NEWSLETTER
DECEMBER 2025
12/03/2025
VALE AND GLENCORE PLANNING COPPER JOINT VENTURE
Vale Base Metals signs deal with Swiss mining company to develop area already under exploration in Canada.
Vale has taken another step toward doubling its copper output by 2030. The mining company announced Tuesday (2) that its Canada-based subsidiary Vale Base Metals (VBM) has signed an agreement with Switzerland’s Glencore to assess the potential joint development of a copper area already under exploration in the Sudbury Basin region of Ontario.
If the partnership advances, VBM and Glencore intend to form a joint venture to develop the area. In a statement Tuesday, Vale highlighted that, over 21 years, the site could yield 880,000 tonnes of copper at a cost of $1.6 billion to $2 billion. A final investment decision is expected in the first half of 2027. Copper is a critical metal for the energy transition.
Initial talks between the two companies began 20 years ago. “The agreement sets a framework to explore the significant synergies in mining the underground deposits of both companies,” Vale said in the statement. Glencore has infrastructure in the region tied to the Nickel Rim South mine.
At Vale Day, the company’s investor event held this year in London, VBM president Shaun Usmar said that without Vale, Glencore’s only option would be to shut the mine. For Vale, meanwhile, investing alone in local infrastructure would not be economically attractive.
“We have work to do through the first half of 2027 to bring together our equipment, our team, reach agreements, work with our stakeholders and partners, because there are different unions and many other things we need to move forward,” Usmar said. “The opportunity now is how we can improve returns, find ways to reduce capital intensity, and, if we can, bring [the project] forward,” he said. Production potential could be higher depending on new discoveries.
The 880,000 tonnes over 21 years translates into an average of 21,000 tonnes of copper per year, or a total of 42,000 tonnes annually when including associated ores such as nickel and cobalt, Usmar said. Analysts Leonardo Correa and Marcelo Arazi of BTG Pactual said in a report that the agreement with Glencore allows Vale to increase copper exposure without committing significant capital.
The possibility of a deal with Glencore comes at a strategic moment. The company says it expects to end 2025 with production of about 370,000 tonnes of copper, meeting the target set in 2024. For 2026, output is expected between 350,000 and 380,000 tonnes, reaching between 420,000 and 500,000 tonnes in 2030. By 2035, annual output would reach 700,000 tonnes.
In iron ore, Vale’s flagship business, the company expects to close 2025 with production of 335 million tonnes, the top end of the target disclosed at the 2024 Vale Day. For next year, a slight reduction: at the 2024 event, Vale projected output between 340 million and 360 million tonnes in 2026; that range is now trimmed to between 335 million and 345 million tonnes. For 2030, the company expects to extract 360 million tonnes.
Another commodity relevant to electrification and the energy transition, nickel is expected to close 2025 with production of 175,000 tonnes, the top of guidance. For 2026, Vale expects output between 175,000 and 200,000 tonnes, rising to between 210,000 and 250,000 tonnes in 2030.
At Tuesday’s event, Vale CEO Gustavo Pimenta acknowledged that the market still harbors doubts about the company’s ability to deliver on its targets, because in the past, promises were not always fulfilled. He said many of the projects coming online or progressing as planned have been in the portfolio for more than a decade. Vale’s investment forecast for 2026 is between $5.4 billion and $5.7 billion, in line with the roughly $5.5 billion planned for 2025.
One word repeated by Pimenta and other executives Tuesday was “endowment,” a concept used to describe a company’s asset base. “Vale’s potential lies in bringing its assets into production,” Pimenta said when asked in a press conference about the possibility of taking VBM public. An IPO, he said, may be an option in the future, but that is not the focus today. A potential VBM listing entered the radar after Vale completed, in July 2023, the sale of 13% of VBM to Saudi Arabia’s Manara Minerals and California-based investment fund Engine No.1 for $3.4 billion.
In iron ore, Vale has already said it wants to regain the position of world’s leading producer. The company also aims to climb the market-cap rankings, where it has slipped following the dam disasters involving Samarco in Mariana (Minas Gerais) and Vale itself in Brumadinho (Minas Gerais). In London, the company reinforced not only that it will meet its production commitments but also that it is committed to operational stability, enhanced safety, and consistent shareholder payouts.
“Vale has cleared several problems from its path,” says Itaú BBA analyst Daniel Sasson, who spoke with Valor before Vale Day. In recent years, the company resolved the CEO succession and signed a definitive Mariana settlement. “With these off-field issues resolved, people have become more focused on operations, which have been going very well,” Sasson said, adding that iron ore above $100 per tonne supports strong cash generation. January contracts on the Dalian exchange closed at $113.19 per tonne on Tuesday.
A source told Valor that Vale’s stock looks “cheap” compared with peers not because of the business itself but because perceived risk remains high relative to other miners. The company is still viewed as dependent on iron ore and Chinese demand at a time when China’s growth is weaker. “That alone drags the multiple down,” the source says. Yesterday, Vale closed with a market cap of $58.1 billion, above Fortescue ($44.2 billion) and Anglo ($40.2 billion) but behind Rio Tinto ($116.2 billion) and BHP ($142 billion), according to Valor Data.
Source: Valor International
https://valorinternational.globo.com
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12/15/2025
CONGRESS ENTERS DECISIVE VOTING WEEK AMID INSTITUTIONAL CRISIS
Agenda includes impeachment rules for Supreme Court justices and sentencing bill; tensions rose with earmarks probe
The final week of votes in Congress this year features a packed agenda of sensitive issues, including the sentencing bill in the Senate, the expulsion of Federal Deputy Alexandre Ramagem (Liberal Party, PL, Rio de Janeiro), who fled to the U.S., and the 2026 budget law, against a backdrop of escalating institutional crisis. Tensions and distrust among the branches of government have intensified amid advancing investigations at the Federal Supreme Court into alleged misuse of parliamentary earmarks and the approach of an election year.
In the words of a seasoned lawmaker, the prevailing mood in Brasília is one of “uncertainty, insecurity and unpredictability,” making it difficult to foresee what may happen even over the course of a month. On Friday (12), the Federal Police’s Transparency operation, which targeted a staffer of the Chamber of Deputies, Mariângela Fialek, known as Tuca, prompted Chamber Speaker Hugo Motta (Republicans of Paraíba) to call an emergency meeting with party leaders to discuss a joint response to the police action. Many lawmakers had already returned to their home states and had to come back to the federal capital.
Motta issued a statement defending the former staffer, stressing that he respects Supreme Court decisions, but that “a careful and correct reading” of Justice Flávio Dino’s ruling “does not point to any act of misuse of public funds.” “None. Any potential misuse, it bears repeating, must be properly investigated,” the statement said.
The operation deepened turbulence between the Chamber and the Supreme Court, as dozens of Federal Police agents circulated through the building to execute search-and-seizure warrants in offices where the staffer worked. Relations had already been strained after the Court annulled a plenary session that kept Federal Deputy Carla Zambelli in office, contrary to a court order. In response, also on Friday (12) the Supreme Court’s First Panel upheld a preliminary injunction by Justice Alexandre de Moraes ordering the loss of Zambelli’s mandate. On Sunday (14), Motta scheduled a meeting with the Chamber’s legal team to consult on the case. Later that afternoon, the Chamber released a statement saying Zambelli had resigned.
