The grass is greener from the outside

March 20, 2014

The Economist, 3/18/2014

BRAZIL’S government has been trying hard of late to burnish its economic credentials, dented by years of perceived interventionism, weak growth and high inflation. In February the president, Dilma Rousseff, sweet-talked investors in Davos for the first time since she took office in 2011. Later that month her finance minister, Guido Mantega, presented a revised budget for 2014, with 44 billion reais ($19 billion) in cuts and a target for the primary surplus (ie, before interest payments) of 99 billion reais, or 1.9% of GDP.

In the past few days, however, the government’s credibility has taken a knock. First, on March 13th, Mr Mantega conceded that the 9 billion reais set aside to prop up electricity utilities, reliant on hydropower but forced by lack of rain to tap pricey thermal plants, would not be enough. Another 12 billion reais would be needed, he said.

The Treasury would stump up 4 billion reais, financed in part by raising already-high taxes. The remaining 8 billion reais is to come from bank loans to the Electrical Energy Commercialisation Chamber (CCEE), a clearing house for the electricity market. The cost would be passed on to consumers, albeit only after the general election in October. Why private banks would lend that sort of money to a private entity with no assets to speak of is unclear. State-controlled lenders may end up having to step in, ultimately putting the government on the hook.

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Brazil looks outward, cautiously

February 19, 2014

Tim Ridout – The German Marshall Fund of the United States, 2/18/2014

In January, Brazilian President Dilma Rousseff attended the World Economic Forum in Davos for the first time in her three-year presidency. The foreign and trade policy platform of her Workers’ Party (PT) has been premised on a declining West, a transformed international order favoring emerging economies, and skepticism of free trade and open markets. But Rousseff is feeling intense pressure from her people to deliver better government services and economic prospects, as evidenced by massive street protests last June.

Rousseff’s visit to Davos came as the EU and Mercosur prepare toexchange proposals in newly revived free trade negotiations. She is also heading to Brussels on February 24 for a summit with EU leaders, where they are expected to discuss the negotiations and to sign a bilateral air travel pact that will increase passenger volumes between Brazil and Europe.

After a spate of economic growth that peaked in 2010 at 7.5 percent, Brazil’s economy slowed to 2.7 percent in 2011 and 1 percent in 2012. The growth rate for 2013 is expected to be about 2.5 percent. These disappointing numbers can be attributed partly to the drop in global commodity prices, but also to Brazil’s protectionist policies, poor infrastructure, unwieldy bureaucratic red tape, and its statist approach to investment. The Brazilian economy has not proven nimble enough to adjust to changing global realities, especially as investment flows back to the United States. Rousseff may have had little choice but to reassure business leaders at Davos that Brazil is committed to fiscal responsibility, openness to investment, combating inflation, and maintaining a floating currency.

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Brazil’s Rousseff tries to win over jittery investors at Davos

January 24, 2014

Reuters, 1/24/2014

Brazilian President Dilma Rousseff defended her administration’s management of a struggling economy on Friday though stopped short of offering concrete steps to calm investor nerves in the midst of an emerging market sell-off.

In what aides described as a major speech designed to regain foreign investors’ trust at the World Economic Forum in Davos, Switzerland, Rousseff reiterated a commitment to balanced public finances and inflation targeting amid mounting investor criticism of her administration.

“I want to emphasize that we will not be weak on inflation,” Rousseff said. “On the other hand, fiscal responsibility is a basic principle of our vision for economic and social development.”

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Brazil stocks are cheap after China woes

January 24, 2014

Matt Clinch – CNBC, 1/24/2014

It’s the perfect time for investors to lead the charge back into emerging market Brazil, according to the country’s finance minister, who told CNBC that China growth fears have dragged stock prices down to very attractive levels.

Guido Mantega, Brazil’s finance minister, said the county’s stock market has become strongly dependent on China, with its heavy link to commodities. On Thursday, fresh data showed China’s manufacturing activity contracted for the first time in six months in January. Commodities producers drove the country’s Bovespa stock index down following the news.

“Over the last few weeks we’ve heard not very good news on growth rate for China. China has been giving ambivalent signals. So when they give signals like the one they gave yesterday with PMI that dropped a little, our stock market loses some value as a result,” he told CNBC at the World Economic Forum in Davos.

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Brazil’s Mantega says inflation to remain priority

January 23, 2014

Reuters, 1/23/2014

Brazilian Finance Minister Guido Mantega said on Thursday that a recent slowdown in price increases in January shows his government is committed to keep inflation under control.

Speaking at a webstreamed press conference from Davos, Switzerland, Mantega said the government has not yet decided on its budget fiscal goal for 2014. Investors are keeping a close eye on the government finances that have quickly deteriorated over the last two years.

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Brazil’s Rousseff heads to Davos for the first time to woo investors

January 21, 2014

Anthony Boadle – Reuters, 1/20/2014

Brazil’s leftist President Dilma Rousseff will try to convince the world’s business elite in Davos this week that her country is still a good investment despite three years of mediocre growth.

The one-time Marxist guerrilla has decided to reach out to the rich and powerful for the first time at the annual World Economic Forum in the Swiss ski resort of Davos to reassure them she is business-friendly and not fiscally profligate.

That is a big turnaround for a leader with a reputation for heavy-handed policies that have squeezed profits of some companies and hurt share prices. Dispelling skepticism about Brazil’s future will be an uphill task as Rousseff plans to seek re-election in October.

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