An escalating corruption scandal rocks Brazil

Mary Anastasia O’Grady – The Wall Street Journal, 04/15/2015

Former Brazilian presidential candidate Aécio Neves speaks for a lot of his compatriots when he says President Dilma Rousseff’s Workers’ Party (PT) used stolen funds to defeat him in Brazil’s runoff presidential election in October.

In an interview in Lima last month I asked Mr. Neves—who is president of the Social Democracy Party of Brazil (PSDB)—whether he lost the election because the socialism of the hard-left Ms. Rousseff had greater appeal to Brazilians than his more market-oriented platform.

He denied the possibility. He lost, he told me, because of “organized crime.”

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The president of Brazil is already having the worst year ever

Linette Lopez – Business Insider, 2/11/2015

Dilma Rousseff is having a rough 2015.

The Brazilian president, who barely defended her seat from opposition candidate Aecio Neves last fall, is dangerously close to losing it. The calls for her impeachment have gotten too loud to ignore. Eurasia Group researchers estimate that there’s a 20% chance she’ll be removed from office.

And as the situation gets worse, the odds of that happening increase. Rousseff’s latest missteps have to do with a singular problem — Petrobras. The state-owned oil company that short seller Jim Chanos called “a scheme not a stock” has turned into a $40 billion market-cap nightmare for the country. Laden with debt, inefficient and corrupt, it seems like new revelations about the dirty connection between the company and Rousseff’s party come out every day. Brazilians are tired.

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Pilot error blamed for crash that killed Brazil presidential hopeful

EFE – Fox News Latino, 1/16/2015

Pilot error caused the Aug. 13 plane crash that killed Brazilian presidential candidate Eduardo Campos and six other people, O Estado de Sao Paulo newspaper reported Friday, citing investigators’ preliminary findings.

The daily said it gained access to Brazilian air force documents that point to the pilot’s “lack of training” to fly a Cessna 560 XL aircraft and “a sequence of errors” leading up to the accident.

The airplane was carrying former Pernambuco Gov. Campos, four of his aides and two crew members.

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Brazil’s fading economy sounds a warning for EM

Jonathan Wheatley – Financial Times, 1/12/2015

The year is barely under way and already Brazilian analysts are hurriedly revising down their projections for economic growth in 2015. In the central bank’s second weekly survey of market economists of the new year, published on Monday, gross domestic product is seen expanding by just 0.4 per cent, down from 0.5 per cent expected last week and about 0.7 per cent a month ago.

It is an inauspicious way to begin a year that not only will be hugely significant for Brazil but in which Brazil – or so Manoj Pradhan and Patryk Drozdik of Morgan Stanley argue in a note on Monday – will be hugely significant for the rest of EM.

As Brazil embarks on president Dilma Rousseff’s second four-year term in office, it is no exaggeration to say its future hangs in the balance. Rousseff (pictured above) won last October’s election partly by demonising the “neo-liberal”, market-friendly policies proposed by her opponent, Aécio Neves of the centrist PSDB. But faced with an urgent and increasingly desperate need to generate economic growth, she has appointed a market-friendly economics team that might have been chosen by Neves himself.

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Would Brazil Impeach President Rousseff?

Dimitra DeFotis – Barron’s, 11/20/2014

Demonstrators in Brazil, mad about bribery allegations at state-controlled Petrobras, have sent a message to the English-speaking world with one word: impeachment.

The energy company investigation is still expanding, and was at center stage during the October election that returned President Dilma Rousseff to power, by a narrow percentage, over the market-friendly Aecio Neves. But the scandal has stretched from Petroleo Brasileiro (PBR) to political parties and beyond, including building companies that have concessions for major infrastructure projects.

Petrobras shares rose more than 2% today, lifted in part by a 1.5% jump in the price of Brent crude oil, the international benchmark. Shares of telecom Oi (OIBR) rose 5.6% following a big hedge fund purchase. The iShares MSCI Brazil Capped ETF (EWZ) closed the day up 0.3%.

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Brazil Aims to Put Eike Batista Behind Bars

Denyse Godoy – Bloomberg, 11/13/2014

Less than three years after President Dilma Rousseff dubbed Eike Batista “the pride of Brazil,” prosecutors are trying to send the former billionaire to prison for alleged insider trading in a trial set for later this month. If they succeed, Batista will be the first person in the nation to serve time for that crime in the 13 years since such activity was outlawed.

“Insider trading is clearly widespread in Brazil,” says David Riedel, president of Riedel Equity Research in Greenbrae, Calif. “There is a consistent pattern of leaking. But the problem is not the laws—it’s that they aren’t enforced.” Of the 11 biggest mergers and acquisitions in Brazil in the past two years, at least seven of them were reported by newspapers and news agencies before the official announcement was made, according to data compiled by Bloomberg News. The stock of real estate developer Brookfield Incorporações skyrocketed 21 percent on Jan. 23 on rumors its parent company would take the unit private. That deal was announced four days later.

