Brazil’s Fiscal Plan Could Falter Without Pension Reform

Anna Edgerton – Bloomberg, 08/16/2016

Acting President Michel Temer’s prized fiscal austerity proposal tocap public spending will only succeed if he can convince Brazil’s Congress to pass a controversial pension reform as well, according to a leading member of his economic team.

While Temer’s administration is confident it can win congressional approval this year of a constitutional amendment to limit federal spending, the inability to cut back on retirement benefits would put public finances at risk, said Mansueto Almeida, the Finance Ministry’s secretary of economic monitoring. A spending cap with growing pension obligations would squeeze other areas in the budget such as health care, he said.

“With the constitutional amendment, spending will be limited, and without pension reform, those costs are going to just grow and grow and grow,” said Almeida, who studied public policy at the Massachusetts Institute of Technology and ran a popular blog on public finance before joining the ministry.

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Brazil’s Uplifting Olympics

Roger Cohen – The New York Times, 08/15/2016

When I was a correspondent in Brazil 30 years ago inflation was rampant. It ran at an average of 707.4 percent a year from 1985 to 1989. The salaries of the poor were wiped out within hours of being paid. The country went through three currencies — cruzeiro, cruzado and cruzado novo — while I lived in Rio. The only way out for Brazilians, people joked, was Galeão, the international airport.

 Antônio Carlos (“Tom”) Jobim, the composer of “The Girl from Ipanema” (whose name is now affixed to that airport), famously observed that, “Brazil is not for beginners.” It was not then and it’s not now. It’s a vast diverse country, a tropical United States, whose rich and poor are divided by a chasm. High crime rates are in part a reflection of this divide. Flexibility is at a premium in a culture fashioned by heat, sensuality, samba and rule bending. Life can be cheap. You adapt or you perish.

Edmar Bacha, a friend and economist, had coined the term “Belindia” to describe Brazil — a prosperous Belgium perched atop a teeming India. I wrote a story about the poor kids from north Rio, far from the beaches of Ipanema and Leblon, who would get their kicks as “train surfers” — riding the tops of fast-moving trains — rather than surf Atlantic waves. Often they died, electrocuted. I will never forget the twisted corpse of one in the city morgue.

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Brazil Is Still the Country of the Future

Tyler Cowen – Bloomberg, 08/11/2016

Brazil, it is often and not quite fairly said, is the country of the future and always will be. As the Olympics focuses global attention on the country, it’s worth exploring the various ways in which this maxim is — and may not be — true.

The puzzle with Brazil is neither its successes nor its failures, but rather the combination of the two. The country has such a dynamic feel, and in the postwar era it saw many years of double-digit economic growth. The Economist featured the country on its cover in 2009 as the next miracle take-off, and in 2012 Germany’s Der Spiegel published a long article titled “How Good Governance Made Brazil a Model Nation.”

Yet Brazil never caught up to the developed world: Its gross domestic product per capita falls about 4 to 7 times short of the U.S. — about where it was more than a century ago. It is now experiencing one of the most severe depressions of any country in modern times. The president, Dilma Rousseff, is in the midst of an impeachment process. The combination of corrupt and violent police, muggings of athletes, polluted water and inadequate facilities have led many to wonder whether Brazil can pull of the Olympics without major embarrassment.

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BNDES Helped Save the Olympics. But Is it Hurting Brazil?

Olivia Arguinzoni- Americas Quarterly, 08/09/2016

New leadership atop Brazil’s massive national development bank is unwinding a decade of rampant lending that fed large conglomerates and strained the country’s finances.

Over the past half-century, Brazil’s Banco Nacional de Desenvolvimento Economico e Social (BNDES) built huge power plants and highways through the industrial southeast, aided social programs in the drought-ridden northeast, and helped create some of today’s world-leading companies like airplane-maker Embraer and pulp producer Fibria. More recently, it helped save the Rio Olympics with an emergency loan.

Such mega-investment projects played a central role in Brazil’s economy over the last ten years of Workers’ Party rule, during which former President Luiz Inácio Lula da Silva and suspended President Dilma Rousseff showed a particular penchant for state-sponsored development.

