Filling the Gap: Infrastructure Investment in Brazil

MERCEDES GARCIA-ESCRIBANO, CARLOS GOES, AND IZABELA KARPOWICZ, IMF WORKING PAPER, 2015

Abstract: Infrastructure bottlenecks have been identified as a key obstacle to growth affecting productivity and market efficiency, and hindering domestic integration and export performance. This paper assesses the state of Brazil’s infrastructure, in light of past investment trends and various quality and quantity indicators. Brazil’s infrastructure stock and its quality rank low in relation to that of comparator countries, chosen amongst main export competitors. We provide evidence that infrastructure affects domestic integration by analyzing price convergence of tradable goods across major cities. The government’s concession program will narrow part of the infrastructure gap, however, governance reforms will be crucial to improving investment efficiency.

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Brazilian households struggling to meet debt payments

Richard Lapper, Financial Times, 7/31/2015

Brazilians found it much harder to manage household debts in the second quarter of the year, according to a recent survey by FT Confidential Research, a Financial Times’ research service for investors. Of 1,500 respondents, 811 said they found it “difficult” or “very difficult” to pay their debts, up from 755 three months previously and from 687 in the same period of last year.

Retail sales remained relatively buoyant until recent months in spite of a gradual slowdown in the annual rate of economic growth since 2010. But with unemployment rising and increases in overnight interest rates feeding through to rising costs for many borrowers, consumption is weakening. Brazil’s economy is expected to contract by 1.7 per cent in 2015, after registering zero growth last year.

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Brazil’s Corruption Crackdown Isn’t Just P.R.

Mac Margolis, Bloomberg View, 7/31/2015 

For anyone who thinks the vast corruption case engulfing Brazil will lead to just a wink and a nod, look again.

On Tuesday, Brazilian federal police arrested Othon Luiz Pinheiro da Silva, the former head of a government nuclear energy authority, fingered for taking bribes to rig public works contracts for a nuclear power plant. The arrest kicked off a new phase of the rolling bribe and graft probe that already has snared dozens of oil executives and public officials, hobbled President Dilma Rousseff and, by turns, angered and fascinated this nation of 200 million as much as the primetime telenovela.

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Santander falls as Spain, Brazil profit under pressure

Macarena Munoz Montijano – Bloomberg Business, 7/30/2015

Banco Santander SA fell in Madrid trading after Spain’s biggest bank posted earnings showing that lending revenue remains under pressure at home.

Net interest income from Spanish loans, or revenue generated from the difference between what banks earn on loans and pay on deposits, dropped 5 percent in the second quarter from a year earlier to 1.13 billion euros ($1.24 billion). It was down 3 percent from the first quarter.

“I am not optimistic about this because there is fierce competition in the market,” Chief Executive Officer Jose Antonio Alvarez said in a conference call Thursday. “I would see this as a continuing trend for some time.”

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‘We Got Brazil Wrong’ – Fund Managers React to Brazil Slump

Christopher Whittall – The Wall Street Journal, 7/30/2015.

It’s not much fun being an emerging-market investor at the moment.Collapsing commodity prices and an imminent U.S. interest rate rise have wreaked havoc on many emerging-market currencies and bonds.

Nowhere is this felt more keenly than Brazil, where the central bank raised interest rates Wednesday to tame high levels of inflation.

Standard and Poor’s Ratings Services downgraded Brazil’s outlook to negative from stable Tuesday to reflect the country’s ongoing difficulty in getting its finances in order. S&P currently rates the country just one notch above investment grade.

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Italy’s Saipem implicated in Petrobras corruption scandal in Brazil

Will Connors – The Wall Street Journal, 7/29/2015

Brazilian authorities on Wednesday accused Italian oil company Saipem of being involved in a corruption scheme involving Brazil’s state-run oil company, Petróleo Brasileiro SA, the latest international firm to be implicated in the wide-ranging scandal.

Brazilian federal prosecutors accused former Petrobras services director Renato Duque, who was arrested earlier this year for allegedly taking part in the scheme and is currently in prison, of accepting bribes from João Bernardi, a sales representative for Saipem in Brazil.

Both men were charged with money laundering and corruption on Wednesday.

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Brazil Central Bank Raises Benchmark Rate, Indicates Tightening to End

Paulo Trevisani – The Wall Street Journal, 7/29/2015

Brazil’s central bank raised its benchmark interest rate on Wednesday, but indicated it will be the last increase of the current, two-year, tightening cycle.

The bank raised the benchmark Selic rate to 14.25% from 13.75%, its 16th increase since April 2013. The decision was unanimous, though policy committee member Tony Volpon recused himself from the vote.

The bank said in an unusually explicit statement that leaving the Selic at its current level “for a sufficiently prolonged period is necessary for inflation to converge with the target at the end of 2016.”

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