Before the crisis escalated, the Chamber’s agenda, under a special voting schedule, included the removals of Ramagem and of Deputy Eduardo Bolsonaro (PL of São Paulo), who moved to the U.S. in March and from there lobbied in favor of Donald Trump’s tariff hikes. There are doubts, however, in both cases. Regarding Ramagem, since the Supreme Court voided the lawmakers’ decision to shield Zambelli, there is uncertainty over whether Motta will submit the case to the plenary. As for Eduardo, the Trump administration’s withdrawal of Magnitsky Act sanctions imposed on Moraes could weigh in his favor.
In parallel, Motta had signaled to the presidential palace the possibility of putting to a vote a proposed constitutional amendment on public security, as well as a bill to cut tax incentives, reported by Deputy Aguinaldo Ribeiro (Progressives Party, PP, Paraíba). But as the Chamber speaker’s relationship with the Workers’ Party (PT) has deteriorated, especially after Sunday’s protests (14) against passage of the sentencing bill, the most likely outcome is that this measure, crucial to the Finance Ministry, will be postponed to 2026.
Lawmakers are also expected to consider the anti-gang bill, which returned from the Senate. On the economic front, there is anticipation around a vote on the complementary bill regulating the tax reform.
Another factor fueling the crisis, the bill that reduces sentences for those convicted over the January 8 attacks, which benefits former President Jair Bolsonaro (PL), is set to be voted on in the Senate plenary on Wednesday (17). Resistance among influential senators persists, and the impact of street pressure against the proposal on lawmakers remains to be seen. Senator Renan Calheiros (Brazilian Democratic Movement, MDB, Alagoas) has already told people close to him that he intends to deliver a forceful speech opposing the measure.
If confirmed, Senate consideration of the sentencing bill is part of a broad behind-the-scenes agreement involving the leaderships of the Chamber and the Senate, and factions within the Supreme Court. The talks excluded the presidential palace, Senate leaders, and the PT, which said they were surprised by the Chamber’s vote on the bill early last week.
One element of the deal was Supreme Court acquiescence to the sentencing text, reported by Federal Deputy Paulinho da Força (Solidarity of São Paulo), who has good communication channels with the justices. Valor learned that some factions within the court viewed the final text as “mathematically” insignificant. For example, the Supreme Court’s understanding is that Bolsonaro’s sentence progression could be reviewed starting at three and a half years. Current law requires four and a half years, based on a sentence of 27 years and three months in prison.
Another item in the agreement involved the Supreme Court stepping back from a preliminary decision by Justice Gilmar Mendes that limited to the Office of the Prosecutor General (PGR) the authority to seek impeachment of Court members. On December 10, Justice Mendes granted a request by the Senate’s legal office to that effect. On the other hand, senators reached an agreement in the Constitution and Justice Committee (CCJ) to propose an update to the rule within six months.
Another commitment, however, was allegedly breached by the Chamber’s plenary: the removal of Federal Deputy Carla Zambelli. In May, the Supreme Court’s First Panel sentenced her to 10 years in prison, initially in a closed regime, for hacking systems and tampering with documents of the National Justice Council (CNJ). The same ruling ordered the loss of her mandate. As lawmakers failed to comply with the court order, the Supreme Court annulled the Chamber’s plenary decision.
At the same time, it is worth recalling that it was precisely the crisis surrounding parliamentary earmarks, stemming from Justice Dino’s decisions at the end of 2024 imposing strict rules on the execution of funds, that delayed the vote on the 2025 budget law. The rapporteur was Senator Ângelo Coronel (Social Democratic Party, PSD, Bahia), who publicly criticized Dino’s decisions. The proposal was only voted on in March, after an understanding brokered by Institutional Relations Minister Gleisi Hoffmann, who had just taken office.
Friday’s Federal Police operation targeted earmarks directly by focusing on Tuca, the congressional aide, whom the Supreme Court identifies as allegedly responsible for the “organization and distribution of resources” from parliamentary earmarks “linked to the secret budget for several years.” The decision adds that she “supposedly” acted under direct orders from the former leadership of the Chamber, citing that the post was held by Federal Deputy Arthur Lira (PP of Alagoas), while noting that this fact “is still under investigation.” Through his press office, Lira emphasized that he is not a target of the probe and that Tuca is no longer his aide.
In addition, behind the scenes, Lira was angered by the decision to keep in office his rival, Federal Deputy Glauber Braga (Socialism and Freedom Party, PSOL, Rio de Janeiro), who received a six-month suspension for breach of decorum. Braga appears, along with other lawmakers, as one of the whistleblowers to the Supreme Court in the alleged secret budget scheme.
Despite the succession of crises, the rapporteur of the 2026 Annual Budget Law (LOA), Federal Deputy Isnaldo Bulhões (MDB of Alagoas), told Valor he sees no crisis scenario in Congress that could hinder next week’s vote. “Everything is fine with the budget, there is nothing to contaminate the vote,” he said.
Along the same lines, the chairman of the Joint Budget Committee (CMO), Senator Efraim Filho (Brazil Union of Paraíba), dismisses the idea that the police operation could prevent the vote. In his view, the schedule devised for earmark payments reinforced “rules on transparency, predictability and traceability of funds.”
Source: Valor International
https://valorinternational.globo.com
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12/15/2025
SURETY BONDS WITH STEP-IN RIGHTS COVER R$2.45BN IN PROJECTS
New model gains traction in Brazil but still awaits clearer regulation
The surety bond model that allows insurers to take over public works in case of delays or contract failure gained traction in 2025, covering or expected to cover about R$2.45 billion in infrastructure projects. However, insurers say key regulatory issues must still be addressed before the model can fully take hold.
With the deadline to comply with Brazil’s New Public Procurement Law passing in late 2023, contracts for large infrastructure projects over R$200 million are now required to include a “step-in clause.” The first case was in April 2024, in the state of Mato Grosso.
The insurance industry sees strong growth potential for this product, which is expected to help solve Brazil’s chronic issue of stalled public works. By reducing uncertainty, the model could also expand the scope of infrastructure projects and attract more investors.
But adoption has been slower than expected, said Esteves Colnago, head of institutional relations at CNseg, Brazil’s national insurance confederation, which compiled the project data by analyzing public tenders.
“We expected more momentum. Usage began strong, especially in states like Mato Grosso, but the lack of adoption by federal authorities has hindered broader uptake,” Colnago said. Insurers are pushing for regulatory clarity to unlock growth.
The Superintendence of Private Insurance (SUSEP) is working with the Finance Ministry on a draft decree to define the rules, said Jéssica Bastos, director of market organization and conduct regulation at the insurance regulator.
“In a second phase, additional regulations by the National Council of Private Insurance and SUSEP may be needed to improve understanding and support growth,” she said. “It’s not that the instrument hasn’t caught on, but there’s a lot of room to scale up.”
Attorney Guilherme Reisdorfer, a partner at law firm Vernalha Pereira, said regulation is not strictly required under the law, but would be welcome to strengthen legal certainty and clarify processes like communication between parties.
He highlighted governance benefits of the new model: “For the public sector, it helps to have an insurer assessing the contractor. For contractors, the insurer validates their work. It adds an extra layer of control for both sides.”
Cássio Amaral, partner in the insurance and finance practice at law firm Machado Meyer, said adoption so far has been “very timid,” due to a lack of understanding about how step-in clauses work in practice. “We need guidelines, decrees at the federal, state, and municipal levels, so public agencies know how to include this in contracts and tenders,” he said.
Some states have lowered the project value threshold for requiring the insurance. Mato Grosso, which led the way, passed a law mandating step-in clauses for works above R$50 million. Goiás followed suit in 2025. Paraná and Pernambuco also included the model in tenders this year.