Other kinds of information have leaked as well. The benchmark Ibovespa stock index surged on Sept. 16 as speculation spread that an upcoming poll would show market-friendly presidential candidate Aécio Neves gaining voter support. The poll, released two hours after the market closed, confirmed just that. (Neves lost a runoff election to Rousseff on Oct. 26.)

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Why Brazil looks expensive compared to the BRIC nations

Stephanie Johnson – Market Realist, 11/12/2014

Looking at the price-to-earnings (or P/E) multiple for Brazil over the last two years, equity shoppers may find that Brazil became a bit more expensive. Brazilian equities have been selling at 15–20x their earnings in the last two years. The valuations become clearer when we compare Brazil to its closest emerging market counterparts—Russia, India, and China.

The above chart compares Brazilian equity valuations with those of other emerging countries—like Russia, China, and India—over the last two years. Comparing the economies in the Brazil, Russia, India, and China (or BRIC) nations, Brazil is the more expensive or overvalued economy—compared to China and Russia.

However, part of the recent surge in Brazilian equities can be attributed to the four yearly elections in Brazil. This year the elections were in October. Markets surged partly on the expectations of a change in presidency from Dilma Rousseff—chief of the Worker’s Party—to Aécio Neves da Cunha—chief of Brazil’s Social Democracy Party. Brazil’s economic conditions hadn’t changed much. The conditions got worse during Rousseff’s first tenure as president—starting in 2011.

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Dilma Rousseff puts Brazil back on path to economic orthdoxy

Joe Leahy – Financial Times, 11/12/2014

At the height of Brazil’s bitterly fought election campaign in October, President Dilma Rousseff seemed to eschew any regard for market economics. To satisfy militant leftist supporters of her Workers’ Party, she painted members of the opposition PSDB party, known as tucanos, and its pro-business presidential candidate, Aécio Neves, as blood-sucking bankers.

“Those tucanos … implant inflation so they can collect interest,” she told an audience in Recife in Brazil’s poor northeast, the region whose support ensured her narrow 3 percentage point win in the election on October 26. “Today, Brazil has the lowest interest rates in its history,” she said during another encounter.

Three days after her victory in the election, however, the central bank did exactly what Mr Neves had been advocating – it increased interest rates to their highest level in three years to control inflation that is above the official target range ceiling of 6.5 per cent. Indeed, since the election, Ms Rousseff has quietly begun implementing several elements of Mr Neves’ platform to try to rebalance Brazil’s stagnant economy. Her stance has prompted jokes on Facebook that Mr Neves in fact won the election. The only difference is that Ms Rousseff’s version of his policies lacks her rival’s reformist zeal.

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Next Four Years Will Be Pressure Cooker For Brazil Pres Dilma

Kenneth Rapoza – Forbes, 11/05/2014

October 26, 2014 will go down as one of those days where Dilma Rousseff should have been more careful about what she wished for. Dilma, re-elected president of Brazil with around 52% of the popular vote, has the Workers’ Party credibility on the line. More important than politics, the business community is now counting on her for revival. If she fails to resuscitate – and no one thinks she’s the Red Cross – Brazil will be mired in slow growth for most of her second term.

Within the greater Latin American economy, Brazil is the elephant in the room, says Guilherme Loureiro, a UBS economist based in São Paulo. The region’s fortunes will largely be determined by whether its biggest economy can turn its fortunes around. Loureiro thinks it is unlikely that a new Dilma administration will introduce the type of structural reforms needed to boost savings and investment in the economy. Out of the big four emerging markets, Brazil is the worst for private investment. It equals just 17% of GDP. For Loureiro’s team at UBS, the base case scenario for Brazilian growth next year is a paltry 0.6%. In 2016, it’s 1.8%.

Dilma is currently dealing with the worst political climate since the bribery scandals known locally as “mensalão” took place in 2005.  Top executives from state owned oil and gas company, Petrobras, are being investigated for fraud. Some whistle blowers are saying Dilma knew about the fraud. This is a political grenade for the Workers’ Party which– as rumor has it — is thinking about putting up Party frontman Luiz Inacio Lula da Silva as its presidential candidate in 2018. He already had 8 years as President prior to Dilma’s election in 2010.  A mis-step by Dilma would likely put an end to those plans, even if they were carried out. If Dilma sinks Brazil, Lula won’t be able to sell himself as the clean-up crew.

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Brazil still struggling to reach its full potential

Guillermo I. Martinez – South Florida Sun-Sentinel, 11/05/2014

After a dirty, divisive and at times surprising campaign, Dilma Rousseff, Brazil’s leftist president won what some call a closely contested election — although she bested her opponent by 3.5 million votes.

For Rousseff, it will be her second term in office. For the ruling Workers’ Party (PT) of which the former guerrilla leader belongs, it was the fourth straight victory. And the possibility is that as long as Rousseff and her predecessor and mentor Luiz Inacio Lula da Silva lives, they may hold on to power for many years.