.

In his first public statements since leaving government four months ago, Barbosa observed that the policy of stimulating the economy through financing from BNDES (Brazil’s development bank) and the Caixa Economica Federal (financial institution created as a public company, bound to the Ministry of Finance) is no longer viable. “The policy was useful to address the crisis, but at some point, it has to end,” he stated.

“Brazil’s gross debt grew rapidly in recent years and this cannot continue forever. If some thing is unsustainable, it will end at some point,” declared Barbosa in Washington, during a seminar on the Brazilian economy hosted by the Brazil Institute at the Woodrow Wilson Center.

Read full article in Portuguese here.


Reshaping Brazil’s retail scene, inspired by Vegas and Vanderbilt

September 16, 2013

Simon Romero – The New York Times, 09/14/2013

As Brazil’s leaders consider whether consumption should be an antidote for a sluggish economy, a department store tycoon is racing ahead with his answer, taking unfettered American-style consumerism to a gaudy new level.

Proclaiming the gambling mecca Las Vegas as his ideal city, the tycoon, Luciano Hang, has been opening department stores this year at a pace of one every 15 days, from southern Brazil to the Amazon in the northwest. Each cavernous new structure is an homage to American capitalism, with columns intended to evoke the White House and giant replicas of the Statue of Liberty, some more than 100 feet high, stationed at its entrance.

“My philosophy is pro-capitalism, so of course the best symbols for this come from the United States,” said Mr. Hang, who flies around Brazil on a Learjet to visit the nearly 60 stores in his chain, called Havan. “I tell people that we’re about freedom: the freedom to stay open when we choose, the freedom to work for us and the freedom to shop,” he added. “I know this can be controversial, but I think those who disagree with my approach are few and far between.”

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Brazil erodes last BRIC refuge for investment banks

July 2, 2013

Cristiane Lucchesi & Francisco Marcelino – Bloomberg, 07/01/2013

Brazil is the only so-called BRIC emerging economy where companies not owned by the government, such as Credit Suisse Group AG (CSGN) and Grupo BTG Pactual, still earn the most investment-banking fees. That may soon end.

Banco do Brasil SA and Caixa Economica Federal, both government-controlled, are using their dominance of the nation’s loan markets and special relationship with President Dilma Rousseff’s administration as a wedge to unseat non-state firms in the race for investment-banking fees.

Banco do Brasil, already the country’s biggest lender by assets, wants to be the No. 1 investment bank as well, said Paulo Rogerio Caffarelli, vice president for wholesale banking. Caixa asked regulators in October for a license to create a 300-person unit. They would compete with BTG, Banco Itau BBA SA and Credit Suisse, the top three companies by investment-banking fees, according to London-based research firm Dealogic.

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Brazil OSX secures $1 bln finance for Açú shipyard

June 15, 2012

Sergio Spagnuolo and Reese Ewing – Reuters, 06/15/2012

Brazil’s OSX, the shipbuilding unit of the energy and mining conglomerate controlled by billionaire Eike Batista, secured 2.7 billion reais ($1.3 billion) in financing for the construction of its Açú ship yard 250 miles north of Rio de Janeiro, the company said in a securities filing on Friday.

Brazil’s state development bank BNDES and federally owned lender Caixa Econômica Federal will provide the financing, according to the filing. Part of the financing will also come from Brazil’s Merchant Marine Fund, with the banks funneling those moneys into OSX, the filing added.

Recent offshore oil discoveries by EBX’s oil and gas subsidiary OGX Petrôleo and Brazil’s state-led oil company Petrobras are driving rapid expansion of the country’s shipbuilding industry, which has a backlog of orders for hundreds of drilling rigs, production platforms and support ships.

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Credit in Brazil: A more interesting decline

April 20, 2012

The Economist – from the print edition, 04/21/2012


“HISTORIC”; “drastic”; “unbeatable”: no one could accuse Caixa Econômica Federal, Latin America’s fourth-largest bank, of downplaying its latest interest-rate cuts. Anywhere except Brazil, the supposedly cut-price loans it offers would look more like usury. Interest on overdrafts, for example, has fallen from 157% a year to 51%. Customers whose salaries are paid into a Caixa account will soon be offered a credit card charging 2.85% monthly—down from 12.86%. Yet Caixa is not exaggerating about the break with the past that its new rates represent. For Brazilians with recent memories of hyperinflation, an overdraft at 51% a year is an unheard-of bargain.

Now the government is trying to force the pace. On April 18th the Central Bank made its sixth consecutive cut to its policy rate, bringing it to 9%, an all-time low in real terms. Its policymakers see subdued global demand as an opportunity to reset rates at a lower level, without risking a return to higher inflation.

However, government officials believe Brazil’s big banks wield hefty market power, and worry that they will gobble up the benefits instead of passing them on to consumers. As a result, they have resorted to browbeating, dragging bankers into the finance ministry and ordering them to cut rates and lend more. Earlier this month Murilo Portugal, the president of Febraban, the bankers’ trade association, met Guido Mantega, the finance minister. He suggested that lower reserve requirements and taxes, together with greater rights for creditors, would help to cut rates. Mr Mantega later retorted publicly that the conditions were already in place for Brazilian banks to stop being the “world champions of spread”. He suggested the cuts could come out of the banks’ profits instead.

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Brazil banks form company to integrate ATM machines, Valor Economico says

January 20, 2012

Karen Eeuwens – Bloomberg, 01/20/2012

Banco do Brasil SA, Banco Bradesco SA (BBDC4), Caixa Economica Federal (CEFN3) and Banco Santander SA (SAN) are in final negotiations to create a company to link together and operate their ATM machines, Valor Economico reported, citing unidentified people involved in the talks.

The banks also plan to generate income by loaning the ATMs to other financial institutions, according to the Sao Paulo- based newspaper.

The new company, which is expected to begin operations in the first half, will compete with Tecban SA, in which Banco do Brasil, Bradesco and Santander hold a stake, Valor said.

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