Under the rules, the bond issued by the insurer may cover up to 30% of the total project value. If the contractor defaults, the insurer has two options: take over and complete the project by hiring another construction company, or pay the full value of the bond.
One key point under discussion is ensuring that the bond is not used to cover penalties that should remain the responsibility of the original contractor. The goal is to clarify the division of obligations among the parties.
Insurers also have questions about what happens after the step-in clause is triggered. “When choosing a new company to finish the project, do we have to select from the original bidders, or can we pick someone we trust?” Colnago asked.
Another unresolved issue is the flow of funds. While part of the remaining budget comes from the insurer, the other portion is public money. It’s unclear whether this public share will be paid directly to the construction company or routed through the insurer, the latter is considered less efficient.
Colnago also stressed the need to clarify when insurers can decline to complete a project. Some argue that step-in should be mandatory, but insurers want the right to opt out in cases where technical flaws make the project unfeasible.
The market agrees on one point: if the bond covers significantly less than 30% of the project, insurers are unlikely to take on the risk of finishing the work.
“You don’t take over a project with less than a 30% bond,” said Amaral. “In the U.S., most states require surety bonds to cover 100% of the project value, and some require at least 50%.”
“Public entities in Brazil need to understand that demanding a step-in clause with a lower percentage is unrealistic. The additional cost is too high, and in the end, insurers will prefer to just pay the bond amount.”
The potential of this new market has already led insurers to expand their teams, hiring engineers and specialists to meet growing demand.
Tokio Marine, which issued the first such policy in Mato Grosso, and Junto Seguros, which has had a risk management team since 2011, are two examples.
“Even so, we’re still hiring specialized engineers to strengthen our capacity, and we’ve mapped companies across Brazil that can support us as demand grows,” said Roque de Holanda Melo, CEO of Junto.
Dyogo Oliveira, president of CNseg, said insurers are ready and public tenders are moving forward. “What we need now is to take bigger steps to really accelerate,” he said.
Source: Valor International
https://valorinternational.globo.com
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12/16/2025
SYSTEMIC CRIME RAISES COSTS, DETERS INVESTMENT IN BRAZIL
Widespread violence undermines competitiveness, productivity, and investor confidence
High, persistent, and widespread crime and violence in Brazil create an economically hostile environment across large parts of the country. This discourages interest from both domestic and foreign investors and leads to significant costs for businesses, including losses in productivity, competitiveness, and human capital. Experts point out that the problem worsens when criminal organizations infiltrate the political sphere and public administration.
“The economy is a connected system. Governments create public policies to help the population and businesses generally,” said Daniel Cerqueira, a board member of the Brazilian Public Security Forum. “If governments are chaotic, if they don’t work well, if laws are poorly made, and if the environment is unfriendly to investment, it naturally causes capital to leave and investment interest to decrease.
This situation can be understood from both an international perspective—Brazil’s relationship with the rest of the world—and a domestic one, Cerqueira said. “In a study analyzing 62 countries, researchers found that higher homicide rates are associated with lower foreign direct investment,” he said, citing research by Leanora Brown and Keva Hibbert that includes Brazil in the sample.
The economic impacts of crime work through various channels, according to Cerqueira. The first is that crime and violence raise business costs, which lowers companies’ competitiveness. “Costs increase through direct channels, such as the need for businesses operating in violent environments to pay higher freight and insurance premiums. But there is also productivity loss through indirect channels, such as the victimization of workers,” he said.
That victimization, in turn, may be direct—such as when a worker dies due to violence—or indirect, involving physical and/or psychological effects on employees. “There is an issue of human capital loss, whether because the employee was murdered or because they developed, for example, post-traumatic stress disorder and need to take time off for treatment. All of this ultimately also represents a cost for companies,” Cerqueira said.
A 2023 study by the Center for Studies on Security and Citizenship (CESeC) showed, for example, that rates of hypertension, prolonged insomnia, depression, and anxiety are higher in communities in Rio de Janeiro that are more exposed to shootouts involving security forces.
These costs influence companies’ strategic choices: they might decide not to start a business in violent areas or, if already there, to leave. “Rio has several examples. The Jacarezinho area, which experienced what was then the deadliest police operation until this year’s operation [in the Alemão/Penha complex], once hosted numerous factories. They gradually shut down as the area became extremely violent,” Cerqueira said. “There was a demobilization of physical capital to other locations, and that represents a cost for companies.” Cerqueira is referring to a police operation that left 28 people dead in the Jacarezinho favela in 2021. In this year’s mega-operation, 121 people were killed, including four police officers.
Violence can also reduce consumer willingness to frequent these businesses and ultimately undermine profitability, the expert added. “It can discourage certain types of consumption, such as restaurants and cultural activities, because people are afraid to go out, in addition to its effects on tourism by foreigners and Brazilians,” he said. “Tourism is a sector that, for a long time, several countries such as Portugal and Spain have strategically used as an engine of development, but a country that appears in the news every day because of high levels of violence discourages tourists.”
This has the potential to affect Brazil’s current account balance, which records transactions between residents and non-residents. “Tourism functions as a kind of export for us, and that would be declining,” Cerqueira compares.
Another factor related to organized crime that lowers productivity in legitimate companies is the infiltration of criminal organizations into legal sectors, Cerqueira noted. “With funds that often come from money laundering, they can sell at lower prices. To stay competitive, other legitimate businesses are forced to cut prices—not because that competitor is more efficient, but simply because it has surplus resources from illegal markets. There are many examples of this,” he said.
He cites a recent case: Operation Hidden Carbon, which dismantled a complex network of shell companies, investment funds, and fintechs used by the criminal organization Primeiro Comando da Capital (PCC) to launder money, defraud the fuel market, and hide assets. The Institute for Legal Fuel (ICL), which represents major fuel distribution and petrochemical companies, estimates that at least R$30 billion is siphoned off from the sector annually due to tax evasion, non-payment, and fraud against consumers, including pump tampering and fuel adulteration, known as “blended fuels.”
A more recent issue in Brazil that has also attracted attention—and carries economic consequences—is the infiltration of organized crime into politics and public administration. “When policy decisions are made to benefit specific groups, laws and contracts are drafted in a biased way, leading to a broad loss of economic efficiency. This is a cost that society as a whole will have to bear,” Cerqueira said. He cited, as an example, bus companies in São Paulo that are under investigation for alleged links to the PCC. “These are contracts that may be costing society more while generating less well-being.”
Even before the major operation in Rio de Janeiro at the end of October, William Jackson, chief economist for emerging markets at Capital Economics, had already pointed to “worrying signs regarding the prevalence of criminal organizations in Brazil recently.” In his view, recent events “have highlighted that crime is a politically relevant issue and that there is a shift—at least in some parts of the political spectrum—toward a much tougher approach to fighting criminality.”
Jackson estimated that high crime rates reduce Latin America’s potential gross domestic product (GDP) growth by around 0.25 percentage points, placing Brazil in an intermediate position. “It is not as severe as in some high-crime regions, such as parts of Central America, but it carries a higher cost than in other countries—for example, Uruguay and Chile.”
Although conditions have improved compared with last year, Brazil ranks as the third least peaceful country among 11 in South America assessed by the 2025 Global Peace Index (GPI).
Produced by the think tank Institute for Economics & Peace (IEP), the GPI evaluated 163 countries and independent territories in this year’s edition. Brazil ranks 130th, an improvement over its 2024 ranking. Within South America, however, only Venezuela (139th) and Colombia (140th) perform worse.