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Brazil’s Dilma Rousseff on Her Impeachment Trial, the Olympics and Zika

Matt Sandy – Times, 07/27/2016

As Rio de Janeiro prepares to host the Olympic Games, beginning on Aug.5, one person won’t be at the opening ceremony—President Dilma Rousseff. Rousseff has been suspended from her office amid charges that she manipulated government accounts, and her impeachment trial is scheduled to take place during the Olympics. She spoke with TIME’s Matt Sandy from the Brazilian capital of Brasilia, where she defended herself against accusations of corruption and promised that Rio would be able to pull off the Games despite a league of doubters.

Read the interview…

 

Having already failed, the Rio Olympics may now succeed

Paulo Sotero – The Financial Times, 07/25/2016

Desfile olímpico de alunos da rede municipal do Rio

A um ano dos Jogos Rio 2016, alunos e professores da rede municipal, participam de desfile olímpico no Parque Madureira, na zona norte da cidade (Tânia Rêgo/Agência Brasil)

Judging by media reports and official statements, this year’s Summer Olympics in Rio de Janeiro were a flop well before the August 5 opening ceremony. But if history is any guide, the games stand a reasonable chance of being seeing as satisfactory by the time the estimated 10,000 participating athletes return home. Whether it’s the Olympics in Athens, Beijing, London and Sochi or the soccer World Cup in South Africa and Brazil, a disaster-to-success reversal has been the standard narrative of all recent major global sporting events.

The Rio Olympics, the first to take place in South America, may yet turn out to be a special case. With the threat of a terrorist attack seen as a real possibility after the July 21 arrests of 10 Brazilians identified by local authorities as sympathisers of the so-called Islamic State, the only catastrophes that can be discarded are hurricanes, earthquakes and tsunamis, which are rare on the Atlantic coast of South America.

Most forms of man-made disaster, including pollution, pestilence, engineering failure, crime, massive corruption, recession and political meltdown have hit Rio and Brazil as city and country raced against the clock to make final preparation for the games. Ample and mostly fair coverage of bad news by the local press was, as expected, amplified by the international media.

The foul state of the waters in parts of Guanabara Bay and Lagoa Rodrigo de Freitas, where some of the nautical events are scheduled to take place, and the Zika virus epidemic, have led doctors from around the world to call for a suspension of the games. A few renowned Olympians said they would stay away. In June, Rio’s acting governor declared a state of “public calamity” in order to free $800m in federal funds urgently needed to complete public works connecting Olympic venues, finish construction of housing for athletes and pay late salaries to public servants, including policemen. To dramatise the situation, some police officers staged a demonstration at Rio’s international airport welcoming visitors to “hell”.

Although violence in general and violence against women have trended down in recent years, the group rape of a young woman and the invasion of a public hospital by a narco gang to free a traffic boss have kept crime in the headlines. In mid-June, Rio’s mayor, Eduardo Paes, said in an interview with CNN that Rio’s police, controlled by the state government and not by him, were doing a “terrible” job. A few days later he said, quite accurately, that “the Rio Olympics are a missed opportunity” for Brazil to showcase itself on the global stage as a rising power.

That is what former president Luiz Inácio Lula da Silva had in mind when he travelled to London in 2009 to lobby the International Olympic Committee to award this year’s games to Brazil. Today Lula is a diminished if not disgraced politician. He faces two federal criminal investigations and is manoeuvring to stay out of jail. In mid July, the former president was indicted by the attorney general for attempting to obstruct a federal investigation on a massive corruption scandal involving state oil giant Petrobras, which is headquartered in Rio. Exposed in 2014, the Petrobras case has added fuel to a governance crisis that has crippled Brazil’s public finances, compromised investors and public confidence in the economy and thrown the country into its worst recession in a century. Seen as the economic disaster’s architect, Lula’s successor and protégée, Dilma Rousseff, was suspended in April by the House of Representatives and will likely be removed from office at the conclusion of her impeachment trial in the Senate in the weeks following the Olympics closing ceremony.

