Brazil Is Still the Country of the Future

Tyler Cowen – Bloomberg, 08/11/2016

Brazil, it is often and not quite fairly said, is the country of the future and always will be. As the Olympics focuses global attention on the country, it’s worth exploring the various ways in which this maxim is — and may not be — true.

The puzzle with Brazil is neither its successes nor its failures, but rather the combination of the two. The country has such a dynamic feel, and in the postwar era it saw many years of double-digit economic growth. The Economist featured the country on its cover in 2009 as the next miracle take-off, and in 2012 Germany’s Der Spiegel published a long article titled “How Good Governance Made Brazil a Model Nation.”

Yet Brazil never caught up to the developed world: Its gross domestic product per capita falls about 4 to 7 times short of the U.S. — about where it was more than a century ago. It is now experiencing one of the most severe depressions of any country in modern times. The president, Dilma Rousseff, is in the midst of an impeachment process. The combination of corrupt and violent police, muggings of athletes, polluted water and inadequate facilities have led many to wonder whether Brazil can pull of the Olympics without major embarrassment.

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Mexico’s star wanes as reforms underwhelm, Brazil rises

Michale O’Boyle and Bruno Federowski – Reuters, 07/13/2016

Foreign investors in Latin America are warming to Brazil as a promising turnaround bet while souring on Mexico and its landmark energy reform that has yet to deliver.

Brazil has yet to recover from its worst recession in decades, inflation and interest rates remain among the highest in the region and it is saddled with a bloated public sector. In contrast, Mexico’s economy is growing at around 2 percent, has lower fiscal deficits and sounder public finances.

But while Brazil interim president Michel Temer’s reform agenda offers some promise, Mexico, once a darling of foreign investors, is now a source of disappointment. A slump in oil prices dashed hopes that President Enrique Pena Nieto’s energy sector opening in 2013 along with telecoms and banking reforms would boost foreign investment and supercharge growth while clouds are now gathering over its budget and economy.

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Wall Street Has Moved On From Brazil’s Political Crisis

Kenneth Rapoza – Forbes, 07/11/2016

Wall Street is looking forward to the day when Brazil’s economy turns the corner. They believe it happens in 2017. Wheels are in motion.

What is clear is that U.S. investors have moved on from the political crisis, but have not completely ruled out a return of ousted leader Dilma Rousseff. Nor are they expecting miracles from her vice president Michel Temer, who will be the official president once the impeachment is settled later next month.

The first catalyst for change was the December 2015 approval of the impeachment process against Dilma in the lower house. Once that date was settled, for mid-April, markets rallied. Regardless of the political drama behind the impeachment, investors see Dilma’s ouster as the trigger. That first shot was fired in December. The next one will be in August.

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Brazil government proposes 20-year spending cap to tame public debt

Alonso Soto and Maria Carolina Marcello – Reuters, 06/15/2016

Brazil’s interim President Michel Temer proposed on Wednesday a constitutional amendment to limit public spending growth for up to 20 years, one of the most far-reaching fiscal reforms in decades designed to curb a runaway rise in public debt.

Brazil’s government, including the legislative and judiciary branches, will be obliged to limit annual spending growth to the inflation rate of the prior year if the flagship reform is approved in Congress, according to a Finance Ministry statement.

The move signaled a victory for economic hardliners in the cabinet, led by Finance Minister Henrique Meirelles, who overcame calls from a faction pushing for a shorter cap.

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Economists cheer up (slightly) on Brazil

Financial Times, 06/13/2016

Slowly and ever so cautiously, economists are daring to let themselves to get optimistic about Latin America’s largest economy again.

For the third week in a row, economists have upped their 2016 and 2017 outlook on Brazil. The consensus of the latest weekly survey published by the Brazilian central bank now sees the economy shrinking by 3.6 per cent this year and growing 1 per cent next year. Just two weeks ago, they were expecting gross domestic product to contract 3.81 per cent this year, roughly the same as in 2015 and to grow 0.55 per cent next year.

The upward revisions are a fillip for the new government led by interim president Michel Temer, who took over from president Dilma Rousseff last month after congress approved impeachment proceedings against her.

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Corruption is not new to Brazil, so why is it threatening the presidency now?

Ryan E. Carlin, Gregory J. Love and Cecilia Martínez-Gallardo – The Washington Post, 05/05/2016

Ronald Reagan was famously called “the Teflon president” for his ability to deflect scandals that might have sunk his popularity. So why couldn’t Brazilian President Dilma Rousseff tap into this same protection?

Following the lower house’s overwhelming vote on April 17 to impeach Rousseff, Brazil’s government sits on the brink of collapse. An onslaught of corruption charges against the president and her Workers Party (PT) has emboldened her political opponents. In response to allegations of an elaborate kickback scheme that funneled bribes to politicians via the state-run oil firm, Petrobras, Brazil’s elites — including the government’s largest coalition partner, the Brazilian Democratic Movement Party (PMDB) — and the public have abandoned Rousseff’s government. Her approval stands at a historically low 9 to 10 percent.

Media coverage of these scandals has been scathing and unrelenting. Yet high-level corruption is hardly new in Brazil. In fact, Rousseff’s predecessor and mentor, Luiz Inácio “Lula” da Silva, also from the PT, was himself at the center of several scandals. In 2005, the expansive mensalão investigation of PT payoffs for legislative support threatened to derail his bid for reelection. And yet Lula proved to be a Teflon president and cruised to an easy victory in 2006 — and then helped his chosen successor win the presidency in 2010.

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Brazil’s inflation accelerates above all forecasts in April

David Biller – Bloomberg, 05/06/2016

Brazil’s consumer inflation accelerated more than all analysts forecast in April, pushing the market to temper bets the central bank will lower interest rates.

The benchmark IPCA consumer price index climbed 0.61 percent after a 0.43 percent rise the previous month. That was more than the median forecast for a 0.54 percent increase from 44 economists surveyed by Bloomberg. Twelve-month inflation slowed to 9.28 percent.

Annual inflation at more than double the official target has hurt the confidence of Brazilians whose salaries don’t stretch as far as they once did. Making matters worse, the nation is confronting double-digit unemployment and the prospect of a second year of recession. Many believe the scope of the downturn will provide the central bank room to lower its benchmark interest rate from a near 10-year high.

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Five reasons why the world needs Brazil to pull through its political crisis

Nick Miroff – The Washington Post, 04/22/2016

If you caught a glimpse of last weekend’s impeachment proceedings against President Dilma Rousseff, you may have noticed that Brazil is going bonkers right now. There was spitting, shoving and confetti-shooting on the floor of parliament, which at times looked more like a Roman coliseum than a legislative chamber.

Rousseff lost the vote badly, setting up what is likely to be a protracted, bitter political battle to unseat her. She will be forced to step down temporarily if Brazil’s senate votes as soon as mid-May to go forward with the impeachment process, with hearings that could drag on for six months.

The country of 200 million people, by far the largest in Latin America, is increasingly polarized and entirely consumed with its political crisis. By no means is Brazil on the verge of collapse, but here are some reasons why the turmoil isn’t so good for the rest of us.

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