The index includes 23 qualitative and quantitative indicators that evaluate the “state of peace” across three areas: the level of ongoing domestic and international conflict, the degree of militarization, and safety and security—the category where Brazil scores the lowest. This grouping considers factors like national harmony or discord, including crime rates, terrorist activities, violent protests, and relations with neighboring countries.
Felipe Tavares, chief economist at BCG Liquidez, references a study by the Inter-American Development Bank (IDB) showing that Southern Cone countries lose about 3.39% of GDP annually due to high crime rates. In Brazil’s case, the yearly social loss is estimated at R$372.9 billion.
Based on this, Tavares estimated that R$32 billion of that amount is attributed to the state of Rio de Janeiro. Focusing only on the direct effects of violent crime, the yearly impact would be approximately R$13 billion. Tavares also estimates that arrivals of foreign tourists experience an average negative impact of 0.17%, which affects sectors like hospitality, retail, and services.
Using a municipal-level econometric approach, distinct from that employed by the IDB, Tavares reached similar conclusions: the economic impact of crime in Rio de Janeiro ranges from R$10.7 billion to R$11.5 billion per year. “Crime erodes wealth, reduces productivity, and imposes a persistent social cost on the state’s economy,” he said.
From an economic perspective, crime can be understood as an “incentives problem,” Tavares argues. He cites Gary Becker (1930-2014), the American economist and 1992 Nobel laureate who developed, among other ideas, the “economics of crime.” The idea, Tavares explains, is that criminal behavior is also a rational decision: individuals weigh the expected benefit of the crime against the cost of punishment. If the perceived gain outweighs the risk of punishment, crime becomes an economically viable option.
“In contexts of high poverty and inequality—as is chronically the case in the state of Rio de Janeiro—the imbalance between the costs and benefits of crime tends to intensify. Adverse economic cycles increase the appeal of illicit activities, especially in regions where the presence of the state is weak and the expected returns from formal employment are low,” Tavares said. The result, he added, is a parallel economy that competes with the productive economy, distorts incentives, and destroys human capital.
It is also based on diagnoses like this that Renato Galeno, coordinator of the international relations program at the business school IBMEC-RJ, argues that equating criminal factions with terrorist groups would not be an effective method for combating organized crime. “When we talk about terrorist groups, we think in terms of means and ends. Violence is not an end in itself; the end is rooted in strong convictions and political and ideological motivations—broadly speaking, in revolutionary, religious, nationalist, or ethnic or racial movements. This is very different from groups whose objective is to make money.”
Because the motivations of these two types of organizations differ, the way to address them must also differ, Galeno argued. “People who are part of terrorist groups are highly driven by passion. The measures to prevent them from being drawn into such groups are different. For groups that want to make money, people can still walk away—what I call a ‘social remedy.’ Confusing the two does not help and may harm Brazil, its population, and its businesses,” he argued.
Jackson, of Capital Economics, added that in this effort Brazil faces a “particularly challenging” fiscal situation, with little room to increase spending on crime-fighting. “The room for maneuver is limited.”
Source: Valor International
https://valorinternational.globo.com
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12/16/2025
SUPREME COURT BEGINS TRIAL OF INDIGENOUS LAND CLAIMS DEADLINE
Justices Mendes and Dino vote against 1988 deadline for claims in high-profile challenge to land claims with support from farm interests
Brazil’s Supreme Court began voting on Monday (15) on four cases challenging the bill that reinstates the so-called temporal milestone for the demarcation of Indigenous lands. The review opened with the opinion of the rapporteur, Justice Gilmar Mendes. In his vote, Mendes argued that the thesis is unconstitutional. The temporal thesis holds that Indigenous peoples would only be entitled to lands they occupied or were disputing on the date the Constitution was enacted, on October 5, 1988.
Justice Flávio Dino joined the rapporteur, putting the score at 2-0. The case is being heard in the virtual plenary and will run through Thursday (18). Under this procedure, justices do not meet to debate the case; they submit their votes on a digital platform.
The court resumed analysis of the matter last week. In two in-person sessions, justices heard oral arguments from the parties and interested stakeholders.
In Mendes’s view, setting the temporal cutoff at the date of the Constitution creates a “situation that is difficult to prove for Indigenous communities that were historically dehumanized by state or private practices of forced removal, killings, and persecution.”
The justice also proposed a 10-year deadline for the federal government to complete all pending demarcations. According to him, there has been an “omission” in concluding cases. “More than 35 years after the promulgation of the Federal Constitution, it seems to me that sufficient time has elapsed for the definitive maturation of the issue, such that there is no longer any way to postpone solving this problem, making it incumbent on the Executive branch to properly address the matter and conclude demarcation procedures within a reasonable, yet peremptory, timeframe,” Mendes said.
The senior justice of the court also declared unconstitutional the veto on expanding the boundaries of already demarcated Indigenous lands, arguing that correcting administrative acts is guaranteed by the Constitution when there is a “serious and incurable” error in the conduct of the procedure. He further defended economic activities on Indigenous lands by the local communities themselves, including tourism, provided the benefits reach the entire community and land tenure is preserved.
In 2023, the Supreme Court struck down the temporal milestone thesis. At the time, the vote was 9-2, and the cases were reported by Justice Edson Fachin. In response, Congress approved a bill reinstating the thesis backed by agribusiness representatives. As a result, several political parties and Indigenous representative organizations filed cases with the Supreme Court seeking both the validation and the overturning of the law.
The cases were assigned to Mendes, who ordered the creation of a conciliation table for the parties to seek a negotiated solution. In June 2025, the commission presented an agreement signed by the federal government, Congress, Indigenous peoples, and farmers, after 23 hearings.
In the ongoing judgment, if the justices approve the agreed terms, the text will be sent to Congress as suggestions for legislative amendments.
The Supreme Court’s review comes after the Senate approved, by 59 votes to 15, a proposal to amend the Constitution (PEC) reinstating the temporal milestone. The vote was a reaction to a preliminary injunction by Mendes in another case that tightened rules for impeaching justices, determining that proceedings could only be initiated by the Prosecutor General’s Office (PGR). Last week, however, Mendes granted a Senate request to reverse that decision and removed the case from the court’s agenda.
The PEC now before the Senate still needs to be considered by the Chamber of Deputies. If approved, it may be promulgated without the consent of President Lula.
Source: Valor International
https://valorinternational.globo.com
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12/18/2025
ENEL SÃO PAULO CRISIS FUELS TAKEOVER INTEREST IN CONCESSION
Market points to Âmbar, Equatorial Energia, CPFL as potential buyers
After the government decided to initiate the process to terminate the Enel São Paulo power distribution concession, names of companies reportedly interested in taking over the utility’s operations began circulating behind the scenes, in a potential change-of-control scenario. Market participants point to Âmbar, the energy arm of the J&F group owned by brothers Joesley and Wesley Batista, Equatorial Energia, and CPFL Energia as possible candidates.
Contacted by Valor, Âmbar declined to comment. CPFL said it does not comment on market speculation. Equatorial had not responded by the time this edition closed. For market sources, declaring forfeiture is seen as a more lengthy route, while a change of operator could be a simpler solution. The companies are eyeing what is considered one of the country’s most complex concessions, characterized by high population density and strong cash flow generation. Enel São Paulo serves 24 municipalities in the metropolitan region, covering about 8.5 million properties, including the city of São Paulo, and holds a contract running through 2028. It is the largest power distribution concession in Latin America.