The scandal led to the arrests of more than a hundred businesses executives, senior bureaucrats and shady political operatives. A slew of former and current elected officials are under investigation or have been indicted, among them a former speaker of the House of Representatives, the current president of the Senate, two dozen members of Congress and ministers appointed by both Rousseff and her former ally and vice-president, Michel Temer, who took office as acting president in May pending the resolution of the impeachment process.

Against this depressing backdrop, Brazilians are not exactly looking forward to hosting the world’s greatest sporting festival. Support for the games has dropped from 92 per cent in 2009 to less than half of that today. Among cariocas, as the 6.5m inhabitants of Rio are known, barely 40 per cent say they are interested in the games. Tens of thousands of Brazilians from other parts of the country who had planned to attend have opted out because of the economic crisis, which has left more than 11m people jobless. Likewise, the number of foreign visitors will probably be much lower than the half a million that were once expected in Rio during the Olympics.

Ironically, such abysmally low expectations may help create a positive perception once the games get under way. With a security apparatus of 85,000 in place, Rio will probably be one of the safest places on the planet in August – in the absence of a terrorist attack. The myriad problems facing Brazilians will not prevent them from welcoming visitors and making sure they enjoy the music, the dance, the beaches and the nightlife Rio offers in abundance. With the first signs of investors’ confidence on the horizon and economists predicting a return to economic growth in 2017, a disaster-free Olympics could even help the country restore some of its lost self-esteem and project virtues the Brazilian people and some of their institutions have displayed in the face of unprecedented crisis and chaos.

Such efforts could start with the show that will precede the opening ceremony and the parade of athletes marching behind their countries’ flags before the lighting of the Olympic torch. Stealing a page from the London Olympics, which opened with a memorable display on the UK’s challenges and achievements, producers could add a scene featuring cars of the Federal Police and actors representing federal law enforcement officers, prosecutors and judges to symbolise the country’s ongoing offensive against systemic corruption and the impunity of criminals in high places, which is supported by nine out of ten Brazilians. The scene would certainly be well received.

So should peaceful rallies that both sympathisers and critics of Rousseff say they will organise to amplify their views before international audiences watching the Olympics. Compared with the scenes of hatred and violence from around the world seen daily on television, the civil manner in which Brazilians have been demonstrating their frustrations and dealing with their differences has been quite refreshing. It should be celebrated along with the Olympians who will gather in Rio to, once again, show humanity’s better face.

Paulo Sotero is director of the Brazil Institute at the Woodrow Wilson International Center of Scholars in Washington, DC.

Mexico’s star wanes as reforms underwhelm, Brazil rises

Michale O’Boyle and Bruno Federowski – Reuters, 07/13/2016

Foreign investors in Latin America are warming to Brazil as a promising turnaround bet while souring on Mexico and its landmark energy reform that has yet to deliver.

Brazil has yet to recover from its worst recession in decades, inflation and interest rates remain among the highest in the region and it is saddled with a bloated public sector. In contrast, Mexico’s economy is growing at around 2 percent, has lower fiscal deficits and sounder public finances.

But while Brazil interim president Michel Temer’s reform agenda offers some promise, Mexico, once a darling of foreign investors, is now a source of disappointment. A slump in oil prices dashed hopes that President Enrique Pena Nieto’s energy sector opening in 2013 along with telecoms and banking reforms would boost foreign investment and supercharge growth while clouds are now gathering over its budget and economy.

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Wall Street Has Moved On From Brazil’s Political Crisis

Kenneth Rapoza – Forbes, 07/11/2016

Wall Street is looking forward to the day when Brazil’s economy turns the corner. They believe it happens in 2017. Wheels are in motion.

What is clear is that U.S. investors have moved on from the political crisis, but have not completely ruled out a return of ousted leader Dilma Rousseff. Nor are they expecting miracles from her vice president Michel Temer, who will be the official president once the impeachment is settled later next month.

