Brazil’s foreign policy failures

Roberto Simon – Foreign Affairs, 1/5/2016

When Brazilian President Dilma Rousseff traveled to Cuba in 2012 to announce the biggest foreign investment in the island since Fidel Castro’s 1959 revolution, a man in his mid-forties stood discreetly at her side. Marcelo Odebrecht, the head of Odebrecht­—the biggest construction company in Latin America, which was founded by his grandfather—had scored an almost $1 billion contract financed by a Brazilian public bank to modernize the Port of Mariel. In explaining the initiative after flying from Havana to Haiti with Rousseff, where his firm was also expanding investments, he summarized: “We act in alignment with Brazilian foreign policy.”

Fast-forward to January 2016. Odebrecht has been behind bars since June, accused of paying fortunes in kickbacks to politicians in exchange for contracts with Brazil’s national oil company, Petrobras. A number of his competitors and associates were also arrested because of their connection to the scandal.

For her part, Rousseff is fighting an impeachment process indirectly linked to the Petrobras scandal, and an ever-increasing number of her allies (including Vice President Michel Temer) are either siding with the opposition or are in jail. The speaker of the congress, who gave up a fragile alliance with the government to push for Rousseff’s impeachment, is fighting to avoid prison after prosecutors found two accounts under his name in Switzerland that had been allegedly fed with oil money. Likewise, the former leader of the government in the Senate was jailed for trying to block investigations. Meanwhile, the Brazilian economy shrank by 3.5 percent in 2015 and is expected to contract at least 2.5 percent in 2016, performing worse than Russia under Western sanctions.

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Roberto Simon, MPP candidate at the Harvard Kennedy School of Government, was a Brazil Institute Public Policy fellow in the Summer of 2015, where he worked on his upcoming book on the role of Brazil’s military government in the Pinochet-led coup in Chile on September 11, 1973.

Brazilian police raid home of speaker Cunha and other senior politicians

Jonathan Watts – The Guardian, 12/15/2015

Brazil’s impeachment duel has tilted back in favour of President Dilma Rousseff after her most strident opponent suffered twin blows from the police and a congressional ethics committee.

Two weeks after the lower house speaker, Eduardo Cunha, launched proceedings to remove the head of state from office, his home was raided by detectives as part of the Lava Jato (Car Wash) investigation into alleged corruption at Petrobras and other major companies.

Hours later the lower house ethics committee announced it would investigate claims that the once-untouchable politician lied about Swiss bank accounts. If proven this could result in his removal from office.

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Fitch Downgrades Brazil to junk, with negative outlook

Jeffrey T. Lewis – The Wall Street Journal, 12/16/2015

Fitch Ratings cut Brazil’s sovereign credit rating for the second time this year, citing the country’s ballooning budget deficit, political turmoil and a deeper-than-expected recession, and leaving the country’s debt with junk status and dealing a fresh blow to Brazilian President Dilma Rousseff as she struggles to revive the economy and avoid impeachment.

The downgrade left Brazil’s rating at BB+, one notch into junk territory, with a negative outlook.

Fitch is the second of the big-three ratings companies, after Standard & Poor’s, to downgrade Brazil’s debt to junk, which could trigger a selloff of Brazilian assets and weaken the currency. It will also make it more expensive for the Brazilian government to borrow, at a time when Finance Minister Joaquim Levy is trying to cut the government budget deficit.

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Here’s what the market really thinks about Brazil

Kenneth Rapoza – Forbes Magazine, 12/15/2015

Love her or hate her, Brazil’s beleaguered and possibly impeachable president, Dilma Rousseff, is here to stay. That’s the base-case scenario by economist at the vast majority of investment banks. In fact, investors would be hard pressed to find someone who thinks Dilma gets kicked out of office.

“We think this entire process lasts at least until August and that Dilma survives impeachment,” says Bruno Rovai, Brazil economist and fixed income analyst with Barclays Capital in New York.

Here’s another thing: austerity. Like a great abdominal work out, investors hate it…but they also love it. Austerity, like Dilma, is here to stay. Even the market’s favorite Brazilian of 21st century, ex-central banker Henrique Meirelles says that Finance Minister Joaquim Levy is doing what he can by cutting spending, erasing tax breaks, and increasing taxes.

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IOC VP: Brazil economic crisis will inevitably affect games

AP, 12/9/2015

The political and economic turmoil in Brazil will “inevitably” affect next year’s Olympics in Rio de Janeiro, a senior IOC official said Wednesday, as Brazilian organizers declared that preparations remain fully on track for the games.

With the opening ceremony less than eight months away, Brazil is dealing with severe recession, impeachment proceedings against President Dilma Rousseff and a massive corruption scandal involving state-run oil company Petrobras.

“They have political and economic difficulties,” IOC vice president Craig Reedie said. “Inevitably, they will affect the games. There are challenges. I think they and we will have to get through it.”

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Farming flourishes amid Brazil’s fiscal mess

AG Web, 12/9/2015

Financial and political turmoil that put Brazil on the brink of a depression also is contributing to one of the best years ever for domestic farmers.

A consequence of economic stress in Latin America’s biggest country is a weak currency that has turbo-charged export revenue for everything from soybeans to beef to coffee. Even as global surpluses spark a commodity slump, the drop in the Brazilian real against the dollar is so steep that farmers still come out ahead. Agriculture revenue will rise to a sixth straight annual record this year and grow again in 2016, the government predicts.

“That’s the only part of the economy which is still evolving positively,” said Fabio Silveira, an economist at GO Associados, a consulting firm in Sao Paulo.

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