Petrobras boomtown turns desolate as refinery’s billions vanish

Sabrina Valle and Carlos Caminada – Yahoo Business, 05/04/2016

Located just 30 miles east of Rio de Janeiro’s bustling Copacabana beach, Itaborai looks like many oil boomtowns after the bust — except the deserted stores and empty glass towers that loom over this town of 220,000 speak of some bigger cataclysm than the collapse of crude prices.

“They said this would be the new oil city,” says Jefferson Costa, one of scores of migrants from Brazil’s impoverished north lured here by a multibillion-dollar petrochemical project that was supposed to create more than 100,000 jobs. Work on the complex, known as Comperj, has stopped, and unless new investors materialize, the single refinery now standing may never produce a single drop of fuel. “It’s empty inside,” says Costa, a plumber who lost his job six months ago when construction came to a halt. “People say it will become a large warehouse.”

Comperj has become a symbol of pervasive corruption at Brazil’s state-run oil producer, Petrobras. A sprawling investigation by federal police and prosecutors dubbed Operation Carwash has revealed massive graft, implicating construction conglomerates, banks, oil service providers, shipbuilders and politicians. About 2 percentage points of the 3.8 percent contraction in Brazil’s gross domestic product last year can be attributed to the effects of the scandal on the company and its suppliers, according to estimates from Tendencias, a consulting firm based in Sao Paulo.

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Is Brazil giving up on growth?

Kenneth Rapoza – Forbes, 04/25/2016

Inflation is down nearly 100 basis points from a few months ago, but the Central Bank of Brazil has no intention of lowering interest rates. Investors should take this coming Wednesday’s meeting as a cue whether or not there is a growth strategy anywhere in Brasilia.

Nomura Securities said that they are forecasting the Bank to keep rates at 14.25% even though inflation is coming down. Brazil’s rolling 12-month inflation was as high as 10.7% in January. It’s currently 9.4%. Nomura has close ties to Brazil’s central bank and is good gauge of which way the wind is blowing on the monetary policy committee.

Brazil’s economy, expected to contract by around 3.5% again this year, is facing a massive political crisis. It would be good if the central bank could be more independent and cut rates to boost growth. On the other hand, sentiment among Brazil’s business class is so burned out with the twin crises of politics and economics that it is going to take more than a rate hike to improve things.

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Five reasons why the world needs Brazil to pull through its political crisis

Nick Miroff – The Washington Post, 04/22/2016

If you caught a glimpse of last weekend’s impeachment proceedings against President Dilma Rousseff, you may have noticed that Brazil is going bonkers right now. There was spitting, shoving and confetti-shooting on the floor of parliament, which at times looked more like a Roman coliseum than a legislative chamber.

Rousseff lost the vote badly, setting up what is likely to be a protracted, bitter political battle to unseat her. She will be forced to step down temporarily if Brazil’s senate votes as soon as mid-May to go forward with the impeachment process, with hearings that could drag on for six months.

The country of 200 million people, by far the largest in Latin America, is increasingly polarized and entirely consumed with its political crisis. By no means is Brazil on the verge of collapse, but here are some reasons why the turmoil isn’t so good for the rest of us.

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Road to Rio: Brazil’s troubled path to summer Olympics

Carter Dougherty   – Newsweek, 04/17/16

Pinning business woes on a feckless government can sometimes stretch the bounds of logic, but Robert Mangels can make a pretty persuasive case from where he’s sitting in São Paulo.

The CEO of Mangels Industrial, a metalworking company, Mangels steered his family business into “judicial recuperation”—Brazil’s version of the U.S. Bankruptcy Code’s Chapter 11—in late 2013. He then squeaked through 2015 by paying the firm’s creditors on time and paying careful attention to the bottom line.

Mangels, whose business activities include making aluminum wheels for Toyota vehicles and refurbishing steel propane tanks, watched the Brazilian economy begin to crater in 2014 as prosecutors crept ever closer toward implicating President Dilma Rousseff in an unimaginably wide-ranging corruption scandal that has ensnared dozens of Brazil’s senior politicians. To him, cause and effect appear pretty obvious.

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Brazil’s largest party to leave governing coalition

Katy Barnato – CNBC , 03/29/2016

Brazil’s political system is set to spin further out of control Tuesday as the biggest party in the Senate quits the ruling coalition, a move that will hike the odds on President Dilma Rousseff’s impeachment.

The Brazilian Democratic Movement Party (PMDB) announced Tuesday, as expected, it would pull six ministers from Rousseff’s Cabinet, ordering them to either resign or face ethics proceedings, Reuters reported Tuesday. If Rousseff is impeached, it would put Vice President Michel Temer, leader of the PMDB, next in line for the presidency, Reuters said.

Analysts are divided as to how Brazil’s economy and political situation might fare in the wake.

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Brazil analysts forecast slower inflation and deeper recession

David Biller – Bloomberg, 03/28/2016

Brazil analysts trimmed their 2016 inflation forecast after price increases slowed more than all analysts expected in March and the economy showed signs of a deeper contraction.

Economists lowered their 2016 inflation forecast to 7.31 percent, from 7.43 percent previously, according to the weekly Focus survey conducted March 24. They also pared their 2016 economic outlook to a recession of 3.66 percent, and lowered their 2017 growth forecast to 0.35 percent from 0.44 percent the prior week.

Brazil’s inflation in the 12 months through mid-March fell more than all economists forecast, making its return to single digits for the first time since October. The currency this month also gained most among 16 major currencies as the market gauged a greater probability President Dilma Rousseff will be impeached. While markets responded positively to the political strife engulfing the capital, it is weighing on the outlook for economic rebound.

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Brazilian Real rises on speculation government allies splitting

Paulo Sambo – Bloomberg, 03/28/2016

Brazil’s real advanced amid increasing speculation that an impeachment of President Dilma Rousseff is getting closer as her political allies fall away.

Traders pushed up the value of the Brazilian currency amid reports that the biggest party in Congress may leave the governing coalition as soon as Tuesday. The PMDB’s decision to split with the government may prompt other parties to follow, further reducing the government’s support. The real added 1 percent to 3.6427 per dollar at 9:59 a.m. in Sao Paulo The currency has gained 8.7 percent this year, the most among its most-traded counterparts.

“The prospect of PMDB and other parties splitting with the government is boosting Brazilian assets today,” said Eduardo Longo, who helps manage 23 billion reais as a fixed-income portfolio manager at Quantitas, in Porto Alegre, Brazil.

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