Last week, more than 2.2 million properties in the metropolitan area were left without electricity after an extratropical cyclone brought winds of nearly 100 km/h. It is the third consecutive year in which extreme weather events disrupted service and triggered criticism over delays in restoring power.
In a statement, Enel said it has fully complied with all regulatory indicators and delivered “consistent improvements” across all service quality metrics, “as evidenced by inspections recently conducted by the regulator.” The company also said that climate change has made Greater São Paulo increasingly exposed to extreme weather events.
“This measure requires a structured plan coordinated with public authorities, defining the most appropriate modalities for adequate compensation of this investment. The company is willing to make these investments as part of a strategy shared with all involved institutions,” the statement reads.
Enel added that it reaffirms its confidence in Brazil’s legal and regulatory framework to ensure security and stability for investors with long-term commitments in the country.
Âmbar has financial capacity and has recently taken on complex assets, such as the Amazonas Energia and Roraima Energia distribution utilities, as well as generation projects. Its most recent acquisitions include a minority stake in Eletronuclear and the Norte Fluminense gas-fired power plant from France’s EDF. On the other hand, the company lacks a significant track record in power distribution in large urban centers, which could weigh on a regulatory review.
Equatorial Energia is another potential candidate. The group is recognized for strong operational expertise in distribution and a track record of turning around troubled concessions. Holder of concessions in northern and northeastern states, Equatorial is also a shareholder in the São Paulo water utility Sabesp, which could, in theory, create synergies between services, according to people familiar with the matter. However, the company is currently highly leveraged due to its recent acquisition of a stake in Sabesp as a primary shareholder, which could constrain its financial capacity, according the sources. Third-quarter 2025 financial statements indicate leverage of 3.3 times.
CPFL Energia is seen by many as the most obvious candidate in a potential reshuffle. The company already operates in São Paulo state, has an established operating structure, low leverage, and financial backing from the owner, the Chinese company State Grid. CPFL has also shown historical interest in Enel assets, having previously attempted to acquire Enel Ceará (formerly Coelce).
Specialists interviewed by Valor caution, however, that it is too early to predict an outcome for Enel, which has made significant investments in the grid in recent years and is unlikely to relinquish the concession easily. Some see the possibility of litigation if forfeiture proceeds, especially if the utility’s quality indicators or economic-financial balance remain within the limits set by the Brazilian Electricity Regulatory Agency (ANEEL).
Forfeiture occurs when a distributor fails to comply with obligations established by the regulator in the concession contract. In the case of power distributors, the measure can generally be applied when service quality indicators that track power outages exceed ANEEL’s limits. The main metrics are duration (DEC) and frequency (FEC) of power outages. Financial issues that could impair service provision can also trigger forfeiture.
On Wednesday (17), Mines and Energy Minister Alexandre Silveira formally requested that ANEEL initiate the process to declare Enel’s São Paulo concession forfeited—the first step toward terminating the contract.
The agency said its inspection unit will assess the recurrence of service failures related to the December 10 blackout. The company is already being monitored by the regulator due to outages in October 2024, also caused by storms.
In November 2023, Enel São Paulo took a week to restore power to about 3 million consumer units following heavy rainfall and winds exceeding 100 km/h.
Source: Valor International
https://valorinternational.globo.com
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12/22/2025
CHINA SIGNALS LONG-TERM INTEREST IN MERCOSUR TRADE DEAL
Beijing keeps talks on the table despite current hurdles, as global trade realigns
China, the world’s second-largest economy, continues to signal to Mercosur diplomats its interest in negotiating a free trade agreement with the South American bloc, even while acknowledging that such a deal remains out of reach for now.
People familiar with the matter told Valor that Beijing has communicated flexibility and a willingness to keep the issue on the agenda, even though it does not expect progress in the short term. The Chinese government appears to be patiently laying the groundwork for a future agreement.
The current context is one of global trade realignment, with countries increasingly seeking preferential arrangements as a way to diversify exports and shield themselves from the effects of unilateral policies by the United States.
Amid global instability, ideas that once seemed unrealistic are now at least being taken seriously. Mercosur, for its part, is showing signs of frustration with the European Union’s repeated delays in concluding the long-awaited bi-regional agreement.
Uruguay had for years attempted to negotiate a bilateral deal with China. While Chinese officials expressed interest, they eventually made it clear that such a move would be diplomatically unfeasible, as it could offend Brazil and undermine Mercosur cohesion. A deal with Montevideo alone would strike at the heart of the bloc’s unity.
Even before, a preferential agreement between China and Mercosur was seen as complex. Now it may prove even more challenging, as Chinese exports continue to surge. In 2024, Brazil saw the highest percentage increase in Chinese exports among global partners, up 22%.
This year, China’s shipments to Brazil are still growing faster than Brazilian exports to China, eroding Brazil’s trade surplus in the bilateral relationship. Most of Brazil’s active anti-dumping measures target Chinese products.
Political factors within Mercosur also pose challenges, particularly Argentina’s close alignment with the United States. Washington has adopted a new, more assertive version of the Monroe Doctrine and is seeking to curb China’s influence in the region.
Despite ongoing U.S. opposition, China’s export performance continues to unsettle trading partners. In November, the country posted a $1 trillion trade surplus, a sign of its success in diversifying export markets with competitively priced, high-quality products.
At the same time, however, Beijing is beginning to restrict access to its own market. One emerging concern among partners is an ongoing investigation that may result in import quotas on beef. If confirmed, Brazil would be one of the countries hardest hit.
Brazil’s manufacturing sector has long expressed unease about trade flows with China. Still, back in 2023, when China first hinted at its interest in a deal with Mercosur, representatives from the National Confederation of Industry (CNI) said negotiations didn’t need to start with a full-fledged free trade agreement. They suggested exploring alternatives, such as a deal focused on trade facilitation.
China’s strategic position in global trade has been built in part through a network of free trade agreements, which provide mutual tariff preferences for Chinese companies and their partners.
Beijing currently has 23 free trade agreements in effect, covering 30 countries and regional blocs such as ASEAN (Association of Southeast Asian Nations), which includes 11 fast-growing economies. Another 10 deals are under negotiation and eight are in the study phase.
In Latin America, China already has trade agreements with Chile, Peru, Costa Rica, and Ecuador. Talks are underway with Honduras and Panama, and a feasibility study is ongoing with Colombia.
Despite the current obstacles, China is moving steadily into the Mercosur orbit—with the patience that an authoritarian regime allows—keeping the door open for a preferential trade deal in the future.
Source: Valor International
https://valorinternational.globo.com
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12/22/2025
DIVIDENDS STILL KEY TO BRAZIL’S FISCAL PLAN DESPITE DECLINE
Payouts from state-run companies may fall R$20 billion in 2025 but remain vital to primary target
The Brazilian federal government expects to receive R$52.4 billion in dividends and profit-sharing payments from state-owned and mixed-capital companies in 2025. While this is lower than last year’s total, it would still mark the third-largest figure in the historical series and is crucial to helping the economic team meet its primary fiscal target, within the tolerance band.
The government’s fiscal goal is a balanced primary result—revenues equal to expenses—with room for a deficit of up to R$31 billion.
In 2024, the government received R$72.4 billion, driven by extraordinary dividend payouts from Petrobras and the Brazilian Development Bank (BNDES). That figure, in nominal terms, is second only to the record R$87 billion in 2022, more than half of which came from the oil giant, based on National Treasury data tracked since 1997.
As of October 2025, the latest month with available data, the government had already received R$38.1 billion in dividends. It expects another R$14.3 billion to come in during the last two months of the year, reaching the R$52.4 billion target published in the latest Bimonthly Revenue and Expenditure Report, which updates the government’s fiscal projections.
