Petrobras scandal about to hit Brazil’s political class

February 26, 2015

Anthony Boadle – Reuters, 2/25/2015

Brazil’s top prosecutor is expected to file charges in coming days against politicians implicated in the Petrobras corruption scandal, a political bombshell that could involve members of Congress and President Dilma Rousseff’s government.

Under Brazilian law, lawmakers and cabinet members can only be tried by the Supreme Court. Prosecutor Rodrigo Janot has said he plans to file cases with the court by the end of the month against politicians involved in the graft scheme at Petrobras.

Prosecutors say corrupt executives from Petroleo Brasileiro SA (PETR4.SA), as the company is formally known, conspired with contractors to misappropriate billions of dollars from the company. Some of the funds were funneled to politicians and political parties, the prosecutors say.

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Schumpeter: Brazil’s business Belindia

February 26, 2015

The Economist (print edition), 2/28/2015

BRAZILIANS make up almost 3% of the planet’s population and produce about 3% of its output. Yet of the firms in Fortune magazine’s 2014 “Global 500” ranking of the biggest companies by revenue only seven, or 1.4%, were from Brazil, down from eight in 2013. And on Forbes’s list of the 2,000 most highly valued firms worldwide just 25, or 1.3%, were Brazilian. The country’s biggest corporate “star”, Petrobras, is mired in scandals, its debt downgraded to junk status. In 1974 Edmar Bacha, an economist, described its economy as “Belindia”, a Belgium-sized island of prosperity in a sea of India-like poverty. Since then Brazil has done far better than India in alleviating poverty, but in business terms it still has a Belindia problem: a handful of world-class enterprises in a sea of poorly run ones.

Brazilian businesses face a litany of obstacles: bureaucracy, complex tax rules, shoddy infrastructure and a shortage of skilled workers—to say nothing of a stagnant economy (see article). But a big reason for Brazilian firms’ underperformance is less well rehearsed: poor management. Since 2004 John van Reenen of the London School of Economics and his colleagues have surveyed 11,300 midsized firms in 34 countries, grading them on a five-point scale based on how well they monitor their operations, set targets and reward performance. Brazilian firms’ average score, at 2.7, is similar to that of China’s and a bit above that of India’s. But Brazil ranks below Chile (2.8) and Mexico (2.9); America leads the pack with 3.3. The best Brazilian firms score as well as the best American ones, but its long tail of badly run ones is fatter.

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For Emerging Market Investors, Brazil Has Become A Hot Mess

February 26, 2015

Kenneth Rapoza – Forbes, 2/25/2015

For those who like their macro trades to be alluring and exotic, but with an overdose of danger, then Brazil is the place for you. Like Rio de Janeiro itself, pretty but deadly, Brazil has become the hot mess of emerging markets.

Not even Russia, the wild east sanctioned geopolitical disaster zone that it is today, can compare to Brazil. Russia is, well, Russia. It’s always trading at a discount to better managed, diverse and transparent economies like Brazil. But Russia is failing because of geopolitics and oil. Brazil, meanwhile, is shooting itself in the foot.

The most visible problem in Brazil today is the ongoing scandal involving Petrobras. Brazil’s state run oil firm was downgraded by Moody’s to junk bond status on Tuesday. More importantly, the corruption scandal has changed investor perception of Petrobras. It’s no longer trustworthy. Investor sentiment has soured to the point where Petrobras shares have lost 43.6% in the last 12 months. Petrobras’ problems are Brazil’s problems. As the country’s most important company, when sentiment sours on Petrobras, it sours on the political leadership that’s in charge of it. When that happens, investors, like civil society in Brazil in general, lose confidence in government.

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Brazil truckers strike drags on as gov’t talks stall

February 26, 2015

Marcelo Teixeira and Reese Ewing – Reuters, 2/25/2015

Truckers who blocked roads in 10 Brazilian states in an eighth day of protests struggled to find a solution in talks with the government on Wednesday to end a strike that has disrupted food and fuel supplies.

Agriculture Minister Katia Abreu said after a meeting with truckers in Brasilia on Wednesday afternoon that she was confident both sides would reach agreement.

“(The protesters) are flexible and want to resolve the problem,” Abreu said, but she added the government would not give in to on the truckers’ main demands: lower diesel prices and fixed freight rates.

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Brazil’s coming recession: The crash of a titan

February 26, 2015

The Economist (print edition), 2/28/2015

IT IS easy for a visitor to Rio to feel that nothing is amiss in Brazil. The middle classes certainly know how to live: with Copacabana and Ipanema just minutes from the main business districts a game of volleyball or a surf starts the day. Hedge-fund offices look out over botanical gardens and up to verdant mountains. But stray from comfortable districts and the sheen fades quickly. Favelas plagued by poverty and violence cling to the foothills. So it is with Brazil’s economy: the harder you stare, the worse it looks.

Brazil has seen sharp ups and downs in the past 25 years. In the early 1990s inflation rose above 2,000%; it was only banished when a new currency was introduced in 1994. By the turn of the century Brazil’s deficits had mired it in debt, forcing an IMF rescue in 2002. But then the woes vanished. Brazil became a titan of growth, expanding at 4% a year between 2002 and 2008 as exports of iron, oil and sugar boomed and domestic consumption gave an additional kick. Now Brazil is back in trouble. Growth has averaged just 1.3% over the past four years. A poll of 100 economists conducted by the Central Bank of Brazil suggests a 0.5% contraction this year followed by 1.5% growth in 2016.

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Brazil prosecutor looks to block corruption leniency deal: report

February 23, 2015

Reuters, 02/21/2015

A Brazilian prosecutor sought to block a possible government leniency deal with construction and engineering companies implicated in a giant bribery and money laundering scheme at state-run oil company Petrobras, according to a document published Saturday on a Brazilian news site.

The letter requests an injunction to stop Brazil’s comptroller general from approving any leniency deals with the companies, on the grounds that such a move could obstruct the police investigation.

Reuters reported on Friday that a number of companies alleged to be involved in the corruption scheme were seeking such deals, which could allow them to continue bidding for state contracts.

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Insight: Brazilian companies push for deal to minimize Petrobras scandal

February 23, 2015

Brian Winter – Reuters, 02/20/2014

Some of the companies caught up in a massive corruption scandal at state-run oil firm Petrobras are quietly pressing Brazil’s government and judiciary to strike a “grand bargain” to minimize the legal fallout, five sources with knowledge of the talks say.

The companies, which prosecutors suspect of paying out billions of dollars in bribes through service contracts they had with Petrobras, are worried the investigation is too far-reaching and could drag on for years, heavily damaging their bottom lines and Brazil’s fragile economy.

They are not trying to escape punishment altogether but are pressing judges and officials in President Dilma Rousseff’s government, sometimes through intermediaries or at informal meetings, to find a way for any penalties to be definitive and applied quickly, the sources told Reuters.

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