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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The Heat: Brazil at a Crossroads

Paulo Sotero, Lucrecia Franco,  Ligia Maura Costa, Bernardo Sork, Fabio Ostermann – CCTV, 01/28/2016

Political upheaval, economic downturn and corruption scandals: Brazil is at a crossroads.

So, what’s the way forward for a Latin American giant in crisis? 2015 was not Brazil’s easiest year. Several widespread protests across the country called for change. Confidence in president Dilma Rousseff reached a record low. A scandal at state-run oil conglomerate Petrobras exposed corruption. All while the economy stagnated and began a free fall. 2016 hasn’t started off much better either. For a Brazilian perspective, from Rio de Janeiro, The Heat was joined by CCTV America’s Lucrecia Franco. To discuss the current political and economic climate: Ligia Maura Costa is a professor of legal studies at Escola de Administração de Empresas de São Paulo. Bernardo Sorj is a professor of Sociology at the Federal University of Rio de Janeiro. To discuss Brazil’s future and the youth movement: Fabio Ostermann is one of the founders and a former coordinator of Movimento Brasil Livre. Paulo Sotero is director of the Brazil Institute of the Woodrow Wilson International Center for Scholars.

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Imports Fall 36% in January as Brazil Registers Trade Surplus

Isabel Versiani – Folha de S. Paulo, 02/02/2016

Brazil’s trade balance closed out January with a surplus of US$923 million, the first surplus for January since 2011 and the highest in nine years.

Exports totaled US$11.2 billion, with a 14% fall compared to January last year. However, imports fell by 36% in the same period, down to US$10.3 billion.

This is the lowest value since 2009, when the country was suffering from the effects of the global financial crisis, following the closure of the American bank Lehman Brothers.

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Brazil’s State Run Banks Getting Tapped Out

Kenneth Rapoza – Forbes, 01/31/2016

Brazil’s public banks are the only game in town. Not only do they have subsidized rates they can offer home owners and small business, but they are the only banks in Brazil willing to take on risk. Last year, 56% of credit circulating nationwide was from the public sector banks. That’s up from 34% six years ago. The problem is that these banks are getting stretched out and will not be able to offer as much credit this year.

“The situation for capital at state banks is very tight. They cannot do a lot of anti-cyclical moves at the moment,” an executive at one of the banks told Estado de Sao Paulo newspaper on Sunday. “Either the Central Bank injects capital or Brazil breaks with the Basil accords.”

Brazil is still a ways away from being a risky lender, however.The Basil agreement among world banks, pushed forward after the Great Recession in order to avoid a global banking meltdown, requires signatories to hold between 7% and 9.5% in cash in relation to its credit portfolio.

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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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Partying on a precipice

The Economist, 01/30/2016

JANUARY is a languid month in Brazil. Beyond the hullabaloo at samba schools—practising for their bawdy annual face-off during Carnival, which starts on February 5th—business pauses while Brazilians go on holiday in the scorching southern summer. Fewer cars clog streets; more bodies throng the beaches.

Politicians customarily switch off along with everyone else. Congressmen return from their Christmas break on February 2nd, but will probably do little until after Mardi Gras a week later. Neither they nor the president, Dilma Rousseff, will be able to relax, though. A frightening mosquito-borne disease has put the health authorities on high alert (see page 42). Meanwhile, Brazil’s political and economic crises are deepening. When politicians return to work they may regret the time they took off from attempting to solve them.

Brazil Announces R$83 Billion Plan to Jumpstart Economy

Lise Alves – The Rio Times, 01/29/2016

The Brazilian government announced on Thursday measures to boost production and recover the country’s growth, including a credit injection of R$83 billion (US$20.4 billion) into the economy. Among the measures announced are investments in infrastructure and more available credit from state-run banks to small and medium sized companies and for important economic sectors such as agriculture and construction.

According to Finance Minister, Nelson Barbosa, the measures will not incur extra costs for the government. “The greater part of the initiatives is administrative. There will be no additional cost for Brazilian taxpayers. We want to make better use of the available resources,” said Barbosa during a press conference to announce the measures.

In addition to freeing up credit for industry and agriculture, the government will also ask Congress to approve a measure that would allow laid off workers to use their FGTS (workers’ pension fund) as a guarantee to obtain loans. According to Brazil’s Central Bank the total volume of credit offered by banks last year increased by only 6.6 percent, to R$3.21 trillion, the lowest annual growth ever registered.

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