Dividend revenues were higher in 2024 due to early and extraordinary distributions by state-owned firms, explained Alexandre Andrade, director at the Independent Fiscal Institution (IFI). “At the end of 2024, in November and December, Petrobras and BNDES paid R$29.1 billion in early and extraordinary dividends. Over the full year, those exceptional payments totaled R$38.1 billion,” he said. “In 2025, these are expected to reach just R$10.9 billion.”
Oil prices also played a role in the decrease in Petrobras payouts. The U.S. Energy Information Administration (EIA) reported an average barrel price of $80.52 in 2024, compared to $69.70 this year through November, affecting the company’s profit and thus its dividend distribution.
Banco do Brasil also paid less in dividends this year, in part due to weaker results. The government lowered its original revenue estimate from the bank by R$1.5 billion.
New record
Even with the drop, 2025 is set to deliver the third-largest dividend haul in the Treasury’s records. The main contributors remain BNDES and Petrobras.
So far in 2025, Petrobras has paid R$12.5 billion to the federal government. On Monday (22) the company said it would make another transfer of R$1.3 billion, related to second-quarter 2025 profits. This will bring the total for the year to R$13.8 billion, still below the R$29.7 billion paid in 2024.
BNDES, meanwhile, transferred R$16.1 billion in dividends through October 31. It has not disclosed whether additional payments were made in November or December. In 2024, the bank paid R$29.5 billion to its controlling shareholder, the federal government.
Next in line is Caixa Econômica Federal, which paid R$5.11 billion this year. These payments included interest on equity based on 2024 results, remuneration on hybrid capital and debt instruments (IHCD), and profit distribution from the first half of 2025. The bank said it does not expect further payments by year-end.
Banco do Brasil had paid R$3 billion through October, according to the Treasury. The bank did not confirm whether additional transfers were made in the final two months. Other contributions came from various smaller state-owned and mixed-capital enterprises.
GDP slowdown
These dividend transfers have helped the government offset a decline in tax revenue from administered taxes, which underperformed in the second half of the year as the economy began to slow. Administered taxes include revenues from taxes and social contributions.
Publicly, Finance Ministry Executive Secretary Dario Durigan has defended using dividends from state-owned banks to strengthen the federal fiscal position and avoid mandatory budget freezes.
“We have no issue using bank dividends to support the bimonthly report, as long as it’s done in a planned manner,” Durigan said in a press conference in September. “If needed, we will use dividends from public companies to deliver on fiscal policy,” he added.
“Undoubtedly, this revenue [from dividends] has been important to close the government’s accounts and meet fiscal targets. This was especially true in 2024 and is likely to happen again in 2026, though to a lesser extent given the fiscal consolidation required and adverse conditions such as economic slowdown and falling oil prices,” said Tiago Sbardelotto, a fiscal economist at XP Investimentos.
For 2026, the proposed Annual Budget Bill (PLOA) forecasts R$54.1 billion in revenue from dividends and profit-sharing, in line with 2025 projections. Sbardelotto expects Petrobras and Banco do Brasil to maintain similar payout levels next year, while BNDES may increase its transfers.
Source: Valor International
https://valorinternational.globo.com
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12/29/2025
- GEORGE TARGETS UP TO R$2BN IN NIOBIUM, RARE EARTHS
Australian mining company seeks combined production to balance costs, draws U.S. interest keen to reduce reliance on China
Australian mining company St. George may invest up to $350 million (R$1.94 billion at the current exchange rate) to develop its niobium and rare earths project in Araxá, the same city in Minas Gerais where Companhia Brasileira de Metalurgia e Mineração (CBMM) operates. The project is at the study stage, including metallurgical testing, among other analyses, but is expected to begin operations in 2028 for niobium and in 2029 for rare earths.
The first phase is expected to be completed in the first half of 2026 for niobium and by the end of the same year for rare earths.
“In the case of niobium, it is easier, since it has been produced in that area for more than 40 years and our team is highly experienced in production and mining,” CEO John Prineas told Valor. “Rare earth metallurgy is more complex,” he added.
The studies are expected to provide updated estimates of capital costs and mineral resources, but Prineas currently estimates capital expenditures of $100 million (R$551.5 million) for niobium and between $150 million (R$827.3 million) and $250 million (R$1.3 billion) for rare earths.
New Malha Oeste tender may feature scaled-down railway
St. George’s initial resource estimate points to 40.6 million tonnes of rare earths, with a grade of 4.13% rare earth oxides, and approximately 41.2 million tonnes of niobium, with 0.68% niobium oxide. The company believes the estimates could increase, as only 10% of its mining rights have been explored so far.
Developing both minerals is intended to make the project more economically sustainable. Rare earths are subject to volatile pricing, while niobium mining is comparatively more economical, which could help balance the overall operation, according to the company. Another objective is to process the minerals present instead of discarding some of them as waste. “We will be able to use part of the profits from the niobium business to fund capital investments in rare earths,” Prineas explained.
CBMM does not mine rare earths either, as they are not economically feasible. The global ferroniobium market is estimated at less than 128,000 tonnes, still relatively small when compared with other energy-transition minerals such as lithium. Codemig, the Minas Gerais Economic Development Company, owns the surface land of the project area and, if the project moves forward, will receive royalties, although St. George did not disclose amounts.
Recently, Codemig and CBMM signed a new contract extending niobium mining operations in Araxá for another 30 years, with the option of a further 15-year extension. The new agreement replaced a previous contract that would expire in 2032 and increased Codemig’s share in CBMM’s results, including 25% of profits from the sale of materials other than niobium, including rare earths, without requiring any additional investment from the Minas Gerais state-owned company. Contacted by Valor, Codemig declined to comment.
St. George’s executive said he does not view the relationship with CBMM as competitive and that the company’s entry into the market as a new player would help consolidate a stable, diversified supply chain.
“They hold about 80% of the market and are global leaders. They virtually created this market. So it is not competition,” Prineas noted. “What we see is enormous potential for niobium in new uses. And for any end user to test niobium and for this market to grow, there needs to be diversity of supply.”
In October, the Australian company met with the U.S. chargé d’affaires in Brazil, Gabriel Escobar, during Exposibram, a mining industry trade fair held in Salvador, Bahia. The meeting took place amid ongoing discussions about U.S. interest in Brazilian rare earth reserves—the largest after China’s—which could help reduce U.S. dependence on imports from that country. Another meeting was later held in Belo Horizonte (Minas Gerais), but, according to Prineas, no concrete agreements were reached, though there is an expectation of building a connection.
“They have the Mountain Pass mine, but it is only a tiny fraction of what they need in terms of raw rare earth supply,” Prineas said. “While they have many companies emerging with separation and metallization technologies, they lack a domestic supply of raw ore coming into operation. Therefore, they are interested in aligning with non-Chinese suppliers, and Brazil is among their favorite countries.”
While the company aims to supply other countries that may be interested, it said its priority is the Brazilian market. In Brazil, St. George’s final product in the case of rare earths is expected to be a high-purity mixed oxide, which will then be sold for subsequent stages such as separation, metallization, and magnet production.
Among key milestones to date, St. George highlights the delivery of its first rare earth products to the MagBras project, an initiative under the Mover Program led by the National Service of Industrial Learning (SENAI) and coordinated by the Federation of Industries of the State of Santa Catarina (FIESC). The project seeks to build a national rare earth permanent magnet supply chain, from ore to finished product, to reduce dependence on imports.
