Populist policies let Brazil’s tomorrow slip away

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.

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Petrobras scandal

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.

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Is Brazil giving up on growth?

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.

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Impeachment and Brazil’s ‘Que Se Vayan Todos’ moment

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.

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Brazil analysts forecast slower inflation and deeper recession

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.

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After decades of improvements, Brazil suffers from both a decline in income and an increase in inequality

Fernando Canzain – Folha de Sao Paulo, 03/24/2016

With the political and fiscal crises that started last year, Brazil is undergoing a combination of income decline and an increase in inequality for the first time since 1992. According to specialists, there have been instances where income and inequality have worsened separately, but this is the first time in which both deteriorated simultaneously.

Unemployment, inflation, decline in investment and the fiscal crisis caused a series of negative consequences which eventually started to affect the social disparities across the country. Economists say that until 2014, Brazil had a surprising increase in income and decrease in inequality, even with all the macroeconomic problems. Yet, the recession makes these consequences inevitable, and with an expressive decrease of 3.2% in income per capita there exists the necessity for national economic readjustment.

Summarized by: Julia Fonteles and Therese Kuester

Read the Original Article in Portuguese…

 

Brazil’s economic activity unexpectedly shrinks in January

Walter Brandimarte – Bloomberg Business, 03/1/2016

Brazil’s economic activity unexpectedly contracted in the beginning of 2016 and economists forecast a deeper recession for this year as a political stalemate nearly paralyzes the country.

The central bank’s IBC-BR index, which is often taken as a proxy for Brazil’s GDP report, shrank 0.61 percent in January, more than forecast by all 25 economists surveyed by Bloomberg, whose median estimate was for a 0.2 percent expansion. Economic activity as measured by the index has been declining for 11 consecutive months and, with Monday’s negative surprise, some economists are already cutting their forecasts for Brazil’s economic performance this year.

Among those, Goldman Sachs revised its 2016 forecast for the IBC-BR to a deeper contraction of 3.6 percent from 3.2 percent. “We expect the economy to continue to face strong headwinds,” the bank’s senior economist Alberto Ramos wrote in a note to client, citing a long list of obstacles including tight financing conditions, high inflation, rising unemployment, and political uncertainty.