Brazil: net debtor to the world

Jonathan Wheatley – Financial Times, 1/15/2014

How well protected is Brazil against external shocks? Perhaps not as well as is commonly thought.

It has been a proud boast of Brasília for several years that it is a net creditor to the world because it holds more in foreign exchange reserves than it owes in overseas debt. However, it is far from clear that this is still the case. The issue is just one example of the vulnerabilities investors must include in their calculations of how Brazil and other emerging markets will fare as monetary policy in the developed world becomes less accommodating.

Global liquidity has been a boon to Brazil for at least a decade. Before the crisis of 2008-09, global demand for Brazil’s commodities and the rise of millions of new consumers at home led to and fed off huge inflows of money. Since the crisis, the flows have continued thanks to quantitative easing by the US Federal Reserve and other central banks in the developed world.

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Brazil and China’s economic tug of war

Gwynn Guilford – The Atlantic, 11/04/2013

Brazil and China can’t seem to agree on what either country is getting out of their economic ties. Take this most recent example: China Construction Bank, a huge state-owned lender, just sunk around $716 million into a 72 percent stake in Brazil’s Banco Industrial e Comercial, a nearly 19 percent premium on BicBanco’s current share price. Some might argue that the move positions CCB to profit from Chinese investment in Brazil. But to hear the head of another Chinese bank tell it, that might be a naive move.

“The ardor for investment in Brazil is fading. Operating in Brazil is a huge challenge,” Zhang Dongxiang, CEO of Bank of China’s Brazil unit, told Reuters. “Public opinion sometimes seems to be against foreign investment … as if it makes local industry less competitive.”
Zhang blames his wariness about investment in Brazil on the protectionist policies of the country’s president, Dilma Rousseff. In an effort to boost dwindling government coffers, Rousseff has enacted policies such as taxing foreign-made cars and limiting the land available for purchase by foreigners.

Brazil drums up business during Confederations Cup

Marco Sibaja -AP – 06/13/2013

Brazil hopes to generate $1 billion in export deals during the Confederations Cup, the warm-up tournament for the 2014 World Cup, the government said Wednesday.

The government’s Brazilian Trade and Investment Promotion Agency says it is using football as a way to bring foreign and local business representatives together during the two-week tournament that begins Saturday in Brasilia.

“We have top quality stadiums which, together with the high quality of Brazilian football and the country’s competitive and innovative companies, form a fantastic business platform,” Mauricio Borges, the agency’s president told The Associated Press on Wednesday.

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Brazil turns away from capital controls

Ryan Olson – The Foundry, 06/11/2013

Last week, Brazil announced that it is finally eliminating its most prominent tax on foreign portfolio investment. This reversal is the most recent reminder of the negative effects of capital controls.

Capital controls are measures, sometimes in the form of taxes or fees, that limit the movement of capital into and out of an economy. Championed in Brazil by Finance Minister Guido Mantega, these barriers to foreign investment were supposed to stem the tide of “hot money” flooding into Brazil, and the subsequent appreciation of the Brazilian real. In reality, they limited capital mobility and may have contributed to economic distortions including high inflation, which is currently 6.5 percent.

Mantega’s reversal on capital controls will hopefully mean a more realistic assessment of Brazilian economic policy. The most likely explanation of the run-up of the real was the country’s obsession with commodity exports. The discovery of oil off the southeastern coast in 2006 has contributed to a dramatic expansion of oil exports, which have increased 45 percent since 2002. In addition, the partially state-owned mining giant Vale has become a world leader in mineral extraction and made up 16 percent of Brazilian exports in 2011.

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Foreigners catch the Brazil bug

Thalita Carrio – Financial Times, 04/24/2013

Usually countries with strong currencies scare off foreign tourists. Witness Australia’s challenges. But not Brazil, apparently.

According to Brazil’s Ministry of Tourism, the number of foreign visitors has continued to rise even as though the country’s currency has stayed firm at around R$2 per dollar, making it one of the world’s more expensive destinations. In 2012, Brazil received 5.67m foreign visitors, an increase of 4.5 per cent compared with 2011.

The majority of the tourists came from neighbouring countries in South America, or about 2.8m people. In spite of its economic problems, Argentina took the lead with 1.6m of its people visiting Brazil, an increase of 5 per cent compared with 2011. The US was second with 586,463 tourists, although this represented a decrease of 1.4 per cent compared with a year earlier. Third was Germany with 258,437 tourists.

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Brazil’s FDI covers current account shortfalls in 2012

Reuters, 01/23/2013

Foreign direct investment in Brazil more than covered the country’s current account deficit in 2012, the central bank said on Wednesday, in a sign of continued confidence in Latin America’s largest economy despite sluggish growth.

Brazil attracted $65.272 billion in foreign direct investment in 2012, above a central bank estimate of $63 billion that was revised upward several times last year. The country drew $66.6 billion of FDI in 2011.

That investment fully covers a current account deficit of $54.246 billion last year — more than the bank’s forecast of $52.5 billion.

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Foreign investment in Brazil jumps, defies global slowdown

Alonso Soto, Tiago Pariz – Reuters, 08/23/2012

Foreign direct investment in Brazil surged to a 1-1/2-year high in July, defying slowing growth in the domestic and global economies and fully covering a shrinking current account gap.

The current account deficit was $3.766 billion in July, central bank data showed, narrower than the $4.4 billion deficit in June and smaller than the median of market analysts’ expectations.

That gap was fully covered by a surge in foreign direct investment, which falls under the capital account in the balance of payments. FDI jumped to $8.421 billion in July, well above the $5.8 billion of June.

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