Brian Ellsworth – Reuters, 08/10/2016
Government employee Jose Lara this month used some vacation days to take a long scenic bus ride through the verdant plateaus and sweeping savannas of southern Venezuela, but the trip was anything but a holiday.
It was a 36-hour grocery run.
Lara took an overnight bus and then a pick-up truck to get across the border to neighboring Brazil to buy food staples that have gone scarce in Venezuela’s crisis-stricken economy.
Julia Leite & Paula Samba – Bloomberg, 06/27/2016
Brazil is winning over derivatives traders as Acting President Michel Temer seeks to repair the nation’s finances.
The cost to hedge against losses in Brazil’s bonds with credit-default swaps has tumbled by almost a third in the past six months, the biggest drop among the world’s major economies. Prices of the swaps are also now back to levels that prevailed before S&P Global Ratings cut the country’s rating to junk in September.
The turnaround is part of a rebound in Brazil’s financial assets this year fueled by the removal of President Dilma Rousseff from office while she faces an impeachment trial. Since taking the reins last month, Temer has proposed spending caps to help shrink a near-record budget deficit and struck a deal to ease a fiscal crisis roiling Brazilian states amid the longest recession in more than a century.
Kenneth Rapoza – Forbes, 06/09/2016
Brazil’s Central Bank kept interest rates at 14.25% on Wednesday after market hours as expected, citing inflation concerns. No one expected a surprise cut anyway, as the Bank is now undergoing a leadership shift. Alexandre Tombini is out. Itau economist Ilan Goldfajn is now in. Wednesday marked the last time Tombini will take part in a monetary policy committee meeting as Bank governor.
For now, investors shouldn’t expect a rate decline until October at the earliest, says Nomura Securites analyst Joao Ribeiro. The iShares MSCI MSCI +% Brazil (EWZ) sold off by 1.4% after market on the news.
A copy and paste statement from the Bank reads: “The committee recognizes the advances in the policy to combat inflation, especially the containment of the second order effects of the adjustments in relative prices. However, the committee considers that the high level of 12-month inflation and inflation expectations that are distant from the objectives of the target regime, do not offer space for easing of monetary policy.”
Simon Romero – The New York Times, 05/24/2016
RIO DE JANEIRO — Brazil’s interim president, Michel Temer, announced an array of proposals on Tuesday aimed at restoring confidence in the sickly economy of Latin America’s largest country.
Seeking to draw a contrast with Dilma Rousseff, the suspended leftist president whom Mr. Temer maneuvered to oust this month, he said he would try to repeal nationalist oil legislation, curb public spending and shut down a sovereign wealth fund.
Still, Mr. Temer’s televised briefing was light on detail as to how he planned to win approval in a fractious Congress for an array of measures like overhauling a crisis-ridden pension system that allows Brazilians to retire at an average age of 54.
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.
Eduardo Porter – The New York Times, 05/03/3016
Not too long ago, Brazilians might have been counted as the most optimistic people in the world. From 2008 to 2013, as the United States and Europe grappled with the aftermath of a crisis wrought by blind trust in unfettered finance, Brazil’s income per person grew 12 percent after inflation. Wages soared. The poverty rate plummeted. Even income inequality narrowed.
Brazil remained only a high-middle-income country, in the technospeak of the International Monetary Fund. But for the first time in forever, the eternal “country of tomorrow,” as Brazilians often ruefully described their nation, saw itself instead as a rampant member of the emerging cohort ofBRICS (Brazil, Russia, India, China and South Africa) — maybe even closer than China to making the jump into the ranks of the world’s richest nations.
And then it didn’t happen.
Paulo Sotero – The Editors of Encylocpædia Britannica
Petrobras scandal, Brazilian political corruption scandal beginning in 2014 that involved the indictment of dozens of high-level business people and politicians as part of a widespread investigation alleging that many millions of dollars had been kicked back to officials of Petrobras, Brazil’s huge majority-state-owned oil company, and to politicians—especially members of the ruling Workers’ Party (Partido dos Trabalhadores; PT) of Pres. Dilma Rousseff—by prominent Brazilian corporations in return for contracts with Petrobras.