In October, the miner announced the raising of A$72.5 million (R$264.1 million) to accelerate the project. In September, it announced the signing of a memorandum of understanding with REAlloys, the leading supplier of magnets to the U.S. defense and technology industries, for a potential long-term offtake agreement covering up to 40% of its rare earth production. Prineas said the company has also signed a similar MoU with Chinese partners, but for niobium.
“Rare earths and niobium have different political dynamics. China has ample rare earths domestically and does not need to import. The U.S., on the other hand, does not,” Prineas noted. “So I think the U.S. is probably the preferred partner in this case. When it comes to niobium, however, neither the U.S. nor China has domestic production; both are interested in securing new supplies.”
Source: Valor International
https://valorinternational.globo.com
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12/29/2025
TAX REFORM ENTERS TESTING PHASE THROUGH 2026
Taxpayers begin to see first effects of changes through platform to check cashback and tax credits generated from IBS and CBS
After nearly 40 years of debate in Brazil’s National Congress, tax reform is moving off the drawing board and beginning to take effect. On January 12, a platform will go live allowing taxpayers to see the first impacts of the changes to the tax system. Individuals registered in CadÚnico will be able to check, based on their taxpayer number (CPF), the amount of “cashback” they will be entitled to. Companies, in turn, will be able to track the evolution of their tax debits and credits, according to Juliano Neves, undersecretary for Corporate Management at the Federal Revenue Service, who spoke to Valor.
The amounts will be small, however, because the new tax system will be in a testing phase. The Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS), created by the reform, will not be collected in this first year of operation. They will only be calculated, based on a test rate of 1%, with 0.9% for the CBS and 0.1% for the IBS. “In 2026, it will be a test run,” Neves said. “The game starts in 2027.”
The test will mainly serve to adjust systems at companies and tax administrations. Especially at the beginning of the year, attention will be focused on the information technology involved in the change.
At the same time, companies and consumers will be able to get a sense of how the new tax system will affect them. The reform will make visible what today is largely unknown: how much is paid in taxes that are embedded in the prices of each product and service.
From 2026 through 2033, this portion will gradually be shown separately on invoices. Consumers will see the net price and the taxes clearly. This is not an increase in taxation, as it may appear, but rather a disclosure of the tax burden.
In the view of tax specialists, this is the main change that will be seen in the initial phase of the reform. By knowing how much each party pays in taxes and the volume of credits they will begin to receive, companies will start renegotiating prices and contracts.
Continuing with the soccer comparison, former Federal Revenue auditor and president of the Brazilian Tax Committee (CTB), Adriano Subirá, said the match will be the transformation of relationships between companies. “This is an economic reform with a tax last name,” he said. “The game is the economic reform, which for me will have an impact similar to that of the Real Plan.”
For tax expert Rubens Souza, president of the Tax Reform Study Group (Gert) and a partner at WFaria Advogados, “the period of 2026 has to be used to look at pricing, not only of your own product, but also that of your suppliers, and to renegotiate acquisition prices.”
Over time, prices will come to be expressed by their net value, with taxes separated and generating credits. “There are many costs that used to remain in the chain and will now become credits, which may ultimately reflect a reduction in the tax burden,” Souza said.
Companies need to pay close attention, because the pricing logic will change, said lawyer Daniel Loria, of Loria Advogados, who was director of the Special Secretariat for Tax Reform at the Ministry of Finance.
First, he said, the current consumption tax rate is charged “from the inside,” meaning the tax applies to the taxes that make up the price of the good or service. With the reform, it will be charged “from the outside.” In addition, it is necessary to understand the dynamics of credits. “All the upstream tax cost is recovered and, if your customer is a company, it also recovers all the tax cost. These are two factors that need to be well understood for companies to be able to renegotiate prices in a productive and technical way.”
The focus of company management will shift away from tax planning and toward the economic viability of the business, said Marcos Flores, manager of the Federal Revenue Service’s Consumption Tax Reform Project. “They will recalculate their costs and prices, but 2026 is just the beginning of this, because it is merely the highlighting of a very low rate.”
He offered some practical recommendations for companies for the year. The first is to adapt tax documents so that they already show the IBS and CBS separately. A large share has already completed this step, he said.
Companies should also check whether codes such as the Mercosur Common Nomenclature (NCM), the Brazilian Services Nomenclature (NBS) and the Tax Classification Code (cClasTrib) used to issue invoices are correct. This is important for when taxes begin to be collected, as rates differ depending on the product, the service and the purchaser.
It is already possible to integrate the IBS and CBS calculator into ERP (Enterprise Resource Planning) software, Flores noted. He also warned that as of January 1 all companies will have an electronic tax domicile, through which they will receive communications from the Federal Revenue Service. “The company needs to know that it will no longer receive letters or have someone knocking on the door to deliver them.”
Finally, systems must be adapted to operate with the alphanumeric CNPJ, which comes into effect on July 1. “The company’s CNPJ does not change, but new customers and new suppliers may have an alphanumeric CNPJ,” he said. “For it to be able to buy from and sell to these new companies, it is important that its system is already adapted.”
The testing phase will begin before the regulation of the reform is complete. Congress only approved on December16 Complementary Bill (PLP) 108, which creates the IBS Management Committee, the structure that will administer the new tax resulting from the merger of the Tax on the Circulation of Goods and Services (ICMS) and the Services Tax (ISS). The bill has not yet been sanctioned by President Lula, which is expected to happen in mid-January. Once the legislation is complete, the Federal Revenue Service and the Management Committee will issue regulations for the new taxes.
“From the taxpayers’ point of view, nothing prevents the start of the experimental phase,” Flávio Sérgio Mendes de Oliveira, president of the CGIBS and finance secretary of Mato Grosso do Sul, told Valor regarding the absence of the law. “The CBS and IBS platforms will begin operating in January 2026, exactly as planned.”
Because of the delay, the idea is to be lenient in requiring invoices that show the CBS and IBS separately in this initial phase. In a recent joint act, the Federal Revenue Service and the IBS Management Committee clarified that there will be no penalty for the absence of a declaration until the first day of the fourth month after the publication of the CBS and IBS regulation, which does not yet have a date.
Toward the end of the year, companies’ main concern was being unable to issue invoices showing the IBS and CBS amounts. In some municipalities, there is still debate over whether the ISS will be included in the calculation base of these new taxes.
“We are just days away from the testing period and there is still a lot of uncertainty, especially around the electronic services invoice,” Souza said. “There are municipalities that still have not stated how they will do these calculations, for example whether they will include CBS and IBS in the ISS base.”
“The government has been careful,” Loria said. “Technical notes were issued stating that invoices will not be rejected [if they do not show IBS and CBS separately], which addresses a major concern of companies that feared an economic freeze.” There was concern that suppliers would not be able to issue invoices, preventing them from receiving inputs.
With so many changes happening at the same time, there is concern about misinformation and “fake news.” One risk is that the test rate could be mistaken for an additional tax, Flores acknowledged. That is not true, he said, because for consumers nothing changes in this first year. “Could there be ‘fake news’ along the way? It’s possible, but transparency is better than the current system, in which no one knows how much they pay.”
Source: Valor International
https://valorinternational.globo.com
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12/30/2025
POLITICIZATION OF BANCO MASTER CASE RAISES IMF CONCERNS
Perception of meddling may lead International Monetary Fund and World Bank to downgrade Brazil’s financial soundness
Actions by the Supreme Court and the Federal Court of Accounts (TCU), Brazil’s public spending watchdog, to review the liquidation process of Banco Master are expected to negatively affect the International Monetary Fund (IMF) and the World Bank’s assessment of the Brazilian financial system’s soundness.