The first catalyst for change was the December 2015 approval of the impeachment process against Dilma in the lower house. Once that date was settled, for mid-April, markets rallied. Regardless of the political drama behind the impeachment, investors see Dilma’s ouster as the trigger. That first shot was fired in December. The next one will be in August.

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Minister of the Supreme Court orders the release of Paulo Bernardo, former Minister of PT who was in prison for the past six day

Bela Megale, Mario Cesar Carvalho,  Márcio Falcão & Leandro Colon – Folha de S.Paulo, 06/29/16

The Supreme Court Minister, Dias Toffoli decided on Wednesday (June 29) to release the former Minister Paulo Bernardo, detained in the Operation Custo Brasil (Cost Brazil), an investigation into the illicit activity of the Ministry of Planning. He was arrested and imprisoned Thursday, June 23.

Toffoli said that there is no part of the process that justifies the order for preventive arrest. There is no indication that Paulo Bernardo will flee the country, or a risk of his interference in the investigations, thereby granting him the right to house arrest.

The Minister determined that the São Paulo Judicial System, which is responsible for the current operation, reevaluate the necessity to apply cautionary measures. After Toffoli’s decision, judge Paulo Bueno de Azevedo decided that Bernardo would spend the duration of his trial under house arrest, he will have to attend a judicial session every fifteen days, cannot contact others who are being investigated or occupy public office. He will also have to hand in his passport to the police.

Paulo Bernardo’s release should happen during the next few hours, after the notification from Azevedo.

In his decision, the Minister criticized the use of preventive imprisonment, which represents the anticipation of punishment and cited the case of the Mensalão, the worker’s party first major political scandal, as an example.

“Not even in the in case 470, colloquially known as the Mensalão case and conducted by the former minister, Joaquim Barbosa, was there a decree for preventive prisons. In mensalão, all the defendants were charged guilty and have completed or are in the process of completing their sentence,” said Toffoli.

Toffoli also affirmed that this was an “illegal embarrassment, correctable through habeas corpus.” “There is no need to add that the order for the defendant’s preventative imprisonment it needed to be verified by the Supreme Court, which, in this case, cannot be substituted,” he added.

The Minister affirmed that the judicial decision to arrest Paulo Bernardo, “does not indicate one sole factual element” which proves he could jeopardize the investigation.

“The judge’s first hand decision is fragilely based, in the common conjecture that the accuser, given his position as former Minister and his connections with other people and companies who are also being investigated in this operation, could possibly interfere in the production of evidence, but does not indicate a sole factual element that could sustain these connections,” he said.

The Minster partially responded to an appeal made by Paulo Bernardo’s lawyer to the Supreme Court, which questioned that legality in the action determined by the judicial branch from São Paulo. The appeal signed by the defendants, Juliano Breda, Rodrigo Mudrovitsch and Verônica Sterman supported the argument that the São Paulo’s court hindered the legislation by conducting investigative speculation linked to Senator Gleisi Hoffman(PT- PR)., who must be overseen by the Supreme Court, given the constitutional immunity.

The defendant’s ask for an annulment of the action involving Paulo Bernarndo in São Paulo and requested that his case were to be conducted by the Supreme Court, since many of the related evidence are similar to ones involving his wife, the senator Gleisi Hoffman (PT-PR).

Toffoli did not identify indices of usurpation from the Sao Paulo Judicial Court in the case that justifies a change in courts from federal to national.

The minister said that the Supreme Court has already identified the Consist Company’s role  and has proceeded, at first hand, to the suspects who do not have constitutional immunity, which is the case with Paulo Bernardo.

“The arrest was absolutely illegal and profoundly unfair. The decision strictly followed the constitution and its Supreme Court precedents,” said Juliano Breda to Folha.

In a statement, Bernardo’s lawyers confirmed that the decision “deconstructed all of the foundations for Paulo Bernardo’s arrest. It became clear that the foundations were vague and that the legal requisites and constitutional were not present”.

Gleisi commended the release of the former minister during a session of the Impeachment commission stating that “This is essential for me because there were no grounds to justify his arrest. We never refused to collaborate with the investigations,” she said. “I want to express my condolences about this case. In this country, we condemn before acquiring proof and information,” she emphasized.

