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goods, but President Dilma Rousseff 's government is determined to retaliate if the new licensing requirements are not withdrawn.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: Ruckus over royalties, again

An 'official' protest act was organised on 10th November by the governor of the state of Rio de Janeiro, Sérgio Cabral , against a bill already passed by the Senate and pending in Congress that will redistribute a large share of the royalties formerly due only to the hydrocarbon producing states.

The 27 states of Brazil as a whole stand to gain. The state of Rio de Janeiro will lose. Some 150,000 people rallied in downtown Rio to put pressure on the government. President Dilma Rousseff said as a candidate that, if elected, she would veto the reallocation of royalties if Congress granted them to the non-producing states. In Congress, however, the mood is heavily in favour of redistribution.

Governor Cabral may perhaps be excused for his manipulation of public opinion, since the stakes are very high indeed. Through to 2020 the state of Rio stands to lose R$125 billion. Instead of having the ICMS tax collected at the point of origin of oil and gas production (mostly in the Campos basin, within the waters of Rio), the bill would levy the tax at the destination (elsewhere in Brazil).

The impact of the new legislation would be even more catastrophic for the 12 municipalities of the state in whose offshore waters hydrocarbons are produced: up to 74.5 per cent of their municipal revenues come from royalties.

While most oil and gas production in Brazil comes from Rio, São Paulo, and Espírito Santo states, in whose territorial waters the Campos, Santos, and Espírito Santo basins lie, at least six northern and northeastern states may join their ranks: Amapá, Ceará, Maranhão, Pará, Piauí, and Rio Grande do Norte. Others, like Alagoas, Amazonas, and Sergipe, show similar potential. The issue is therefore one of overriding national interest. Rousseff intervened in mid-November to postpone the Chamber of Deputies vote on the royalties issue to 2012. Thus, oil-producing states like Rio will continue to enjoy their privileged access to royalties for a while. Rousseff prefers to let tempers cool as the issue risks splitting the ruling coalition, which she cannot afford. For the government, other issues take precedence and must be voted on before the end of this year. Bills on the World Soccer Cup (Lei Geral da Copa), the federal budget, and DRU (the reallocation of budgetary appropriations) are up first.

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'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: 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.