A setback in Brazil

The Editorial Board – The Washington Post, 6/27/2015

Just a couple of years ago, it was widely concluded that Brazil had finally overcome the decades-old gibe about the world’s fifth-largest country: that it would always be “the country of the future.” Exports, particularly to Asia, were booming; a middle class was filling in the once-polarizing gap between the very rich and very poor; and huge offshore oil discoveries appeared to ensure yet another economic acceleration. In seeming confirmation of its new status, Brazil was chosen to host both soccer’s World Cup last year and the 2016 Olympics.

The Rio de Janeiro games are still a year away, but already Brazil’s bubble appears to have burst. The economy is mired in a deepening recession, thanks to the drop in oil and other commodity prices. The state oil company, Petrobras, has triggered the biggest corruption scandal in the country’s history, with dozens of businesspeople and more than 50 members of Congress implicated in some $2 billion in kickbacks. Investments in the vaunted new oil fields have been cut back, even as Brazilians fume over the billions spent on new stadiums.

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Brazil Central Bank reaffirms commitment to reduce inflation

Rogerio Jelmayer – The Wall Street Journal, 6/29/2015

Brazil’s central bank president reaffirmed the country’s commitment to reduce inflation, despite negative impacts in economic activity in the short term.

Central bank head Alexandre Tombini said the monetary authority is committed to bring the country’s rampant inflation down to the official target by the end of next year.

“We are conducting a classic economic adjustment, which is necessary to reduce domestic and external vulnerabilities, put public debt back on a declining path and send inflation back to its target by the end of 2016,” Mr. Tombini said Sunday in a speech during the annual general meeting of the Bank for International Settlements, which took place in Basel, Switzerland.

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Real drops amid signs Brazil faces worst recession in 25 years

Paula Sambo – Bloomberg, 6/19/2015

The real fell the most among major currencies as Brazil braced for its worst recession in 25 years after the central bank reported that the economy contracted more than forecast in April.
Efforts by President Dilma Rousseff’s administration to reassure investors by increasing taxes and reducing expenditures are expected to damp the nation’s gross domestic product in the second quarter. Moreover, Brazil is the only nation in the Group of 20 to raise interest rates this year as inflation stays above target, further hampering growth prospects.
“It’s not a good picture,” Joao Paulo De Gracia Correa, a foreign-exchange superintendent at SLW Corretora de Valores, said in a telephone interview from Sao Paulo. “The economy is coming in even weaker than anticipated.”

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Brazil economy still faltering, with GDP contraction on par with Russia’s

Kenneth Rapoza – Forbes, 6/19/2015

Brazil’s economy is grinding to the bottom. But the bottom doesn’t appear to have been hit just yet.

The monthly GDP proxy at the Central Bank of Brazil, known as the IBC-Br index, surprised on the downside on Friday by falling 0.84% in April. That’s from a downwardly revised -1.51% decline in the previous month and is now compatible with a yearly drop of 3.13%.

Putting this into perspective, Brazil’s BRIC counterpart Russia is expected to contract 3.25% this year and its economy is facing weaker oil prices and sanctions against its oil and finance companies. Brazil is moving in line with a sanctioned economy that is over dependent on one commodity, while Brazil has good relations with the world and a much more diverse economy.

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Roots of a Brazilian scandal that weighs heavily on the nation’s economy, politics

Marla Dickerson – The Wall Street Journal, 6/19/2015

Brazilian prosecutors allege that for at least a decade up until 2014, some of the country’s largest construction firms colluded to inflate the cost of contracts at state-owned oil giant Petróleo Brasileiro SA by an average of about 3%.

Crooked Petrobras executives who brokered the deals got a portion of the ill-gotten gains, authorities say, funneling the rest to a slush fund for lawmakers and political parties, the prosecutors say. A web of money launderers allegedly helped them hide the money overseas.

The criminal investigation, dubbed Operation Car Wash after a gas station that was allegedly used to launder money, came about almost by accident. In 2013, investigators in southern Brazil were tracking the movements of an admitted money launderer named Alberto Youssef. Their curiosity was piqued when Mr. Youssef gave a $78,000 Land Rover to a former Petrobras executive name Paulo Roberto Costa. Authorities said that break helped them uncover one of the largest corruption scandals in Brazilian history.

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America must take Brazil seriously

Eric Farnsworth – The National Interest, 6/15/2015

Brazil is on the move. Its economic strength over the past decade has provided the primary means for it to develop long-standing ambitions for a larger global-leadership stake—a path that U.S. policy makers have encouraged for many years, presuming that a stronger, democratic Brazil more actively engaged globally would be a natural ally for the United States.

In so doing, however, it has pursued a foreign policy independent of Washington, leading at times to misunderstandings and dashed hopes. This was in evidence even before the revelations of National Security Agency contractor Edward Snowden in 2013 temporarily froze bilateral relations. Over the past two years, growth has slowed in Brazil and in other nations with which Brazil maintains significant economic links, while the U.S. economy has been on a long march to recovery.

With the late 2014 reelection of President Dilma Rousseff on a platform focused on addressing the unmet economic expectations of a rising middle class, a framework now exists to improve relations between the two countries when Rousseff travels to Washington at the end of June. Still, getting relations back on track will require a more realistic understanding of Brazil’s aspirations and worldview. The United States must move beyond the vague notions of partnership and romantic assumptions of shared interests that traditionally frame its thinking.

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Brazil analysts raise 2015 inflation forecast after May surprise

David Biller – Bloomberg, 6/15/2015

Brazil economists raised their 2015 inflation forecast by more than a quarter-point and lowered their outlook for economic activity as the central bank raises borrowing costs.

Analysts boosted their forecast for inflation to 8.79 percent from 8.46 percent, according to the June 12 central bank survey of about 100 analysts published Monday. The central bank’s top five forecasters increased their forecast to 8.9 percent from 8.47 percent.

Brazil is the only central bank among the Group of 20 nations raising interest rates as above-target inflation erodes consumer and business confidence. Economists in the survey estimate gross domestic product will contract 1.35 percent this year before expanding 0.9 percent in 2016.

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