Brazil: 10 good reasons to think the two-month-old government will go

February 27, 2015

Jonathan Wheatley – Financial Times, 2/25/2015

So much is going wrong in Brazil that it is hard to keep up. For years, critics have accused the government of incompetence. Now its actions are looking catastrophic – so much so that there are good reasons to think President Dilma Rousseff, who began a second four-year term only on January 1, may not last much longer.

Here is our list of 10 things that threaten to bring her down.

1. Politics.
For a Brazilian president to be impeached, they must do something egregiously wrong. But many do that and survive. What really counts is losing support in Congress. Rousseff’s congressional majority was cut at the election while the number of parties in Congress increased, leaving her coalition more splintered and harder to control. Worse, large sections of her ruling Workers’ Party have turned against her. Some members regard her as a late-coming, opportunistic interloper. Some to the “right” of the party accuse her of messing up. Others to the left are furious at her appointment of the “neo-liberal” Joaquim Levy as finance minister last month.

Read more…


Brazil: In a quagmire

February 27, 2015

The Economist (print edition), 2/28/2015

CAMPAIGNING for a second term as Brazil’s president in an election last October, Dilma Rousseff painted a rosy picture of the world’s seventh-biggest economy. Full employment, rising wages and social benefits were threatened only by the nefarious neoliberal plans of her opponents, she claimed. Just two months into her new term, Brazilians are realising that they were sold a false prospectus.

Brazil’s economy is in a mess, with far bigger problems than the government will admit or investors seem to register. The torpid stagnation into which it fell in 2013 is becoming a full-blown—and probably prolonged—recession, as high inflation squeezes wages and consumers’ debt payments rise (see article). Investment, already down by 8% from a year ago, could fall much further. A vast corruption scandal at Petrobras, the state-controlled oil giant, has ensnared several of the country’s biggest construction firms and paralysed capital spending in swathes of the economy, at least until the prosecutors and auditors have done their work. The real has fallen by 30% against the dollar since May 2013: a necessary shift, but one that adds to the burden of the $40 billion in foreign debt owed by Brazilian companies that falls due this year.

Escaping this quagmire would be hard even with strong political leadership. Ms Rousseff, however, is weak. She won the election by the narrowest of margins. Already, her political base is crumbling. According to Datafolha, a pollster, her approval rating fell from 42% in December to 23% this month. She has been hurt both by the deteriorating economy and by the Petrobras scandal, which involves allegations of kickbacks of at least $1 billion, funnelled to politicians in her Workers’ Party (PT) and its coalition partners. For much of the relevant period Ms Rousseff chaired Petrobras’s board. If Brazil is to salvage some benefits from her second term, then she needs to take the country in an entirely new direction.

Read more…


Petrobras scandal about to hit Brazil’s political class

February 26, 2015

Anthony Boadle – Reuters, 2/25/2015

Brazil’s top prosecutor is expected to file charges in coming days against politicians implicated in the Petrobras corruption scandal, a political bombshell that could involve members of Congress and President Dilma Rousseff’s government.

Under Brazilian law, lawmakers and cabinet members can only be tried by the Supreme Court. Prosecutor Rodrigo Janot has said he plans to file cases with the court by the end of the month against politicians involved in the graft scheme at Petrobras.

Prosecutors say corrupt executives from Petroleo Brasileiro SA (PETR4.SA), as the company is formally known, conspired with contractors to misappropriate billions of dollars from the company. Some of the funds were funneled to politicians and political parties, the prosecutors say.

Read more…


For Emerging Market Investors, Brazil Has Become A Hot Mess

February 26, 2015

Kenneth Rapoza – Forbes, 2/25/2015

For those who like their macro trades to be alluring and exotic, but with an overdose of danger, then Brazil is the place for you. Like Rio de Janeiro itself, pretty but deadly, Brazil has become the hot mess of emerging markets.

Not even Russia, the wild east sanctioned geopolitical disaster zone that it is today, can compare to Brazil. Russia is, well, Russia. It’s always trading at a discount to better managed, diverse and transparent economies like Brazil. But Russia is failing because of geopolitics and oil. Brazil, meanwhile, is shooting itself in the foot.

The most visible problem in Brazil today is the ongoing scandal involving Petrobras. Brazil’s state run oil firm was downgraded by Moody’s to junk bond status on Tuesday. More importantly, the corruption scandal has changed investor perception of Petrobras. It’s no longer trustworthy. Investor sentiment has soured to the point where Petrobras shares have lost 43.6% in the last 12 months. Petrobras’ problems are Brazil’s problems. As the country’s most important company, when sentiment sours on Petrobras, it sours on the political leadership that’s in charge of it. When that happens, investors, like civil society in Brazil in general, lose confidence in government.

Read more…


Petrobras May Help Push Brazil Stock Market Down 35 Percent

February 19, 2015

Jay Forte – The Rio Times, 2/19/2015

A new report by market research company Capital Economics has tried to calculate the cost of the Petrobras scandal in Brazil, which has caused political and financial ripples across the country. Brazil’s stock market has fallen by 35 percent in terms of U.S. dollars since the start of September, just under half of that has been caused by a drop in the value of Petrobras shares.

However even without the fall in Petrobras shares, Capital Economics estimates that Brazil’s stock market would still have dropped by about twenty percent over the same period. This is in part due to a swing of currency exchange, slowing of demand for exports and the drop in oil prices globally.

Still, the stock market fall is the largest drop of any major market with the exception of Greece and a few oil producers (for example Nigeria and Colombia). Despite recent steep falls in its share price, Petrobras still accounts for almost ten percent of the total market capitalization of the Bovespa equity index.

Read more…


Rolls-Royce corruption claims spread to Brazil

February 19, 2015

Simon Goodley – The Guardian, 2/16/2015

Allegations of corruption at the aircraft engine-maker Rolls-Royce spread to Brazil on Monday, adding to the woes of a group that is already involved in a Serious Fraud Office (SFO) investigation into bribery claims in China and Indonesia.

The engineering group, which also supplies gas turbines for oil platforms, became embroiled in a long-running bribery case at Petrobras when it was named in court testimony by a former executive of the Brazilian state oil company as having paid bribes.

Pedro Barusco, a Petrobras veteran who struck a plea bargain in November and has emerged as one of the investigation’s key informants, told police he personally received at least $200,000 (£130,000) from Rolls-Royce — according to court documents reported by the Financial Times.

Read more…


Brazil oil ship explosion death toll rises to five

February 13, 2015

AP – The Guardian, 2/12/2015

Two bodies were found inside an oil ship that exploded off Brazil’s coast, increasing the death toll to five, the oil workers union said on Thursday.

The Oil Workers Union of the state of Espírito Santo, where Wednesday’s explosion took place, said rescue teams are searching for four who remain missing. It said 10 workers were injured in the blast.

The union said on its Facebook page that the two bodies were found inside the engine room of the vessel, one of many floating oil production, storage and offloading units that state-run oil company Petrobras employs in developing Brazil’s massive offshore oil fields.

Read more…


Follow

Get every new post delivered to your Inbox.

Join 6,342 other followers

%d bloggers like this: