Brazil: Privatisations – back again?

The undoubted success of the privatisation of Brazil's three largest airports – offerings were held on 6 February with an average premium of 348 per cent – raises the question whether privatisations, some strenuously opposed during Lula 's eight years in office and President Dilma Rousseff's first, are back to stay.

In fact, the airport tender was a special case, and the winning consortia will have the sweetest of deals, since the Brazilian Development Bank (BNDES) will finance 60 per cent of the works required for modernisation of the terminals and runways. The auction was also special in that the winning bidders were supported by the deep pockets of the pension funds of Brazilian state enterprises. But the issue remains, will the Workers' Party (PT) government permit other privatisations to take place – ports, for instance – now that the taboo has been broken? It all depends on Rousseff's capacity for leadership and her will to defy the entrenched interests of PT.

By road, sea, or rail

The government will propose tenders for 10-year concessions for the maintenance of federal highways. The Ministry of Transport intends to launch the initial tenders before the end of this year, under the public–private partnership (PPP) regime. Some 9,000 km of federal highways may be privatised, with new requirements for quality control. In the ports area, the government will have to tender at least 77 terminals whose concessions will expire by 2013. They are distributed over 15 ports.

As for the bullet train ( TAV ), the government decided to reformulate the terms of the tender, now scheduled for November, in order to absorb two risks pointed out by investors: foreign exchange and demand. It has been decided that the concession period will be 40 years, the internal rate of return of the project 6.32 per cent, and – for a total cost variously estimated at R$34 billion (by the government) and R$50 billion (by the builders) – the ceiling for public financing will be R$22 billion. (BNDES will not finance any imported equipment.) All of that, however, may still change.

For more news and expert analysis about Brazil, please see Brazil Focus.


© 2012 Menas Associates

Brazil: Argentinean protectionism

Argentina established new restrictions in early January on the importation of Brazilian goods, but President Dilma Rousseff 's government is determined to retaliate if the new licensing requirements are not withdrawn. A meeting of Mercosul entrepreneurs, plus those of Chile and Bolivia, is being organised in Buenos Aires to try to dissuade the Argentinean government from imposing its decision.

Argentina's economic situation is poor and deteriorating, especially with respect to external accounts, and this will have adverse consequences for Brazil, its largest trading partner. Studies by the Brazilian Agency for Industrial Development (ABDI), a government institution, reveal the loss of Argentinean competitiveness and the difficulty of integrating the two economies, particularly in the oil and gas and naval construction sectors.

Rousseff has displayed impatience with Argentina's growing protectionism. Paulo Skaf , the president of the São Paulo Federation of Industries (FIESP), has sought an audience with President Cristina de Kirchner to smooth bilateral trade relations, but there are lingering structural obstacles.

For more news and expert analysis about Brazil, please see Brazil Focus.

© 2012 Menas Associates

Brazil: Mercosul summit

The 42nd Mercosul summit was held in Montevideo on 20–21st December, with President Dilm Rousseff in attendance along with her counterparts from Argentina, Paraguay, and Uruguay. The most important political issue addressed was Venezuela's membership in the trading bloc.

The Paraguayan Senate continues to oppose it, as it has for the last three years. At the initiative of Uruguay, and via convoluted legal reasoning, an attempt was made to by-pass parliamentary ratification to permit Venezuela to join. Ecuador's application is also expected. It was decided that about 200 products will be exempted from Mercosul's Common External Tariff and therefore have their tariff raised by up to 35 per cent. This is multilateralised protectionism.

Another decision taken at the summit, at the behest of Argentina, was to prohibit ships bearing the flag of the Falkland Islands (Malvinas) from access to the ports of member countries. This extends a prohibition that has been in force for several years in Argentina. The summit also approved a free trade agreement with the Palestinian Authority (a quid pro quo for having in earlier years approved one with Israel).

The slim results of this Mercosul summit reflect the mediocrity of the trading group's agenda. Shortly after the summit, the Pacific Alliance (Chile, Colombia, Mexico) held its second summit, on 4th December at Mérida, Mexico. Panama indicated it might join. The trade volume of Alliance members may soon exceed that of Mercosul partners. In any event, the very creation of the Alliance may be interpreted as contrary to Brazil's old aspiration to a South American common market.

