Brazil’s finance minister and rumors of Lula’s trojan horse

Kenneth Rapoza – Forbes, 11/12/2015

This week marked another episode in the Latin American Greek tragedy known as Brazil. I call this episode, “At least we’re not Argentina.”

We are back to wondering whether Finance Minister Joaquim Levy will resign. Despite the countless number of times both Levy and President Dilma Rousseff said he was staying put, the local media are now naming his replacement. This one is interesting: former central banker Henrique Meirelles.

This is why it’s interesting on the margin: Levy is at the Finance Ministry because ex-president Luiz Inacio Lula da Silva recommended him to Dilma. Levy was the Treasury Secretary under Lula. Meirelles was the Central Bank governor under Lula. Lula was the most popular president in Brazil since Getulio Vargas. If Meirelles is chosen to replace Levy, I think the reading of the tea leaves goes something like this:

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Brazil: Oily mess

Joe Leahy – The Financial Times, 05/14/2015

In Brazil’s hyper-consumerist society, people are accustomed to paying for everything in instalments, from fridges and televisions to silicon breast implants. But less commonly known is that even bribes to political parties can allegedly be paid parcelado, as the practice of paying in instalments is called.

That is what Augusto Ribeiro de Mendonça Neto, a former board member of oil and gas services company Toyo Setal, claimed in testimony in March. He alleges that he paid bribes to the ruling centre-left Workers’ party, or PT, between 2010 and 2013 in exchange for winning contracts with state-owned oil company, Petrobras.

The allegations form part of an investigation into a vast corruption scandal at Petrobras known as “car wash”. As part of the probe, Mr Mendonça told prosecutors that João Vaccari Neto, former PT treasurer, asked him to disguise the bribes as payments to a printing and advertising company named Editora Gráfica Atitude.

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The Betrayal of Brazil

Michael Smith, Sabrina Valle, Blake Schmidt – BloombergBusiness, 05/08/2015

In mid-2013, Brazilian federal police investigator Erika Mialik Marena noticed something strange.

Alberto Youssef, suspected of running an illicit black-market bank for the rich, had paid 250,000 reais (about $125,000 at the time) for a Land Rover. The black Evoque SUV ended up as a gift for Paulo Roberto Costa, formerly a division manager at Brazil’s national oil company, Petrobras. “We were investigating a money-laundering case, and Petrobras wasn’t our target at all,” says Marena. “Paulo was just another client of his. So we started to ask, ‘Why is he getting an expensive car from a money launderer? Who is that guy?’”

Marena had spent the previous decade building cases against money launderers, and Youssef had been a perennial target. He’d been arrested at least nine times for using private jets, armored cars, clandestine pickups by bagmen, and a web of front companies to move illicit cash. But Youssef had been spared serious jail time by testifying repeatedly against other doleiros, Brazilian slang for specialists in laundering unreported cash.

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Prosecutors in Brazil investigate Lula for alleged influence peddling

Samantha Pearson and Joe Leahy – Financial Times, 5/4/2015

Brazil’s federal prosecutors have opened a preliminary investigation into the country’s wildly popular former leader Luiz Inácio Lula da Silva, putting further pressure on his embattled protégée President Dilma Rousseff.

The probe into illicit influence peddling in Cuba, among other countries, comes as federal police also revealed they are also investigating suspected money laundering in transactions by two companies owned by João Santana, the political mastermind behind the election victories of Mr Lula da Silva and Ms Rousseff, both of the centre-left Workers` Party, or PT.

The prosecutors’ office in Brazil’s capital Brasília confirmed reports by a local magazine that Mr Lula da Silva is being questioned by their anti-corruption unit over claims he helped construction conglomerate Odebrecht win contracts overseas between 2011 and 2014.

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Petrobras Graft Probe Jolts Brazil’s Ruling Party

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’

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

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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