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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Brazil’s Temer To Make China First Official Visit Abroad

Lise Alves – The Rio Times, 07/11/2016

SÃO PAULO, BRAZIL – If suspended president Dilma Rousseff is impeached from office in August, Brazil’s interim President, Michel Temer, plans to take his first official overseas trip as leader of the country in September to China, Industry and Foreign Trade Minister Marcos Pereira announced over the weekend. Temer’s main goal is to boost Brazilian exports to the Asian country, especially of aircrafts and beef.

Brazil, airplanes, embraer aircraft manufacturer

Last year, during Chinese Prime Minister Li Keqiang’s visit to Brazil, the two countries signed investment agreements worth US$53.3 billion to be made by Chinese companies in Brazil in the areas of agribusiness, auto parts, equipment transport, energy, railways, highways, airports, ports, storage and services. Now Temer wants to increase the presence of Brazilian products in China.

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Brazil Is Back to Pre-Junk Levels as Swaps Traders Bet on Temer

Julia Leite & Paula Samba – Bloomberg, 06/27/2016

Brazil is winning over derivatives traders as Acting President Michel Temer seeks to repair the nation’s finances.

The cost to hedge against losses in Brazil’s bonds with credit-default swaps has tumbled by almost a third in the past six months, the biggest drop among the world’s major economies. Prices of the swaps are also now back to levels that prevailed before S&P Global Ratings cut the country’s rating to junk in September.

The turnaround is part of a rebound in Brazil’s financial assets this year fueled by the removal of President Dilma Rousseff from office while she faces an impeachment trial. Since taking the reins last month, Temer has proposed spending caps to help shrink a near-record budget deficit and struck a deal to ease a fiscal crisis roiling Brazilian states amid the longest recession in more than a century.

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How to Get Brazil (And Latin America) Completely Wrong

Brian Winter – Americas Quarterly, 06/22/2016

It’s been yet another rough week for Brazil’s international image, with an Olympic mascot shot dead in an absurd accident and another national political figure dragged into scandal. But the biggest blow of all came from Declan Ryan, co-founder of the Irish budget airline Ryanair, who told an Argentine newspaper that he was considering expansion into every South American country “except for Brazil, where there is lots of corruption.”

This is precisely the wrong lesson to draw from Brazil’s struggles – akin to believing that the house that gets the most exhaustive inspection must also be the most rotten one on the block. It’s telling that Ryan made his comments (which became huge news in Brazil) while announcing an expansion into Argentina, where the corruption under 12 years of Kirchner rule is only now coming to light. Just last week, a former Argentine secretary of public works was arrested while trying to hide $9 million in cash in a monastery. Ryan preferred tolaugh that story off.

As regular AQ readers know, the negative headlines about Brazil result from a positive process – the independent prosecutors who have uncovered evidence of systemic graft and fraud, and sent some of the country’s most powerful people to jail. This does not mean Brazil is South America’s most corrupt country – it may mean, instead, that it has its healthiest (or most active) legal system. But the mistake Ryan made is surprisingly common, and it provides a golden opportunity for investors who are savvy enough to see the truth.

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Brazil Update: One Month into a Michel Temer Government

Luisa Leme – AS/COA, 06/17/2016

It’s just over a month since Brazil’s Senate suspended Dilma Rousseff for 180 days to hold an impeachment trial. Since then, the government of interim President Michel Temer has chosen a path that focuses on cutting spending on social policies to improve the country’s fiscal situation in the hopes of recovering investors’ trust. Temer took office May 12 and introduced an economic team led by Finance Minister Henrique Meirelles, who promised to “save the country” from its crisis while preserving Brazilian institutions and anticorruption efforts.

But many of the interim government’s decisions have been met with a backlash from voters, the judiciary, and even its own team. Temer not only picked an all-male cabinet, but 15 of the 26 ministers he selected face criminal investigations, with nine of them linked to the Lava Jato corruption scandal.

On top of that, two ministers had to leave their posts afterleaked recordings revealed they planned to use the impeachment process to halt corruption investigations, while the tourism minister resigned today due to links to Lava Jato. Temer himself was also linked to Lava Jato after the former president of the state-run oil transportation company Transpetro accused him of asking for kickbacksfor a mayoral candidate of Temer’s Brazilian Democratic Movement Party (PMDB). The São Paulo electoral court declared Temer ineligible for future office, based on the country’s clean record law, as he was convicted of exceeding donation limits for political campaigns.

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Brazil government proposes 20-year spending cap to tame public debt

Alonso Soto and Maria Carolina Marcello – Reuters, 06/15/2016

Brazil’s interim President Michel Temer proposed on Wednesday a constitutional amendment to limit public spending growth for up to 20 years, one of the most far-reaching fiscal reforms in decades designed to curb a runaway rise in public debt.

Brazil’s government, including the legislative and judiciary branches, will be obliged to limit annual spending growth to the inflation rate of the prior year if the flagship reform is approved in Congress, according to a Finance Ministry statement.

The move signaled a victory for economic hardliners in the cabinet, led by Finance Minister Henrique Meirelles, who overcame calls from a faction pushing for a shorter cap.

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Brazil’s New Central Bank Chief Takes Post With a Pledge to Pursue Lower Inflation

Paulo Trevisani – The Wall Street Journal, 06/13/2016

BRASÍLIA—Brazil’s central bank Monday inaugurated a new leader to deal with an old challenge: taming stubborn inflation amid a shaky economy and political chaos.

Private-sector economist Ilan Goldfajn took over the post from Alexandre Tombini in an hour-long ceremony at the bank’s imposing building here. An appointee of Brazil’s suspended President Dilma Rousseff, Mr. Tombini had held the job since January 2011. On his watch, Brazil never met its 4.5% annual inflation target, as the figure stayed significantly above that level even as the economy ground to a halt in the past few years.

Mr. Goldfajn, 50 years old, was appointed by acting President Michel Temer, who will serve out Ms. Rousseff’s term if she is ousted. Mr. Goldfajn—a U.S.-educated economist who for the past decade led the economic-research department at Itaú Unibanco, Brazil’s largest private-sector bank—has pledged to meet the nation’s inflation target, without giving a time frame, even as prices are rising at a 9.3% pace, as of May.

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