Does Brazil deserve its ‘B’ for BRICS

June 3, 2013

Anthony Pereira – CNN, 06/03/2013

When former Goldman Sach’s economist Jim O’Neill first went to Brazil after coining the acronym BRIC, someone asked him whether he had included the “B” just to make the name sound good.

Such skepticism is becoming common again, as investors compare the projected rate of growth in Brazil this year — just 3% — to that in China and India, around 8% and 6% respectively.

So does Brazil still deserve to be seen as an economic powerhouse?

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Brazil still a land of opportunity for some

May 28, 2013

Brian Winters – Reuters, 05/24/2013

Just two years ago, Brazil was still hailed as “The Near China” – an economy that offered East Asia-style 7-percent growth rates in a seductive, sun-kissed package that was closer to home for western investors.

Today, the thrill is gone.

Economic growth limped in at less than 1 percent last year, 2013 is looking pretty mediocre, and words like “facade” and “bubble” are being used to describe Brazil by some in the international press.

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Brazil: The creaking champions

April 22, 2013

Joe Leahy – Financial Times, 04/21/2013

In 2010, when 60 Minutes came to Brazil to do a piece on the “World’s Next Economic Superpower”, the US television programme chose Eike Batista as the ambassador for the country.

“You know, in the last 16 years, Brazil has put its act together. This is it. Hello, time for Americans to wake up,” Mr Batista said with trademark brashness.

In retrospect, the discovery by primetime TV of Brazil’s economy should itself have been a sell signal for investors that a long boom in Latin America’s biggest economy, fuelled by high commodity prices and credit, was peaking.

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OGX penniless by 2014 triggers Batista cash hunt: Brazil credit

February 25, 2013

Rodrigo Orihuela, Boris Korby – Bloomberg, 02/25/2013

Bondholders are increasing pressure on Brazilian billionaire Eike Batista to raise outside money for his oil producer, pushing up borrowing costs to levels associated with companies on the verge of collapse.

After surging to more than 11.6 percent last week, yields on $2.56 billion of notes due 2018 issued by OGX Petroleo & Gas Participacoes SA ended Feb. 22 at 11.06 percent following a report by Sao Paulo-based newspaper Valor Economico that Batista is in talks to sell a stake in OGX to Malaysia’s state energy company. Company officials declined to comment on the report.

OGX’s cash hoard dropped 23 percent in the six months through September to 5.1 billion reais ($2.56 billion) as subpar production at its first two oil wells put output goals out of reach. Bonds of OGX, which will run out of cash in less than two years at its current burn rate, have suffered even after Batista said in October that he would pump $1 billion of his own money into the company that he founded in 2007.

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Brazil plans a shift in its strategy

January 22, 2013

John Lyons, Luciana Magalhaes, Matthew Cowley – The Wall Street Journal, 01/04/2013

Brazil is shifting gears in its effort to revive its troubled economy, away from aggressive currency and interest-rate policies to a more hands-off approach, Finance Minister Guido Mantega said in an interview.

“In 2013 we will reap what we have sown,” he said, predicting a return to strong growth after two years in the doldrums. “2013 will be calmer, with fewer measures, because they’ve been done.”

Brazil, the world’s second-largest developing economy after China, is a key bellwether for the economic health of the emerging world and a major source of growth, as Europe, the U.S. and Japan wrestle with debt woes.

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Brazil analysts cut 2013 GDP forecast, raise inflation call

January 8, 2013

David Biller – Bloomberg Businessweek, 01/07/2013

Analysts covering Brazil lowered their forecast for growth this year and raised it for inflation, as the world’s second-biggest emerging market struggles to rebound from a slowdown that has lasted more than a year.

Brazil’s gross domestic product will expand 3.26 percent this year, according to the median estimate in a central bank survey of about 100 analysts published today, down from 3.3 percent the previous week. Inflation this year will reach 5.49 percent, up from the previous week’s estimate of 5.47 percent. Economists also boosted their 2012 inflation forecast for the fifth straight week to 5.73 percent from the previous estimate of 5.71 percent, the survey showed.

President Dilma Rousseff’s administration has injected a series of stimuli into Brazil’s $2.5 trillion economy, which economists forecast will grow this year the slowest among the BRIC group, which includes Russia, India and China. Meanwhile the central bank has cut the benchmark Selic rate by 525 basis points, the most of any Group of 20 nation, to a record 7.25 percent.