The malfeasance was revealed by a federal investigation begun in 2014 under the code name Lava Jato (“Car Wash”). The massive scheme to defraud Petrobras—Brazil’s largest enterprise and a symbol of the country’s entrenched economic nationalism—did not fully come to light, however, until after the narrow reelection of President Rousseff on October 26, 2014. By the time of her second inauguration, on January 1, 2015, Rousseff’s approval rating had collapsed to 14 percent, with some two-thirds of Brazilians blaming her for Petrobras’s troubles.
Dubbed “Petrolão”—after mensalão (“big monthly bribe”), the vote-buying scandal that had plagued the government of Rousseff’s predecessor and mentor, Luiz Inácio Lula da Silva (better known simply as “Lula”)—the episode came to be viewed as the largest corruption scandal in Brazilian history. By June 2015 a massive scheme to defraud Petrobras on contracts to develop the so-called pre-salt oil reserves found offshore in 2007 had appeared on investigators’ radar. Moreover, reports suggested that federal prosecutors were also looking into the electricity-generating sector, pension funds for employees of state-owned companies, and the National Bank of Economic and Social Development (BNDES). The latter had provided billions of dollars in subsidized financing to Petrobras and other “national champions,” such as billionaire Eike Batista, whose wealth plummeted spectacularly in 2013.
Kenneth Rapoza – Forbes, 04/25/2016
Inflation is down nearly 100 basis points from a few months ago, but the Central Bank of Brazil has no intention of lowering interest rates. Investors should take this coming Wednesday’s meeting as a cue whether or not there is a growth strategy anywhere in Brasilia.
Nomura Securities said that they are forecasting the Bank to keep rates at 14.25% even though inflation is coming down. Brazil’s rolling 12-month inflation was as high as 10.7% in January. It’s currently 9.4%. Nomura has close ties to Brazil’s central bank and is good gauge of which way the wind is blowing on the monetary policy committee.
Brazil’s economy, expected to contract by around 3.5% again this year, is facing a massive political crisis. It would be good if the central bank could be more independent and cut rates to boost growth. On the other hand, sentiment among Brazil’s business class is so burned out with the twin crises of politics and economics that it is going to take more than a rate hike to improve things.
Brian Winter – Americas Quarterly, 04/06/2016
When Argentina’s economy collapsed in late 2001, everybody was absolutely sure whose fault it was. Aloof, hermetic and increasingly prone to slurring his words in public, President Fernando de la Rúa had managed to trash the government’s fiscal accounts in just two years in power. Steakhouses and nightclubs were empty, unemployment was nearing 20 percent and cash was so scarce that much of the economy reverted to the barter system – trading haircuts for groceries, family heirlooms for rent. As Christmas approached, looting broke out at supermarkets and anti-government protests turned violent. Finally, on the evening of December 20, De la Rúa hand-wrote a resignation letter, muttered something to his secretary about collecting the soaps from his private bathroom, climbed the stairs to the palace roof and flew away in a helicopter.
Perfect, Argentines said. Now we can get out of this mess. But the next president was so overwhelmed by the challenge that he quit too, setting off a chain reaction that would ultimately see five different presidents in only two weeks. Appalled, Argentine protesters adopted a new slogan – ¡Que se vayan todos! or “They all must go!” Banging pots and pans, millions took to the streets to demand that the entire political class – the president, Congress, everybody – step aside to allow for a top-to-bottom renewal.
Fast-forward 15 years, and Brazil is now having a similar moment. The economy is not as bad as Argentina’s was, and nobody has yet boarded any helicopters. But the Brazilian public appears to be arriving at the same conclusion – that nobody currently on the political stage is competent or clean enough to address the enormous crises facing the country.
David Biller – Bloomberg, 03/28/2016
Brazil analysts trimmed their 2016 inflation forecast after price increases slowed more than all analysts expected in March and the economy showed signs of a deeper contraction.
Economists lowered their 2016 inflation forecast to 7.31 percent, from 7.43 percent previously, according to the weekly Focus survey conducted March 24. They also pared their 2016 economic outlook to a recession of 3.66 percent, and lowered their 2017 growth forecast to 0.35 percent from 0.44 percent the prior week.
Brazil’s inflation in the 12 months through mid-March fell more than all economists forecast, making its return to single digits for the first time since October. The currency this month also gained most among 16 major currencies as the market gauged a greater probability President Dilma Rousseff will be impeached. While markets responded positively to the political strife engulfing the capital, it is weighing on the outlook for economic rebound.