For more news and expert analysis about Brazil, please see Brazil Focus.

© 2011 Menas Associates

Lula's illness brings uncertainty into Brazilian politics

On 28th October, former president Luiz Inácio Lula da Silva (Lula) was diagnosed with cancer of the larynx and immediately underwent chemotherapy treatment at the Syrian-Lebanese Hospital in São Paulo. According to his doctors, Lula has a 90 per cent chance of making a full recovery. All of Lula's official commitments including a loaded speaking agenda were cancelled through to the end of January 2012.

Lula's illness has a series of political implications. He has lately been travelling around the country, giving speeches and trying to build local alliances for his Workers' Party (PT) with a view to the municipal elections, which are to take place in October 2012. But for now his political campaigning has to cease, which will give other campaigners a chance to redouble their efforts. The importance of these elections is that the mayors of large cities usually have a great deal of influence over the process of nominations of candidates for presidential and legislative elections, and could therefore have an impact on those of 2014.

While it is still an open question whether Lula or President Dilma Rousseff will be PT's candidate for the presidency in 2014, and Dilma is quietly asserting her own credentials, the emotional factor raised by Lula's illness cannot be discounted. The Brazilian voter characteristically has sympathy for the underdog, and Lula has become one by virtue of his cancer. He is also a legent in the minds of the poor and the downtrodden, and they constitute the majority of the electorate, especially in the populous northeast, while the ascending middle class elsewhere in the country also ascribe their economic and social progress to Lula's policies. Should he therefore decide to run in 2014, and be physically able to do so, he would most likely win the election by a landslide. And so somewhat rather unexpectedly, an element of uncertainty has been introduced into Brazilian politics.

For more news and expert analysis about Brazil, please see Brazil Focus.

© 2011 Menas Associates

Brazil: Truth commission bill passes

Under strong pressure from Dilma Rousseff, on 21 September the Chamber of Deputies passed a bill to create the Commission on Truth (see Brazil Focus, September 2011). The bill must still be approved by the Senate, where its rap­porteur is Aloysio Nunes Ferreira (PSDB-SP), himself a victim of the military repression.

From the rostrum of the UN General Assembly, whose 66th session she opened on 21 Septem­ber, Rousseff paid homage to Brazil's Commission on Truth, saying that she believed the initiative to be important for Brazil and for its position in the world. The terms for approval of the bill by the Chamber of Deputies were negotiated with the president by telephone when she was already in New York, and categorically excluded any revision of the 1979 Amnesty Law.

This makes the government's proposal more acceptable to radical elements, including some of the military. As it stands, the Commission will have no punitive powers, only that of producing relevant information. It will consist of seven members, eminent personalities appointed by the president for a term of two years.

For more news and expert analysis about Brazil, please see Brazil Focus.

© 2011 Menas Associates

Brazil: The 2012 budget

The government's proposal for the 2012 budget, submitted to Congress on 31 August, and amounting to R$2.2 trillion, envisages a 13.6 per cent increase in the minimum wage, from R$545 to R$619.21, causing an increase in federal expenditures of R$21.5 billion, largely derived from social security payments.

The increase in the minimum wage is part of Lula's legacy: it was he who introduced a new progressive system for its calculation, based on a combination of cumulative inflation in 2011 (5.7 per cent) and GDP growth in 2010 (7.5 per cent).The budget proposal – contrary to the government's announced efforts at fiscal tightening with a view to a reduction in the Selic interest rate – makes possible an increase in public expenditures, including a target of R$165.3 billion for investments, roughly two-thirds of which is by state enterprises (an 8.3 per cent increase over the figures for 2011).

Most analysts are revising their projections for Brazil's GDP growth in 2011 as a function of deceleration in economic growth in the United States, the European Union, and China. The Focus survey of 100 financial institutions polled by the Central Bank in late August reduced its average estimates, from 4 to 3.7 per cent this year, and from 4–6 to 3–5 per cent in 2012.m Morgan Stanley , UBS , and leading Brazilian consultancies MB Associados and Tendências are all downgrading their estimates, with slight variations.

