Brazil Real gains as China measures support commodity producers

Paula Sambo – Bloomberg, 9/9/2015

Brazil’s real climbed to a one-week high as efforts by China to add to growth triggered a bounce in the prices of raw materials.

“There is scope for emerging-market currencies such as the real to strengthen given the improvement in risk sentiment,” Mark McCormick, a foreign-exchange strategist at Credit Agricole SA, said from New York.

The local currency advanced after China, Brazil’s largest trading partner, pledged to accelerate construction of some major projects and reduce companies’ tax burdens. The real also gained as President Dilma Rousseff’s administration was said to be studying a tax increase on Brazil’s top earners to raise revenue and narrow an expanding budget deficit.

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Brazil needs to reverse course to revive economy

Mark Weisbrot – AlJazeera America, 8/7/2015

Luíz Inácio “Lula” da Silva won the presidency of Brazil on his fourth attempt, in an overwhelming victory in October 2002. His Workers’ Party (PT) ushered in a new era for the country’s previously disenfranchised majority, with the economy from 2004 to 2010 more than doubling its rate of growth of the previous 23 years. Poverty declined by 55 percent and extreme poverty by 65 percent from 2003 to 2012. Unemployment hit record lows, the real (inflation adjusted) minimum wage doubled, and the gains from growth were more equally distributed than in previous decades.

A large majority of Brazilians are still vastly better off today than they were before the PT came to power. But the economy slowed sharply from 2011 to 2014, with GDP growth returning to the rates of the pre-PT era. Job creation in the formal sector — regular employment covered by taxes and legal benefits, as opposed to the underground economy — fell from an average of 1.46 million jobs annually for 2004 through 2010 to just 829,000 for 2011 to 2014 and just 152,000 in 2014. Economic growth was about zero last year and will turn negative this year.

Approval ratings for Lula’s successor, Dilma Rousseff, have plummeted, and most of the news about Brazil is woefully pessimistic — corruption scandals, including one involving the state-run oil company, Petrobras; Standard and Poor’s lowering its outlook for the country’s bond rating after downgrading it to one notch above junk; the real falling about 35 percent against the U.S. dollar over the past year.

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Brazil real drops on concern Rousseff will lower budget target

Paula Sambo – Bloomberg Business, 7/13/2015

Brazil’s real fell from a one-week high as speculation that political tension will force President Dilma Rousseff’s administration to compromise on the budget cast doubt on her commitment to preserve the nation’s credit rating.

The currency extended its drop in July to 2.1 percent as lawmakers pushed back against her move to narrow government deficits. Concern mounted after the Brazilian newspapers Estado and Folha de S. Paulo reported that Rousseff will discuss a reduction in the fiscal target at a meeting Monday.

“While Rousseff’s effort to solidify the fiscal base is positive, the course of discussions and political barriers may trigger short-term volatility in the financial markets,” Ipek Ozkardeskaya, an analyst at London Capital Group, said in an e-mailed response to questions.

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Investors Cheer Brazil’s Next Economic Czar

Luciana Magalhaes, Rogerio Jelmayer, and John Lyons – The Wall Street Journal, 11/25/2014

Brazilian President Dilma Rousseff is set to name Joaquim Levy, a former treasury secretary and prominent banker, as the country’s next finance minister, a move aimed at bolstering Brazil’s credibility amid slowing growth, rising inflation and falling markets, an official said.

Ms. Rousseff will name Mr. Levy as Thursday, possibly with other appointments for her second term that starts in January, the official said. Mr. Levy couldn’t be reached for comment.

The 53-year-old economist will succeed Finance Minister Guido Mantega to assume the top economic post at a crucial time for a resource-rich country hitting a downturn amid declining commodity prices. Brazil is mired in a toxic mix of near-zero growth and rising inflation, and its currency has lost more than a third of its value during Ms. Rousseff’s first term.

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Analysis – Brazil’s new economy chief will need space from Rousseff

Brian Winter – Reuters, 11/25/2014

When Brazilian President Dilma Rousseff first considered replacing Finance Minister Guido Mantega two years ago, a top aide confided that any good candidate for the job would have to meet two requirements.

First, a good personal relationship with Rousseff, a notoriously gruff and demanding manager known for making subordinates break down in tears. And second, accept that “Dilma likes to be the minister” – that as a trained economist with a fervent belief in a strong state, she would insist on making many policy decisions, even minor ones, herself.

Rousseff is expected to finally replace Mantega this week with respected banker Joaquim Levy. But it’s unclear whether the job description has really changed since then and whether Levy will have the power and independence to execute the pro-business shift that investors are hoping for.

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3 Reasons Why Brazil’s State-Controlled Oil Giant Petrobras Should Be Privatized

Anderson Antunes – Forbes, 11/20/2014

One of the most famous songs by the late Brazilian rock star and songwriter Raul Seixas is entitled ‘Rent,’ in reference to what he considered to be the best solution for Brazil: literally, to rent the country for foreigners. The song was composed in 1980, at a time when Brazil was going through a difficult economic period marked by hyperinflation.

Fast-forward to 2014. Today the ghost of price increases gone out of control has come back to haunt Brazilians, partly due to a government-sponsored rise in fuel prices that resulted in consumer prices advancing 6.54% in the 12 months through mid-November, down from a rise of 6.62% through the previous month but still above the 6.5% ceiling of Brazil’s Central Bank target, according to the median of 22 market forecasts for the IPCA-15 inflation index.

Add to that a total lack of confidence from investors, a growing budget deficit, falling industrial production and rising poverty. Even the stability of the Brazilian job market, one of the few bright spots for the government, has begun to show signs of difficulties ahead: For the first time since October 1999 the weekly payroll numbers showed a net loss of 30,000 jobs last month, well below the market expectations of a gain of 56,000.

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Another emerging markets crisis looms as Brazil opts for the politics of stagnation

Jeremy Warner – The Telegraph, 10/28/2014

The definition of an emerging market, it was sometimes said – in the days before Goldman Sachs led the stampede of Western money into the developing world – is one from which it is impossible to emerge in a crisis. Investors will know the feeling as they survey the damage to their wealth inflicted by the re-election of the centre left Dilma Rousseff as president of Brazil this week.

In dismay, the Brazilian Ibovespa was down a stomach churning 6.2pc and the Real, in precipitous decline for some years now, fell another 3pc. Investors had hoped for a return to the “Plano Real” and the pro-business agenda of Fernando Henrique Cardoso in the mid-90s to early noughties; instead it’s at least another four years of Workers Party interventionism they have to look forward to.

Brazil is not yet in fully-blown crisis mode, of the type which Latin America seems perennially prone to, but it is self-evidently already on a very slippery slope. Growth has slowed to a virtual standstill, inflation is again climbing towards double digits, and investment has slumped.

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