Petrobras Graft Probe Jolts Brazil’s Ruling Party

February 6, 2015

Paul Kiernan – The Wall Street Journal, 2/5/2015

A corruption investigation at Brazil’s state oil company Petróleo Brasileiro SA shook the country anew on Thursday, as Federal Police questioned a top party official and opposition lawmakers opened a congressional probe into the alleged scheme.

João Vaccari Neto, treasurer of President Dilma Rousseff ’s Workers’ Party, was the first major party official to be questioned in the massive, ongoing investigation into an alleged bribery and kickback scheme involving Petrobras, its contractors and Brazilian politicians.

The sheer scale of the alleged fraud also emerged on Thursday when the judge in charge of the case unsealed charges alleging that Mr. Vaccari received, on behalf of the Workers’ Party, an estimated $150 million to $200 million in kickbacks from some 90 Petrobras contracts between 2003 and 2013.

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Brazil FinMin Levy An ‘Island In Sea Of Mediocrity’

January 27, 2015

Kenneth Rapoza – Forbes, 1/24/2015

Brazil’s new Finance Minister Joaquim Levy is an island in a sea of mediocrity, says ex-Central Banker Arminio Fraga in an interview this weekend with Brazilian daily Estado de Sao Paulo. The FinMin job almost belonged to Fraga. But his chosen horse didn’t win the race in October. Instead, beleaguered Workers’ Party president Dilma Rousseff won in a squeaker and replaced Guido Mantega, not a market favorite during his tenure as Finance Minister, with Levy, who is already a market favorite.

Levy, an ex-Treasury secretary under Dilma’s predecessor, Luiz Inacio Lula da Silva, is taking an sledgehammer to Dilma’s populist policies of the last four years.

Investors like life on Levy Island, but sea great white shark fins everywhere. This is no day at the beach for the Brazilian economy. High interest rates (12.25%) and high inflation (6.41%) have turned off investors. The iShares MSCI Brazil (EWZ) exchange traded fund, which basically tracks the iBovespa stock index in São Paulo, is underperforming the MSCI Emerging Markets Index year to date. Even sanctioned Russia’s equity market is doing better than Brazil.

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Greece Can Learn from Brazil and Argentina

January 15, 2015

Mohamed A. El-Erian – Bloomberg View, 1/13/2015

The possibility of an untested and extreme-talking left-wing party coming to power in the next elections sparks a sell-off in the markets. Creditors become nervous about the country’s prospects, particularly its exchange-rate stability and ability to service its debt. The leader of the party reacts by trying to paint a more reassuring picture of the future under a new government. But his attempts fall on deaf ears, risking self-fueling economic and financial dislocations.

Greece in 2015? No. That was the situation in Brazil before the October 2002 presidential elections, when Luiz Inacio Lula da Silva took a lead in the polls that ultimately translated into an outright win for his Workers’ Party. For many years until then, Lula had flirted publicly and privately with an alternative economic approach that would have involved large-scale debt restructurings and heavy reliance on statism to drive growth.

Expecting such an outcome, markets priced in a very high likelihood of a debt default. As bond prices plummeted, yields were driven to very high levels and Brazil’s market access almost disappeared. Bank deposits also came under pressure and the currency fell precipitously, placing further pressure on the country’s economic and financial stability. Steadily, Brazil approached a market-induced liquidity crisis that could turn into a solvency crisis that would derail the economy for many years.

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Nightmare in Brazil: An interventionist government and bribery scandals have darkened the country’s prospects

January 13, 2015

Financial Post, 1/13/2015

On January 1, 2011, Dilma Rousseff became the first female President of Brazil and hand-picked successor of out-going President Luiz Inácio Lula da Silva. On handing over the presidency, Lula enumerated with pride the social and economic advances that occurred during his eight years in office — the creation of 15 million jobs, expansion of the Bolsa Familia, (an income support received by 13 million families), and a 67 percent increase in the minimum salary. These measures, along with robust economic growth, lifted 28 million people out of poverty.