For more news and expert analysis about Brazil, please see Brazil Focus.

© 2011 Menas Associates

Brazil's cracking-down on corruption

Brazilian authorities have arrested more than 30 tourism industry officials and businessmen, including Deputy Tourism Minister Frederico Silva da Costa, in connection to charges of conspiracy to divert public money for private gain. The allegations have been denied by the accused.

It is believed that as many as 200 police officers took part in the seizure. Costa is the third high-ranking official caught up in corruption allegations since President Dilma Rousseff took-up office on 1st January.

Reports says, that prosecutors suspect the accused had awarded contracts at very high prices to complicit firms that often were not qualified to carry out the work. According to Brazilian media, warrants were issued for 38 people 35 of whom were apprehended by Tuesday 9th August in Brasilia, Sao Paulo and Macapa.

The arrests follow recent allegations of corruption at the ministries of agriculture and transport. It is believed that Brazilian prosecutors have seized a number of computers at the agriculture ministry on Monday 8th August. Subsequently, Agriculture Minister Wagner Rossi has been asked to appear before an ethics commission. Rossi is a member of the Democratic Movement Party of Brazil (PMDB), Rousseff's largest ally in Congress.

Sources: BBC News, Reuters, WSJ

For more news and expert analysis about Brazil, please see Brazil Focus.

Brazil: Inflation and growth

In an exclusive, long interview published in O Estado de São Paulo on 19th June, Central Bank president Alexandre Tombini, six months into the job, asserts that "it is possible to take back inflation from 6.55 per cent per annum to the target [4.5 per cent in 2012 and 2013] while the economy is growing."

This was the central issue opposing Henrique Meirelles and Guido Mantega in President Lula's second term. Tombini is now in effect aligning himself with the latter.

The Central Bank president said that the presi­dent's economic team carries out a consistent, comprehensive, and unified strategy, comprising credit, monetary policy, foreign investment, and fiscal adjustment. However, the minutes of the most recent Copom meeting indicate that the Central Bank is very cautious indeed about inflation, and willing to raise the Selic interest rate once again.

The official inflation target for 2011 and 2012 is 4.5 per cent of GDP, with a fluctuation of up to 2 per cent. In 2013, what will it be? Econo­mists are divided, and their estimates vary between 2 and 3 per cent.

Notwithstanding warnings from the Central Bank, and on the very same day that Copom warned the government against the expansion of credit, Brazilian National Development Bank (BNDES) received an injection of R$30 billion from the Treasury on 16th June.

So much for consistency in economic policy.

For more news and expert analysis about Brazil, please see Brazil Focus.

© 2011 Menas Associates

Italy threatens to take Brazil to international court

Brazil's Supreme Court has ruled that it would not extradite an Italian fugitive Cesare Battisti. Upon hearing the announcement, Italy said it will go to the international court in The Hague to have Brazil's decision overturned.

The decision, made last year by Brazil's former president Luiz Inacio Lula da Silva, was upheld by the court, who ordered Battisti's immediate release from prison in Brasilia. Italy's Prime Minister Silvio Berlusconi expressed "great regret" over Brazil's decision, adding that it "denies justice to the Italian people and in particular to Battisti's victims".

Battisti, a former left-wing rebel escaped from an Italian jail in 1981, while awaiting trial for four murders in the 1970s. He has always denied the charges, but was convicted of murder in absentia in 1990.

Italy's Foreign Minister Franco Frattini said the country “plans to activate immediately every possible judicial mechanism... in particular through The Hague international court." He added that Italy would, "seek to overturn the decision that it holds is not in accordance with...the requirements of international law".

Nine of Brazil's Supreme Court judges voted 6-3 to uphold Lula's decision and deny the extradition. The ruling complies with a bilateral treaty therefore it is thought that Italy does not have legal footing to challenge the decision.

Speaking about it, however, Frattini said the verdict "appears to breach international agreements between the two countries, as well as the profound and age-old blood and friendship ties".

Sources: BBC NEWS, Reuters, CBN News

For more news and expert analysis about Brazil, please see Brazil Focus.

