Brazil after the 2014 elections: a bumpy road ahead

March 2, 2015

Sergio Fausto – The German Marshall Fund of the United States, 2/27/2015

Brazil’s future prospects, and ability to harness its advantages, will hinge on its own policy choices over the next few years. Yet the outlook for meaningful change is unclear. At present, Brazil is in a weaker position than four years ago, from both an economic and a foreign policy standpoint. Even in a scenario where Brazil’s economy gradually returns to the course it was on until 2008, no major strategic changes are likely to happen in Rousseff’s four-year term.
Read full report here.

Brazil: In a quagmire

February 27, 2015

The Economist (print edition), 2/28/2015

CAMPAIGNING for a second term as Brazil’s president in an election last October, Dilma Rousseff painted a rosy picture of the world’s seventh-biggest economy. Full employment, rising wages and social benefits were threatened only by the nefarious neoliberal plans of her opponents, she claimed. Just two months into her new term, Brazilians are realising that they were sold a false prospectus.

Brazil’s economy is in a mess, with far bigger problems than the government will admit or investors seem to register. The torpid stagnation into which it fell in 2013 is becoming a full-blown—and probably prolonged—recession, as high inflation squeezes wages and consumers’ debt payments rise (see article). Investment, already down by 8% from a year ago, could fall much further. A vast corruption scandal at Petrobras, the state-controlled oil giant, has ensnared several of the country’s biggest construction firms and paralysed capital spending in swathes of the economy, at least until the prosecutors and auditors have done their work. The real has fallen by 30% against the dollar since May 2013: a necessary shift, but one that adds to the burden of the $40 billion in foreign debt owed by Brazilian companies that falls due this year.

Escaping this quagmire would be hard even with strong political leadership. Ms Rousseff, however, is weak. She won the election by the narrowest of margins. Already, her political base is crumbling. According to Datafolha, a pollster, her approval rating fell from 42% in December to 23% this month. She has been hurt both by the deteriorating economy and by the Petrobras scandal, which involves allegations of kickbacks of at least $1 billion, funnelled to politicians in her Workers’ Party (PT) and its coalition partners. For much of the relevant period Ms Rousseff chaired Petrobras’s board. If Brazil is to salvage some benefits from her second term, then she needs to take the country in an entirely new direction.

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Brazil’s foreign policy is in the dark

February 20, 2015

Robert Muggah – Open Democracy, 2/20/2015

If ever there was a good time for Brazil to assume more global responsibility in foreign affairs now would be it. Dangerous armed conflicts, health pandemics and climate change warrant assertive engagement from the world´s major players, including South America´s powerhouse. Brazil could play a critical role in promoting stability in an uncertain world. Worryingly, the country is nowhere to be seen.

Brazilian foreign policy is in the dark. Part of the problem is that its leaders are distracted. This is maybe not altogether surprising: the country’s economy is in the doldrums. Brazil’ new finance minister, Joaquim Levy, described Brazil´s economic prospects in 2015 as “almost flat”. Brazil is now one of the Fragile Five, alongside Indonesia, Russia, South Africa and Turkey. Unprecedented bribery scandals involving the national oil company, Petrobras, and a host of construction firms, will likely tip the already damaged economy into a recession.

Some Brazilian commentators resist a more activist foreign policy. They are understandably preoccupied with making critical reforms at home to increase productivity and competitiveness rather than promoting Brazilian interests abroad. But this is a false choice: domestic reform should not come at the expense of foreign policy. On the contrary. Brazil urgently needs to bolster its strategic interests in its own neighborhood and beyond.

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Brazil-US Relations: Common Ideas, Little Dialogue

February 20, 2015

Monica de Bolle – The Huffington Post, 2/20/2015

It is unfortunate that Brazilian-American relations have become strained in recent years. This sense of frustration is further enhanced by the fact that the two largest countries in the Americas have very similar agendas when it comes to tackling inequality and income disparity. President Obama’s proposals towards “middle-class economics” and the recently released Economic Report of the President for 2015 highlight just how close the two countries are in their thinking about these issues and on how to make economic policies work more equitably for everyone. And yet, rather than coming together, the distance between the two countries has widened.

President Dilma Rousseff’s newly reelected government has vowed to rebalance Brazil’s economy – plagued by fiscal disarray and mounting inflation – in a way that preserves the legacy of the PT (Brazil’s Workers’ Party) achieved over last twelve years: the impressive social inclusion that has raised millions from the lowest ranks of the income distribution to the middle class. Aided by the macroeconomic stabilization of the 1990s and the unprecedented favorable external conditions that dominated the economic landscape between 2004 and 2010, the PT governments have set in motion their own version of “middle-class economics.” Remarkable social mobility took hold, and many were able to raise their overall quality of life as a result of targeted cash transfer programs such as “Bolsa-Família,” as well as specific programs aimed at allowing working mothers to remain in the marketplace and programs to help small and medium entrepreneurs tap into credit markets, among many other initiatives.

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Brazil’s scandalous boom to bust story

February 19, 2015

Patrick Gillespie – CNN Money, 2/19/2015

Five years ago its economy grew three times faster than the United States. In 2011 its economic size surpassed Great Britain’s. Millions of Brazilians moved from poverty to the middle class, and the president at the time, Luiz Inácio Lula da Silva, had an 83% approval rating.

Eike Batista, once Brazil’s richest person, told “60 Minutes” that his nation was realizing its potential.

“Brazil has put its act together,” Batista told 60 minutes in 2010. “We’re walking into a phase of almost full employment…It’s unbelievable.” It certainly was unbelievable.

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Look for Income Where Yields Are High

February 19, 2015

Martin Hutchinson – Wall Street Daily, 2/19/2015

Income investing has become more and more difficult as the world’s central banks have continued pursuing zero-interest rate policies.

When short-term money pays nothing and bond yields trend steadily downward, the prices of income stocks rise until only dangerous rubbish offers a decent yield.

However, there’s one country where shares with decent yields are easy to find, and there’s no force driving stock prices to unsustainable levels. Better yet, this country has been so unpopular among investors recently that the local market can now be rated a “Buy” – with a decent yield, to boot.

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Amid Division and Paralysis, an Isolated Rousseff Confronts Scandal and Her Own Troubled Legacy

February 12, 2015

Paulo Sotero – The Huffington Post, 2/12/2015

Millions of Brazilians will sing and dance in the streets in the pre-lent festival of Carnaval starting this weekend. This year, however, there is no way to escape the harsh realities of a government paralyzed by division, scandals, and an economy on the verge of recession. The sharp increase of the inflation rate to 1.24 percent in the month of January, or 7.14 percent in the past 12 months — well above the Central Bank’s target limit of 6.5 percent — did not come as a surprise to Brazilians. According to a new survey, 86 percent of them believe prices will keep rising in 2015 as the government puts in place an austerity strategy described by President Dilma Rousseff in the first cabinet meeting of her recently inaugurated second term as “corrective” and “indispensable” to restore the country’s financial health. The expectation of continued price hikes will complicate the task of the team led by Finance Minister Joaquim Levy to stabilize the economy and restore confidence among Brazilian and foreign investors in the country’s capacity to resume sustainable growth in the years ahead. Some 90 percent of those surveyed said they expect salaries not to keep up with inflation, which implies rising social tension and trouble ahead within the government coalition led by the Workers’ Party (PT).

Brazilians’ overall perception of the economy has turned sharply negative, according to a telephone survey called Radar Ideia Popular conducted by Ideia Inteligência, with a sample of 78,222 people in 259 cities in all regions of the country from January 26 to February 1. Three quarters expect employment levels to worsen during the year in comparison with 2014, when record low unemployment served as a powerful campaign argument by President Rousseff. The negative perception on employment trends is more pronounced in the Southeastern states, Brazil’s economic powerhouse and home to the bulk of political opposition to the president, who won reelection last October by a narrow 3 percent margin: 81 percent expect the situation to get worse and only 15 percent said it will get better. A slightly more optimistic view prevails in the pro-government Northeastern region, where 30 percent see a rosier picture on employment, compared to 68 percent who are pessimistic. Nationally, there is strong pessimism on employment among the young, with two thirds of them expecting the job situation to deteriorate.

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