Brazil’s Dilma Rousseff stares down budget black hole

Joe Leahy – Financial Times, 11/6/2015

Every week that passes in recession-hit Brazil seems to bring a new, bigger estimate for the size of the hole in the government’s finances.

The latest came on Wednesday from Hugo Leal, a lawmaker from congress’s fiscal commission who is overseeing a bill covering the government’s 2015 budget. He said he would amend the bill to allow for a 2015 primary fiscal deficit — the budget balance before interest rates — of R$119.9bn (US$32bn), more than double that of the government’s most recent official estimate.

The blowout, which mainly accounted for government off-budget liabilities with state banks, highlights the central problem facing Latin America’s biggest economy. Politicians are struggling to agree on and implement an austerity programme to plug the widening gap in government finances, creating uncertainty over the sustainability of public debt and undermining investor confidence.

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How Brazil’s boom went bust overnight – and the very real effects for south Florida

WLRN – Tim Padgett, 11/2/2015

In a 2008 interview, then Brazilian President Luiz Inácio Lula da Silva offered me his formula for success: “I allow the rich to earn money with their investments and I allow the poor to participate in that economic growth.”

Lula’s capitalist-socialist policies, and soaring commodities prices, led Brazil to an astonishing boom in the 2000s. By 2010, as Lula was leaving office, the country was the world’s sixth-largest economy, and 40 million people were added to its middle class.

It was a confident global player.

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Brazilian waxing and waning

The Data Team – The Economist, 10/30/2015

IN THE past few years Brazil’s economy has disappointed. It grew by 2.2% a year, on average, during President Dilma Rousseff’s first term in office in 2011-­14, a slower rate of growth than in most of its neighbours, let alone in places like China or India. Last year GDP barely grew at all. It contracted by 2.6% in the second quarter, compared to the same period last year, and is expected to shrink by 3% in 2015.

Household consumption has registered the first drop, year-on-year, since Ms Rousseff’s left-wing Workers’ Party (PT) came to power in 2003. At the same time, public spending has surged. In 2014, as Ms Rousseff sought re-election, the budget deficit doubled to 6.75% of GDP (the bill has since swelled by another 2.5 percentage points). For the first time since 1997 the government failed to set aside any money to pay back creditors. Its planned primary surplus for this year, which excludes interest owed on debt, of 1.2% of GDP is now expected to turn into a 0.9% deficit.

Brazil’s gross government debt of 66% may look piffling compared to Greece’s 175% or Japan’s 227%. But Brazil’s high interest rates of around 14% make borrowing costlier to service. Debt payments eat up more than 8% of output. To let businesses and consumers borrow at less exorbitant rates, public banks have increasingly filled the gap, offering cheap, subsidised loans. These went from 40% of all lending in 2010 to 55%.

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Brazil officials evicting families from homes ahead of 2016 Olympic Games

Bruce Douglas – The Guardian, 10/28/2015

After 75 years living in the same house in a busy neighbourhood in the heart of Rio de Janeiro’s North Zone, 88-year-old Arlette Rosa José struggled to adapt to life on the distant fringes of the city.

Along with another 385 families in the area, she and her daughter were forced from their home when city hall ordered their removal to make way for a high-speed bus lane linking the international airport with Barra da Tijuca, the neighbourhood that will host most of the 2016 Olympic Games venues.

Complications over the legal status of the property mean the Josés have yet to receive any compensation. And with no money, the family has moved to an area where the rent is affordable, over 30km away from their original home.

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Brazil seen keeping rates on hold despite inflation outlook

Alonso Soto – Reuters, 10/21/2015

Brazil’s central bank will likely keep interest rates steady on Wednesday for the second straight meeting, aiming to avoid further harm to an economy mired in recession despite a recent jump in inflation expectations for next year.

All 48 economists surveyed by Reuters last week expect the central bank to hold its benchmark Selic rate at a nine-year high of 14.25 percent.

Keeping rates on hold would give a breather to President Dilma Rousseff, who is fighting for her political survival amid the worst economic and political crisis since Brazil returned to democracy three decades ago.

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Brazil to keep allowances for the poor

Rick Gladstone – The New York Times, 9/18/2015

Despite Brazil’s deepening economic travails and budget problems, there will be no cuts in a pioneering and widely admired program of monthly cash allowances to the poor, the official in charge of the effort said Friday.

The official, Tereza Campello, whose title is minister of social development and fight against hunger, said that the program, known as Bolsa Familia, had helped to improve the lives of millions of impoverished families and had directly contributed to significant, statistically validated advances in childhood nutrition, schooling and health care.

The program, which was started more than a decade ago, electronically transfers monthly cash allowances to bank cards that are entrusted to the heads of qualified households, but with conditions that include mandatory prenatal care, attendance at school and vaccinations. Failure to comply can lead to suspension or termination of the benefit.

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China, Brazil among emerging markets at risk of bank crisis

Tom Beardsworth and Lyubov Pronina – Bloomberg Business, 9/13/2015

Credit growth in China, Brazil and Turkey doesn’t only risk spurring a hangover in bad debt — it also signals a banking crisis is on the horizon, according to the Bank for International Settlements.

A ratio of credit to gross domestic product, a measure of how much private-sector credit has deviated from its long-term trend, stands at 25.4 percent in China, BIS said in a report on Sunday. That’s the highest of any major economy and compares with 16.6 percent in Turkey and 15.7 percent in Brazil.

“Early warning indicators of banking stress pointed to risks arising from strong credit growth,” according to the bank. Historically, a country with a ratio above a 10 percent threshold has a two-thirds chance of “serious banking strains” occurring within three years, BIS said.

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