Brazil: President Rousseff's chief of staff resigns

President Dilma Rousseff's Chief of Staff Antonio Palocci has resigned over corruption allegations and the controversy surrounding his massive personal fortune. Palocci's resignation followed reports in the Brazilian media, saying his personal wealth had increased twentyfold over the course of the last four years. The former chief of staff has denied all allegations.

The scandal - which commenced almost three weeks ago when the Folha de Sao Paulo newspaper reported Palocci's net worth - is a big blow to Rousseff, who took-up office only six months ago.

Before resigning from his post Palocci said the attorney general had confirmed "the legality and rectitude" of his conduct, but that the continuing "thrashing" the government was receiving over this issue could harm Rousseff and her administration.

Upon news of Palocci's resignation, Rousseff thanked Palocci for his “valuable” work and said she regretted his departure. This is the second time Palocci has resigned from public office. In 2006, he stepped down from his post as finance minister over similar corruption allegations. He was later cleared.

Sources: BBC News, Bernama, Reuters

or more news and expert analysis about Brazil, please see Brazil Focus.

Brazil: Military mutterings

Renewed danger of a rift between the military and the government has arisen over the latter's interest in establishing a truth commission to investigate crimes committed by federal agents, and notably by the military, during the 1964–85 dictatorship. A general amnesty law was passed in 1979, and the military argues that it erased all responsibility for torture, murder, and disappearances.

The government is now headed by Dilma Rousseff, who was herself a victim of illegal imprisonment and torture, and she is keen on seeing that the perpetrators are punished.

Minister of Defence Nelson Jobim (PMDB-RS) – a former chief justice and minister of justice – sides with the government, but the military, otherwise quiescent since the resumption of democratic rule, is restless and producing manifestos of various kinds. The government will have to be extra careful on how it handles this potential crisis.

At a military ceremony held on 5th April in Brasília to introduce to the president the newly promoted general officers of the three armed services, Rousseff broke with precedent by refusing the officers' military salute and substituting a firm handshake. In her carefully worded speech, Rousseff ignored the ongoing debate about human rights violations during the military period, but underlined that "the country has corrected its own ways…and attained a high level of institutional maturity".

What emerged clearly from this ceremony is that Rousseff's relationship with the military is a tranquil one. She reassured them about the need to re-equip the armed forces.

On 27th April, the state of Rio de Janeiro held a public ceremony of reparation to political prisoners who were victims of military dictatorship in the state. This is the first such symbolic reparation.

For more news and expert analysis about Brazil, please see Brazil Focus.

© 2011 Menas Associates

Brazil: March unemployment rate rises by 0.1 per cent

Brazil's unemployment has risen for the third consecutive month in March after seven months of steady decline. Irrespective of the rise, this month's unemployment rate of 6.5 per cent is the lowest in March since 2002.

According to the Brazilian Census Bureau, unemployment in the country rose by 0.1 per cent in March from the 6.4 rate recorded in February. Estimates of unemployed remain stable at 1.5 million, as does the number of workers with contracts estimated at 10.7 million, which is higher than February's figure of 7.4 per cent.

The unemployment rate had been expected to climb to 6.7 per cent; still lower than that in March 2010 of 7.6 per cent. The relatively low rate indicates that the Brazilian Central Bank still faces an uphill fight against inflation.

Sources: Reuters, Wall Street Journal, RTT News

For more news and expert analysis about Brazil, please see Brazil Focus.

Brazil: A new posture on human rights

On 28th February, Secretary for Human Rights Maria do Rosário addressed the UN Council on Human Rights in Geneva. Her speech was awaited with trepidation, as it was expected to signal, under Dilma Rousseff's stewardship, a radical departure from Lula's policies of abstaining from sanctions to governments that are perpetrators of human rights violations. Cuba, North Korea, Iran, Myanmar, Sudan, and Sri Lanka are examples of this policy of omission.

Do Rosário asked for an ample debate about human rights 'in all countries' (which made Iran feel uncomfortable) and specifically that Libya should be suspended from membership in all human rights bodies and agencies of the United Nations. The minister recalled that, for years, American and European countries remained silent vis-à-vis dictatorships that were politically convenient to them. She did not mention Brazil's recent silences vis-à-vis gross violators of human rights.