In spite of the rhetoric of his left-leaning Workers Party, Lula’s administrations had continued the “conservative” macroeconomic policies of the previous Cardoso administration and Brazil had benefited from the rapid growth of the Chinese economy, which raised prices of its agricultural and mineral products on world markets. In his farewell address, Lula highlighted the enormous economic potential of the recently discovered Pre-Sal offshore oil field, and its promise of making Brazil one of the top ten oil producers in the world. Development of these fields would require more than US$200-billion in investment. Lula left office with an 80 percent approval rating, and would have undoubtedly been re-elected for a third term if the Brazilian constitution had not restricted him from running again. Many observers felt that Brazil had entered a period of sustained economic growth.

In January of this year as Dilma begins her second term in office, many Brazilians believe the dream of continuous economic and social advances has become a nightmare. A massive corruption scandal has enveloped Petrobras, Brazil’s flagship petroleum company that is 64 percent owned by the Brazilian government. Investigations by the Brazilian Justice Department revealed that the directors of Petrobras received kickbacks, totalling more than $100-million from 23 construction companies. More than 28 politicians have been linked to the bribery scandal, and many more names will likely be revealed in the coming months.

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Brazil’s dictatorship: The final reckoning

December 12, 2014

The Economist (print edition) – 12/13/2014

For a country whose recent presidents all suffered at the hands of the military regime that ruled from 1964 to 1985, Brazil has been awfully slow to probe that dark chapter of its history. Dilma Rousseff, the incumbent, was tortured. Her two immediate predecessors, Luiz Inácio Lula da Silva and Fernando Henrique Cardoso, were respectively jailed and forced into exile. On December 10th, after nearly three years of sleuthing, the National Truth Commission presented its report into human-rights abuses committed from 1946 to 1988, with special attention to the dictatorship years. “Brazil deserves the truth,” said Ms Rousseff, who cried upon receiving the report.

The 4,400-page publication stands out among similar efforts in other countries. It names 377 individuals as responsible for 434 political murders and disappearances. They include all eight military presidents and the top brass, as well as minions who carried out their orders. Their crimes were deliberate acts of policy, not occasional excesses, the report makes clear.

Most culprits are either dead or in their dotage. Under an amnesty law enacted in 1979 (to benefit exiled dissidents) few will face trial. The commission hopes its report will prompt a rethink of the amnesty, which falls foul of human-rights treaties. But for now, symbolism must suffice. While no substitute for justice, admits José Miguel Vivanco of Human Rights Watch, a New York-based lobby group, “it is a start”.

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Brazil graft is ‘widespread’, ex-Petrobras director says

December 3, 2014

BBC News, 12/3/2014

A former director of Brazil’s state-run oil company, Petrobras, has told a congressional hearing that kickback schemes are widespread in the country.

Paulo Roberto Costa, who is himself under investigation for his alleged involvement in a kickback scheme at Petrobras, said such practices happened “all over Brazil”.

He said corruption was an accepted way of doing business there. The Petrobras scandal is believed to be one of the biggest in Brazil’s history.

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Brazil Investors Like Dilma’s Cabinet

November 25, 2014

Kenneth Rapoza – Forbes, 11/24/2014

Investors from New York to São Paulo are increasingly pleased with Brazilian president Dilma Rousseff’s new economics team.  The names have not been made official yet. After a tight presidential race, which tested her and her party’s approval rating following 12 years in power, Dilma needs all the help she can get.

According to the local press, Dilma’s new economic team will be introduced by month’s end. Investors are anxious to see who will replace Guido Mantega as Finance Minister. Insiders say that Joaquim Levy will be Mantega’s replacement, along with Nelson Barbosa as Minister of Planning, and Alexandre Tombini still leading the Central Bank.

Levy is the most welcome name. He’s currently the president of Bradesco Asset Management, but is global enough to understand the external market forces at work in Brazil. He has held posts at the International Monetary Fund, was a visiting economist at the European Central Bank, and was the Treasury Secretary under Dilma’s political party companheiro, Luiz Inacio Lula da Silva, who served two terms as president before handing the torch to Dilma four years ago.

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