The former minister in Lula and Dilma governments, Paulo Bernardo was arrested this past Thursday (23) in the Operation Custo Brasil (Brazil Cost), an extension of the Car Wash (Lava Jato). The politician from the worker’s party (PT) is accused of being a major beneficiary from the contractors’ kickbacks in the Ministry of Planning from 2010 until 2015.

Toffoli was the Worker’s Party lawyer during former president, Luiz Inácio Lula da Silva’s campaign in 2002 and 2006. He was nominated Supreme Court Minister in 2009 and was seen as a close friend to the party, but has kept his distance from the party ever since Dilma was elected. Today, he tends to align opinions with his Minister colleague, Gilmar Mendes, the Worker’s Party greatest opposition inside the Supreme Court.

A former Minister during the governments of Lula and Dilma, Paulo Bernardo was arrested last Thursday the 23rd as part of the investigations into the irregularities in the Ministry of Planning. Bernardo, a member of the Worker’s Party, has been accused of benefiting from bribes paid to the Ministry of Planning between 2010 to 2015.

Investigators from the Police and the Public Ministry estimate that about 100 million reais were sent from software company Consist, responsible for the administration of cosigned credits  to the Ministry of Planning as kickbacks.

The company received almost one Real for every loan payment whose actual value was 0.30 Reals. According to investigators, Paulo Bernardo and the Worker’s Party were part of those who received the surplus money.

Bernardo denies the accusation that he personally acquired  seven million reals in kickbacks.

Paulo Bueno de Azevedo, the judge who ruled that Bernardo should be in prison, defends his decision saying that “it was necessary to maintain public order, punish criminal action and aid in the application of the law”.

This past Wednesday, Judge Azevedo sent a statement to the Supreme Court that he was not informed by the Federal Police nor the Public Ministry that the detainment of the former minister had occurred in the office of his wife, Senator Gleisi Hoffmann.

The Senator is not the target of this investigation; however, she is now being investigated by the Supreme Court due to her husband’s involvement. According to investigators, information from Bernardo’s case should be used in her eventual investigation.

Azevedo defended the legality of his decision and said that Gleisi’s office does not have a privileged protection from judicial operations, therefore, would not require the former authorization from the Supreme Court to search the office.

The judge clarified that she had never been investigated or the target of the action for his arrest and that Bernardo clarified once arrested that the majority of his time was spent at his own residency in Brasilia.

The information from the judge’s ruling was sent to minister of the Supreme Court Celso de Mellos who asked for a clarification after the Senate examined the legality of an intrusion into the office of Gleisi without specific authorization by the Supreme Court.

The Senate argued that because Gleisi’s office is owned by the House, it is therefore given immunity in the face of legal action. Only the Supreme Court can give the permission for action to be taken in such.

The judge continued to defend his decision stating that “Although the House owns the office, it is still public property and as such there exists no legal restrictions on search and detainment in such. Unlike the Senator, the apartment does not have immunity to judicial action”.

Read the Original Article in Portuguese…

Translation By The Brazil Institute (Julia Fonteles & Therese Kuester)

 

Latest Brazil Study On Impeachment Unlikely To Save Dilma

Kenneth Rapoza – Forbes, 06/27/2016

A technical report into whether or not Dilma cooked the books on fiscal accounts in 2014 turned out in her favor. Come to find out, she did not push forward accounts, but still — according to one Brazil economist I spoke with — did commit crimes of fiscal responsibility. That will still be for the Senate to decide when suspended president Dilma Rousseff goes to trial at some point in late July, early August.

What appears clear for Brazil watchers is that the back and forth of corruption allegations and now this latest study suggests that if the country was a chicken, it would be running around with its head cut off. It’s not very appealing except for the hungriest of vultures looking for a cheap meal.

Hedge funds that like regime change politics are watching the political play-by-play closely. The latest study might have moved the needle against impeachment, though 60 senators are still expected to vote for her ouster.

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