On behalf of Rousseff, she invited the UN Human Rights Council, which traditionally convenes in Geneva, to meet in Brazil.

For more news and expert analysis about Brazil, please see Brazil Focus.


© 2011 Menas Associates

Brazil's Finance Minister predicts trade war

Brazil's Finance Minister Guido Mantega has said that the country is in the process of putting in place new measures to prevent further appreciation of its currency. He also said that Brazil would bring the issue of exchange rate manipulation to the attention of the World Trade Organisation (WTO) and the G20 group.

“This is a currency war that is turning into a trade war,” said Mantega, naming the worst two culprits as China and the US. The finance minister added that Brazil's trade with the US has dwindled from the annual surplus of approximatelly $15 billion to a deficit of $6 billion, due to ineffective monetary policy on behalf of the US.

"The exchange rate is one of the main drivers of economic policy, more so even than productivity," he said. Mantega also noted that China's "undervalued currency" was distorting world trade and that Brazil would like to “see a revaluation of the renminbi.”

Mantega, finance minister since 2006, has raised concerns about currency manipulation in September, ahead of new controls on foreign portfolio investments in Brazil, aimed at increasing the value of Brazilian real by 39 per cent against the US dollar.

On Thursday 6th January, Brazil's central bank launched a new measure to curb short selling of the dollar against the real by onshore banks. Speaking about the initiative, Montega said Brazil intends to impose “more measures on the future market.”

Sources: FT, BBC News, Reuters

For more news and expert analysis about Brazil, please see Brazil Focus.

Petrobras buys Repsol's stake in the Refap refinery

Petrobras has bought Repsol's 30 per cent stake in the Refap refinery, acquiring full ownership of the facility. Brazilian state-owned Petrobras agreed to pay Reposol $350 million and take on the $500 million debt as part of the stake acquisition.

Petrobras intends to spend around $224 billion between now and 2014, to develop oil fields and expand refining in a bid to increase fuel output by 77 per cent to 3.2 million b/d by 2020. According to the company's refining director, Paulo Roberto Costa, the new acquisition will enable Petrobras to increase capacity and cut costs.

Speaking to the press in Rio de Janerio, Costa said "It's very important for Petrobras to seek synergies between all its refineries." He added that the company expects to supply all its facilities with “100 percent” of domestic oil.

The Refap refinery, said to be Brazil's fifth largest, has the capacity to process as much as 190,000 barrels of crude oil per day.

In 2001, Pertobras sold Repsol a 30 per cent stake in the refinery as part of an asset exchange initiative. Repsol had also bought a chain of service stations around Brazil, which it later sold.

Sources: Reuters, Bloomberg

For more news and expert analysis about Brazil, please see Brazil Focus.

Brazil: A new royalties scheme

On 2nd December, the Brazilian Congress approved the fourth and last bill of the normative framework for pre-salt. The bill defines the production-sharing scheme and allocates royalties to all the states and municipalities, even those that are not producers of oil and gas from pre-salt.

The latter was the more controversial aspect of the legislation, and, by political agreement with the interested governors, it was acknowledged that President Lula would exercise his presidential prerogative of a partial veto of the legislation and proposes a new system of allocation of royalties, by gradually reducing the portion reserved for hydrocarbon-producing states over a period of ten years.

This reduction in royalties would be compensated, over time, by the increase in the volume of oil and gas produced, and hence by an enhancement of royalties accruing to producing states. The principal of these so far is Rio de Janeiro. The new scheme will be defined by Dilma Rousseff in 2011.

A recent article in the Wall Street Journal drew attention to the fact that eight out of twelve of the world's largest deep-sea petroleum deposits discovered over the last 30 years are in Brazil. All of them are being explored by Petrobras, and they are equivalent to 15 billion barrels of oil, more than Brazil's current conventional reserves and nearly two-thirds of those of the US.

There is no doubt that the new frontier of pre-salt is the key to the economic redemption of Brazil. It could spell an end to the country's staggering social iniquities.

For more news and expert analysis about Brazil, please see Brazil Focus.

© 2010 Menas Associates