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Analysis: Rousseff’s bet – Brazil has atoned for economic sins

January 4, 2013

Brian Winters – Reuters, 01/04/2013

President Dilma Rousseff’s big bet in 2013 is that Brazil has matured enough to escape from a financial straitjacket that markets have imposed since the 1990s, when inflation soared beyond 2,000 percent and the state was virtually bankrupt.

Since that chaotic era, Brazil has played by a more conservative set of rules than most modern economies – with laws that tightly regulate government spending, interest rates exceeding 40 percent on consumer loans, and other rules and practices designed to reduce financial risks and ensure the bad times don’t return.

Now Rousseff, a left-leaning economist who likes to make key financial policy decisions herself, is boldly wagering that Brazil is ready to turn the page.

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Erosion of regulatory agencies becoming apparent

January 3, 2013

The Economist, 12/23/2012

Following dismal GDP figures for the third quarter, driven by the fifth consecutive contraction in investment, the question of what is hampering investment in Brazil has come to the forefront of the policy debate as its performance will be one of the key aspects shaping the country’s economic outlook in 2013 and beyond. The Economist Intelligence Unit has recently revised down its estimates for GDP growth for 2012 (to 1%) and 2013 (to 3.5%), on the back of Brazil’s lacklustre performance so far this year and a weaker outlook for both private and public investment.

There are several theories about the reasons for the fall in private investment in Brazil. Prominent among these are the structural problems facing the productive sector, such as the lack of infrastructure; the high burden of the tax system; costly and relatively unskilled labour, coupled with rigid labour legislation; and an overvalued exchange rate in recent years (although this has eased somewhat since March), with imported goods supplying a greater share of consumer demand than locally produced goods. There is also a growing view that the government’s hyperactivity—it has implemented a spate of apparently unrelated stimulus measures since mid-2011 (many of which have been announced shortly after the publication of disappointing data)—is increasing uncertainty and causing companies to hold off on their investment plans. Another factor is that Brazil’s macroeconomic policy mix is changing, and this is also creating uncertainty. Despite the authorities’ assertions to the contrary, there is mounting evidence that the exchange-rate regime is moving to a quasi-fix with an adjustable band, rather than the floating regime that has been pursued for over a decade. Uncertainty over exchange-rate policy is problematic as many companies need to import capital goods in order to invest. Last but not least, there are the concerns over the government’s protectionist stance, including the adoption of local-content requirements that affect major exporters such as Embraer, Brazil’s aviation company, which needs to import most of its production inputs.

One often overlooked issue in this list of factors that may have contributed to the recent fall in the investment rate (to below 19% of GDP, from 22% before the 2008 Lehman crisis) is the extent to which Brazil’s institutions have been eroded in the last few years. During the 1990s, the government of Fernando Henrique Cardoso (1995-2002) promoted a major overhaul of the economy, not only laying the foundations for macroeconomic stability, but also creating the institutional framework to sustain a favourable business environment following the ambitious privatisation programme undertaken at the time. The creation of regulatory agencies, staffed by technical rather than political appointees, was an important achievement. The appointment of managers and directors with extensive private-sector experience to head major public-sector financial institutions, such as Banco do Brasil, was also a step forward, following Brazil’s previous record of highly politicised public financing decisions, which had led to a series of losses and recapitalisations of the public banks.

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Economists see Brazil economy growing less than 1 percent in 2012

January 2, 2013

Reuters, 12/31/2012

Economists cut their estimates for economic growth in Brazil to 0.98 percent this year, a central bank survey showed on Monday, highlighting the sharp slowdown of an economy that just a couple of years ago was an emerging market star.

The world’s No. 6 economy was expected to grow 1.0 percent this year in a poll released last week, a far cry from the 3.30 percent expansion predicted by economists surveyed by the central bank at the start of the year.

Still, economists see the Brazilian economy rebounding to grow 3.30 percent in 2013 after an avalanche of stimulus measures by the government of President Dilma Rousseff that includes dozens of tax breaks and subsidized loans.

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Brazil econonmy loses ground again

December 26, 2012

Ruth Costas – BBC Brasil, 12/25/2012

A year ago, Brazil´s overtaking of the UK to become the world’s sixth largest economy was celebrated with enthusiasm by the Brazilian authorities.

At the time, in a boisterous mood, the Brazilian economy minister, Guido Mantega, predicted that France and even Germany could be soon left behind by Brazil’s “large steps”.

Today, however, forecasts suggest that the partying may have been premature. Or, at least, that the battle for this sixth place will be much harder than Brazilians expected.

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