The Rot at the Heart of the Brazilian Economy

Christopher Sabatini – Foreign Policy, 02/10/2016

In late 2014, Brazil seemed on the verge of a meltdown. Its economy had grown a mere 0.1 percent that year, as its currency (the real) dropped like a stone and business confidence plummeted. In response, in November of that year Brazilian President Dilma Rousseff turned to a Chicago-trained technocrat — a common antidote among Latin American leaders. Domestic and international investors welcomed the appointment of Joaquim Levy, a former banker and fiscal hawk, to lead the finance ministry, but they acknowledged he would have his work cut out for him. If Levy hoped to enact the drastic fiscal cuts and structural reforms needed to fix the careening economy, he would have to first overcome the resistance of not only a fractious congress, but also many members of Rousseff’s leftist Partido dos Trabalhadores (PT) and her cabinet.

Success would ultimately elude Levy. In December 2015, he quit, handing the ministry over to Nelson Barbosa, another well-respected economist. But Barbosa lacks Levy’s credibility among investors. And the task before him has only become more unenviable. He will have to push through his predecessor’s stalled reforms, while turning around an economy that suffered a GDP contraction of 3.7 percent in 2015, staving off potential debt crisisstabilizing the real, and avoiding what analysts predict could become Brazil’s worst crisis since 1901.

The first step to fixing Brazil’s crisis will have to involve recognizing that the rot goes much deeper than it might seem. Brazil’s troubles began with the downturn in the global commodity markets, which once bolstered the country. But the roots of the malaise trace much farther, to a historically autarkic economic model, a political system hobbled and corrupted by party factionalism and localism, and a constitutional carnaval of guarantees for social rights and payouts.

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Brazil Petrobras Former Director Jorge Zelada Jailed

BBC News, 02/01/2016

A former director of the Brazilian state-owned oil company Petrobras has been sentenced to twelve years in prison, as part of a huge investigation into bribery and corruption.

Jorge Zelada, who ran Petrobras’s international division, was convicted of money-laundering and corruption.

Another Petrobras manager, Eduardo Costa Musa, and two others were also jailed.

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Brazil a Bright Spot for Debt Restructuring Advisors as Recession Bites Hard

Tatiana Bautzer, GuillermoParra-Bernal – Reuters, 01/28/2016

Debt restructuring firms are poised to pull in record amounts of business in Brazil this year as the country’s worst recession in decades and a corruption probe that has cast a shadow over dozens of companies leads to a surge in defaults.

While a slump in prices is squeezing commodities producers – from sugar mills to oil producers and miners – the “Operation Car Wash” investigation into political kickbacks at state oil firm Petroleo Brasileiro SA is also hitting many of its suppliers.

Soaring consumer delinquencies as Brazil’s interest rates hit their highest levels for nearly a decade are also putting some major retailers and homebuilders in line for painful reorganizations. Scenting an opportunity, U.S. restructuring shops including FTI Consulting Inc, Houlihan Lokey Inc, and Moelis & Co have set up shop in Brazil over the past three years to vie for mandates with local banks and independent advisors.

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Brazil Economy Shed 1.5 Million Payroll Jobs in 2015

AP, 01/21/2016

Brazil lost 1.5 million payroll jobs in 2015 amid a contracting economy that has led to high inflation and layoffs in the manufacturing and service sectors, the labor ministry said Thursday.

The ministry said that 39.7 million workers were formally employed at the end of last year, compared to 41.2 million at the end of 2014 and 40.8 million in 2013.

Labor Minister Miguel Rossetto said last year’s job creation figures are the worst since they started being compiled in 1992.

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Barclays Retreats from Asia, Brazil and Russia

Martin Arnold, Don Weinland – The Financial Times, 01/21/2016

Barclays has told staff it aims to remain a “bulge-bracket investment bank” while outlining plans to cut up to 1,200 staff by closing many operations in Asia, Brazil and Russia and exiting precious metals trading.

Tom King, head of Barclays’ investment bank, said in a memo seen by the Financial Times: “By focusing our business on areas where we have sustainable competitive advantage, we are putting ourselves in a position where we cannot just survive but thrive in a dynamic, complex operating environment.”
The retrenchment comes as many of the world’s biggest investment banks are cutting staff and pulling out of non-core countries in response to growing pressure from regulators and declines in fixed income trading.

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Rio Olympics Slims Down as Brazil’s Economic Crisis Bites

Andrew Downie – Reuters, 01/19/2016

The grandstands for watching rowing and beach volleyball at the Rio de Janeiro Olympics are to be reduced in size to cut spending as Brazil’s economic crisis hits home, Olympic officials said on Tuesday.

The number of volunteers has also been cut from around 70,000 to 50,000 and the total of cars slashed by 20 percent to 4,000 from an original estimate of 5,000, Rio 2016 spokesperson Mario Andrada told reporters.

The moves come after four months of negotiations between Brazilian organizers, the International Olympic Committee and federations from around the world over how best to trim spending and ensure that South America’s first Olympic Games do not go over budget.

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Brazil Recession Deepening With Three Lost Years, IMF Says

David Biller – Bloomberg Business, 01/19/2016

Brazil won’t return to growth until at least 2018 after two years of recession and one of stagnation, marking the first time in over a century that Latin America’s largest economy fails to expand for that long, the International Monetary Fund said.

The IMF cut Brazil’s 2017 economic forecast to stagnation from 2.3 percent growth as it updated its World Economic Outlook, last published in October. Gross domestic product will shrink 3.5 percent this year after contracting 3.8 percent in 2015, it said Tuesday. That would be the first time since 1901 that Brazil has back-to-back recessions deeper than 3 percent, according to data from the government’s economic research institute, known as IPEA.

The estimates mean the Washington-based lender is now more pessimistic than all but four of the 23 economists surveyed by Bloomberg, whose median estimate is for Brazil to expand 1 percent next year.

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