Brazil’s Petrobras Reports Nearly $17 Billion in Asset and Corruption Charges

April 23, 2015

Paul Kiernan – The Wall Street Journal, 4/22/2015

Brazil’s state oil company Petróleo Brasileiro SA put a price tag on a corruption scandal that has thrown the country into political and economic turmoil, writing off $17 billion due to losses from graft and overvalued assets.

The disclosures were part of the first audited financial statements released by Petrobras in more than eight months.

Brazilian federal prosecutors since last year have been investigating allegations that the company’s suppliers conspired to overcharge Petrobras for major projects, funneling some of the illicit profit to former Petrobras executives and politicians in the form of bribes and illegal political donations.

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Brazil’s Most Trusted Official Says Petrobras Has ‘Turned Page’

April 21, 2015

Kenneth Rapoza – Forbes, 4/19/2015

Brazil’s most trusted official, Finance Minister Joaquim Levy, says beleaguered oil giant Petrobras has turned the page. And the upcoming release of Petrobras earnings will prove it.

“Petrobras has given us signs of reorienting itself to some degree, in certain segments of its business, in a way that is strategically forward looking. They changed management. They renewed the board of directors,” he said in an interview with Brazilian journalists this weekend.

What he said is nothing new. The market knows about new management, and of Petrobras asset sales. But what investors may read here in the tea leaves is that Levy is confident that Petrobras will produce its much-anticipated earnings report. Supposedly the board of directors will agree on a publishing date on Wednesday, April 22.

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Brazil’s reality show

April 21, 2015

Ilan Goldfajn – Financial Times, 4/21/2015

I have just returned from abroad. It felt like déjà vu from a distant past. Explaining Brazil has become complex again. “I read about corruption accusations, popular protests, deficits and crises; what is happening in Brazil?” I was asked by an important investor. The answer inevitably tends to be long and full of Buts and Ifs.

Nevertheless, I will make an effort to summarize it here in a straightforward way. Brazil did not invest enough during the favorable commodity cycle. Policymakers did not recognize the end of the cycle in time. When they did, they tried to go back to a past that no longer existed. Now, Brazil must adjust everything at once to avoid a worse crisis. But markets are dynamic: with the recent depreciation of the real, there are already investors looking for opportunities. That is the reason Brazilian assets rebounded lately.

All Latin American economies – from Argentina and Venezuela to Chile and Peru – are experiencing declining growth. This is a sign of a common factor: the end of the favourable global cycle of commodity boom and growth in China and abundant capital flows to emerging markets. Corruption accusations and investigations are surfacing in many Latam countries such as Brazil and Mexico, but also in Chile, which signals that even the tolerance to such deviations is cyclical.

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Amid Crisis, Rousseff Seeks Closer Ties with the U.S.

April 20, 2015

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Paulo Sotero – The Huffington Post, 4/17/2015

Confronted by calls for her impeachment in street protests fueled by a deteriorating economy and a deepening investigation on massive corruption at state oil giant Petrobras, a weakened President Dilma Rousseff sees improving relations with the United States as part of the solution to Brazil’s and her own mounting challenges.

Following a Saturday April 11 meeting with president Barack Obama at the Summit of the Americas, in Panama, Rousseff said concerns caused by the 2013 revelations of the National Security Agency surveillance activities in Brazil were resolved and confirmed she will visit Washington this year. The announcement of the June 30th gathering at the White House put the Brazil-U.S. dialogue back on track following a period of estrangement that cost the U.S. the loss of a major defense contract and frustrated plans to elevate Brazil-U.S. relations to a new level of engagement.

Praised by Rousseff for his decision to normalize U.S. relations with Cuba, the American leader has scored points by enhancing U.S. ties with its largest regional neighbor at a time when Brazil is experiencing its most severe political and economic crisis in two decades. Rousseff’s official visit to the U.S. will not have the frills of the state visit planned for October 2013, which was derailed by the NSA revelations, but was welcomed by the business communities and economic officials in both countries, who hope it will send a positive reassuring message to markets and help to restore investors’ confidence in Brazil.

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Paulo Sotero is the Director of the Brazil Institute at the Woodrow Wilson International Center for Scholars.


Brazil Scandal Sends Multinationals Running to Attorneys

April 17, 2015

Joel Schectman – The Wall Street Journal, 4/16

Multinationals with operations in Brazil are making frightened calls to their lawyers, as the country’s spreading corruption scandal reaches more companies.

The bribery investigation known as “Operation Carwash,” which has already sent Brazil’s state-run Petroleo Brasileiro SAPBR +1.15% into a tailspin, is spreading across the country’s largest construction companies and its third largest bank. Brazilian prosecutors say shipbuilding arm of South Korean conglomerate Samsung paid bribes to a former executive at Petrobras. Brazilian prosecutors have also accused Swedish builder Skanska ABSKA-B.SK -2.11% of taking part in the corruption at Petrobras. Skanska didn’t respond to requests for comment. Samsung couldn’t be immediately reached for comment.

Brazilian investigators have said they are investigating large international firms that they believe have paid bribes, Reuters reported.

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Investors tiptoe back into Brazil markets as inflation peaks

April 17, 2015

Walter Brandimarte – Reuters, 4/17/2015

Some investors are carefully betting that the recent selloff in Brazilian financial markets was overdone, pointing to signs that inflation is slowing and the government is getting its finances in order.

Many expect inflation will come down from its current 11-year high of 8.13 percent, thanks to the central bank’s interest rate hike cycle of 1.75 percentage points since October, as well as the economic slump’s effect on demand.

Meanwhile, state-run oil company Petrobras is expected to this month post financial statements that have been delayed by a huge corruption scandal, greatly reducing the risk of a major debt crisis that could have cost Brazil its investment grade credit rating.

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Brazil’s economic activity grows unexpectedly in February

April 15, 2015

Silvio Cascione – Reuters, 04/15/2015

Brazilian economic activity grew unexpectedly in February from the previous month, central bank data showed on Wednesday, but economists said the increase was too small to dispel forecasts for a recession this year in Latin America’s largest economy.

The Brazilian central bank’s IBC-Br economic activity index BRIBC=ECI, a gauge of farming, industry and services activity, rose a seasonally adjusted 0.36 percent from January, topping market expectations for a drop of 0.2 percent.

The index is seen as a leading indicator for gross domestic product data, which is released quarterly. Economists have forecast Brazil’s economy to shrink about 1 percent in 2015, which would be the country’s deepest recession in 25 years.

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