Exclusive: U.S. graft probes may cost Petrobras record $1.6 billion or more

Jeb Blount & Mica Rosenberg – Reuters, 8/18/2015

Brazil’s Petrobras may need to pay record penalties of $1.6 billion or more to settle U.S. criminal and civil probes into its role in a corruption scandal, a person recently briefed by the company’s legal advisors told Reuters.

State-run Petroleo Brasileiro SA, as the company is formally known, expects to face the largest penalties ever levied by U.S. authorities in a corporate corruption investigation, according to the person, who has direct knowledge of the company’s thinking. The settlement process could take two to three years, this person said.

To date, the largest settlement of corporate corruption charges with the U.S. Department of Justice and the U.S. Securities and Exchange Commission was a 2008 agreement with Siemens AG, the German industrial giant. It agreed to pay the United States $800 million to settle charges related to its role in a bribery scheme, and paid about the same amount to German authorities.

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Brazil’s stock exchange is nearing a bear market

Paula Sambo and Ney Hayashi Cruz – Bloomberg Business, 8/19/2015

A plunge in the Ibovespa from this year’s peak put the equity gauge on the brink of a bear market amid forecasts Latin America’s largest economy is headed toward the longest recession since the 1930s.

The stock benchmark extended its slump since May 5 to almost 20 percent as lender Itau Unibanco Holding SA and oil producer Petroleo Brasileiro SA tumbled. Traders have been pulling money from Brazil on concern President Dilma Rousseff will struggle to revive the economy, curb inflation and narrow the budget deficit amid a political crisis. The real posted the second-biggest decline among 16 global major currencies.

Investors are turning bearish as the central bank has signaled it will hold interest rates at a nine-year high even in the face of a recession. Rising borrowing costs are slowing down consumer purchases, pushing Rousseff’s approval rating to record lows and dimming prospects for corporate earnings. To make matters worse, emerging markets have joined a selloff in commodities since China’s yuan devaluation last week.

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Brazil’s political crisis puts the entire economy on hold

Christiana Sciaudone – Bloomberg Business, 8/17/2015

In Brazil, General Motors Co. has been halting factories and laying off thousands. Latam Airlines, the region’s biggest, is cutting flights. And the world’s third-largest planemaker, Embraer SA, is delaying its biggest new aircraft.

In the midst of its deepest economic and political crisis in a generation, Brazil is contending with a business climate so punishing that major projects across numerous sectors are being frozen or shrunk, while small businesses slash prices and shift focus.

“Political instability is enormous, and it’s paralyzing Brazil,” said Eduardo Fischer, co-chief executive officer at homebuilder MRV Engenharia & Participacoes SA, in an Aug. 5 interview. In Brasilia, the nation’s capital, “decisions and actions that need to be taken are being delayed, questioned or defeated, and nothing happens.”

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Cardoso to Rousseff: admit your mistakes or resign

8/17/2015

Following the third wave of massive street demonstration in Brazil on Sunday August 16, former President Fernando Henrique Cardoso issued a statement on August 17  asking President Dilma Rousseff to step down or admit she made mistakes in order to  regain the trust of the Brazilian people and recover her lost political legitimacy

The most significant part of the demonstrations, such as the ones that took place yesterday, is the persistence of the popular sentiment that the government, albeit legal, is illegitimate. It is lacking a moral base that has been eroded by the  shenanigans of lulopetismo (government led by Luis Inacio Lula da Silva of the Workers’ Party). Similar to the metaphor of the doll dressed as a prisoner [seen in street protests], even though our President can personally protect herself, she suffers contamination by the misdeeds of her patron and continuously loses the ability to govern. At this point, collusion behind closed doors is only increasing the negative reactions of citizens and does not return legitimacy to the government – that is – the acceptance of its right to command, to lead.  If the President is unable to make a gesture of greatness (resignation or a frank admission that she made mistakes and offer paths to be taken for national recovery), we will witness the growing disarticulation of the government and the Congress, taking hits from the Lavajato scandal. That is until a leader with moral strength says, as Ulysses Guimarães [who led the campaign to reinstate democracy following the  1964-1985 military dictatorship did,Constitution in hand, as he addressed (then President Fernando) Collor ( just before he was impeached): “You think you are President, Sir, but you no longer are.

The statement in Portuguese:

 

O mais significativo das demonstrações, como as de ontem, é a persistência do sentimento popular de que o governo, embora legal, é ilegítimo. Falta-lhe a base moral, que foi corroída pelas falcatruas do lulopetismo. Com a metáfora do boneco vestido de presidiário, a Presidente, mesmo que pessoalmente possa se salvaguardar, sofre contaminação dos malfeitos de seu patrono e vai perdendo condições de governar. A esta altura, os conchavos de cúpula só aumentam a reação popular negativa e não devolvem legitimidade ao governo, isto é, a aceitação de seu direito de mandar, de conduzir. Se a própria Presidente não for capaz do gesto de grandeza (renúncia ou a voz franca de que errou, e sabe apontar os caminhos da recuperação nacional), assistiremos à desarticulação crescente do governo e do Congresso, a golpes de Lavajato. Até que algum líder com forca moral diga, como o fez Ulysses Guimarães ao Collor: “O sr.  pensa que é presidente, mas já não é mais”.

Economists see Brazil economy extending contraction into 2016

Guillermo Parra-Bernal – Reuters, 08/17/2015

The Brazilian economy is expected to shrink next year, on top of a sharp contraction forecast for this year, according to a weekly central bank survey of economists published on Monday.

The median forecast of about 100 financial institutions projected a contraction of 0.15 percent in Brazil’s gross domestic product in 2016, down from stability in the prior week’s survey. Economists in the same survey expect the economy to shrink 2.01 percent this year, steeper than 1.97 percent the prior week.

The survey also showed a slight increase in inflation forecasts for 2016, to 5.44 percent, from 5.43 percent previously. Estimates for gains in consumer prices this year remained unchanged at 9.32 percent.

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Brazil defaults rise fastest in three years, Serasa says

Guillermo Parra-Bernal – Reuters, 8/17/2015

The number of unpaid utility bills, defaulted loans and bounced checks among Brazilian consumers jumped in the first seven months of 2015 at its fastest pace in three years due to rising borrowing costs and inflation, credit research company Serasa Experian said on Monday.

The Serasa Experian Consumer Default Index rose 16.8 percent from a year earlier, the biggest jump since 17.8 percent three years ago. On a monthly basis, corporate delinquencies surged 19.4 percent in July from a year earlier, Serasa said.

Bank defaults and unpaid bills led the increase in the index in the seven-month period, Serasa said.

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Brazil austerity plan is ‘stupid,’ prominent senator tells paper

Guillermo Parra-Bernal – Reuters, 8/17/2015

The Brazilian government’s attempts to reduce the country’s rapidly expanding debt by raising taxes and to stem a decline in the currency by using futures contracts are “stupid” and will only do the opposite, opposition Senator José Serra told Valor Econômico newspaper in an interview published on Monday.

Serra, the runner-up in the 2002 and 2010 presidential elections, said the deficit-reduction targets and an active monetary policy had caused a slump in economic activity across the board, Valor said. A “power vacuum” in the presidency is creating market turmoil, he added.

His remarks come as opposition to President Dilma Rousseff’s austerity program mounts, partly because she promised in her 2014 re-election campaign not to implement any budget cuts or interest-rate increases. Her austerity efforts, meant to keep Brazil’s sovereign investment-grade credit rating, have turned off even some supporters and are meeting resistance from lawmakers.

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