According to sources familiar with the technical consultations held in Brasília and Washington, the episode was raised during the visit by IMF and World Bank delegations to Brazil in mid-December, as part of the country’s Financial Sector Assessment Program (FSAP).
The report will be updated, sources say, to incorporate the effects on the Central Bank stemming from the Master investigations at the Supreme Court. On Monday (29), Justice Dias Toffoli ordered the Federal Police (PF) to question Banco Master owner Daniel Vorcaro, former BRB president Paulo Henrique Costa, and Central Bank Supervision Director Ailton de Aquino on Tuesday (30), ahead of a confrontation hearing also scheduled for this week. The move weakens the regulator’s position vis-à-vis the institutions it supervises.
The fragility of Brazil’s legal environment has long been a concern raised by IMF staff in discussions with Brazilian economic authorities. Historically, however, Brazil has argued that, although there is no explicit legal protection, the Central Bank is de facto independent in its banking supervision.
The actions to revisit the Master liquidation undermine that argument and are likely to lead IMF technicians to downgrade their assessment of Brazil’s financial soundness.
Conducted every five or six years by senior IMF staff, the FSAP is a highly visible report within the international financial community and carries weight in how markets assess Brazil’s risk profile.
A source with experience in Brazil’s interactions with Washington-based multilateral institutions says that, in practice, a negative assessment increases the risk premium investors demand for investing in Brazil.
A technician who has participated in talks with these institutions says Brazil has historically sought to demonstrate a world-class regulatory framework and has been moving quickly to implement all the principles of the Basel Accords.
During the 2018 visit to Brazil, authorities presented the bank resolution bill as an important step to address some of the IMF’s reservations. That bill has yet to be approved by Congress. Now, with the Master case, Brazil loses that argument.
Beyond assessing the existing framework, the IMF and the World Bank conduct in-depth studies and make recommendations to improve banking and financial system regulation.
One of the most frequently cited principles is that Central Bank executives and staff should have legal protection to avoid liability when acting in good faith. Another is that their technical decisions should not be subject to review by other branches of government or the judiciary.
Legal protections are intended to prevent supervisors from feeling intimidated and from refraining from taking necessary action against troubled banks, which often have political connections.
Decisions should not be overturned because doing so creates legal uncertainty and, in practice, undermines market confidence that the Central Bank can act swiftly and decisively in systemic crises.
Source: Valor International
https://valorinternational.globo.com
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12/30/2025
GOLD AND STOCKS STAND OUT AMID HIGH RATES, VOLATILITY
High yield assets seen gaining fresh momentum in 2026 with rate cuts and U.S. growth
In a year marked by interest rates at 15% and instability in both domestic and international markets, the balance for risk assets was positive. In the 2025 tally, gold took clear leadership, viewed as a hedge against inflation and periods of crisis, with a gain of 49.60% through yesterday, while the Ibovespa rose 33.43% over the same period. The benchmark index for real estate stocks (Imob) went even further, climbing 70.71%. But while the high Selic rate discouraged flows away from attractive fixed income, next year the combination of lower interest rates and healthy growth in the United States and other core economies should give risk assets renewed impetus.
In general, Brazil benefits in such moments, says Mário Felisberto, chief investment officer (CIO) at Santander Asset Management. “In 2025, we saw a very positive trajectory in equities, and there does not seem to be much risk of something happening that would derail this path,” he says.
Felisberto expects uncertainty and high volatility ahead, given the lack of clarity around candidates and the very close odds between President Lula (Workers’ Party, PT) winning re-election and a different name taking office in 2027. “But when there is a combination of a positive international backdrop and, domestically, economic fundamentals improving with falling interest rates, this tends to favor risk assets even if volatility appears.”
Rogério Freitas, CIO for wealth management and private banking at the ASA Group, controlled by Alberto Safra, sees March as a turning point. “That’s when the election will start to be priced in, because it is the deadline for candidates to step down from their current posts,” Freitas says.
The start of rate cuts, expected in March by Santander Asset, could begin to reshape investor portfolios, Felisberto says. The asset manager projects that 2026 will end with the Selic at 12.5%. “But there is asymmetric upside risk toward lower rates if inflation expectations remain anchored and activity stays moderate, opening room for the Central Bank to cut a bit more,” he says. The political scenario is the key factor in determining how low the benchmark rate can go by the end of 2026 and in shaping investment strategy.
“Keeping interest rates at a higher level for longer has basically contributed to strengthening the real against the dollar and did not hurt equities, but from an allocation standpoint it pushed local investors toward a conservative stance,” Felisberto says. Funds flowed into low credit-risk assets and tax-exempt bonds. Foreign investors, meanwhile, were the main engine of the stock market.
In fixed income, the best performance came from the IRF-M, an Anbima index that replicates a basket of fixed-rate Treasury bonds, with gains of 18.04% year to date through yesterday. The IMA-B 5+, which combines inflation-linked government bonds with maturities longer than five years, and the IMA-B, with shorter maturities, lagged behind, rising 13.99% and 13%, respectively—below the average Selic of 14.32% over the period. Projected IPCA inflation was 4.32%.
The dollar, under pressure from seasonal profit and dividend remittances at this time of year, rose 4.41% in the month through yesterday but is down 9.9% for the year. In equities, the index tracking companies with strong governance and sustainability practices (ISE) advanced 34.38% over the period, while the index of smaller-cap companies rose 29.54%, in line with the consumer sector index (Icon), up 27.30%.
For Marco Bismarchi, partner and portfolio manager at Tag Investimentos, Brazil still offers substantial yield in fixed income, especially in inflation-linked bonds (NTN-Bs). This is where the firm currently allocates most of its clients’ portfolios. In equities, he remains slightly positive, viewing the market as cheap and supported by the prospect of some rate cuts next year. “We know it will be a volatile year because of the election, but there is still some value.”
Gold, an asset that goes beyond protection, according to Bismarchi, performed well due to the view that governments worldwide are spending more than they should, eroding the value of money. Exposure was reduced, however, after the sharp appreciation. Copper and uranium round out the portfolio as commodities tied to the electrification theme and greater use of artificial intelligence.
In an environment of “financial repression,” caused by a phase of low or even negative real interest rates globally, followed by questions about fiat currencies, everything became expensive across global asset classes, says Freitas of ASA. Gold, silver, assets linked to the real estate chain, equities and credit across all risk levels benefited.
“The next stage is emerging markets, as investors will seek yield to avoid losing money in other low-return assets,” he says. “If there is no exogenous shock, this search should continue and emerging markets benefit from excess liquidity.”
A more neutral role for the state would allow the economy to operate with lower real interest rates, moving toward the average seen some years ago, Freitas adds. “If real rates fall from 10% to 4.5%, there could be a very significant repricing of assets in Brazil.” That would boost equity valuations and shift a substantial portion of investor resources—currently overweight in fixed income—into equities and multimarket funds (Brazil’s version of hedge funds). “There would be a major change in allocations by family offices, individuals and pension funds,” says the ASA CIO.
Re-election and the possible continuation of economic policies that increase debt relative to GDP, however, bring as a side effect higher real interest rates, he says. “These current 10% real rates are the result of an excessively expansionary fiscal policy,” Freitas continues. “If it goes in that direction, the market will anticipate it, the real will end up losing value, equities will decline, and the local market will be dragged down by this global repression environment.” In such a setting, real rates fall for the wrong reasons, as inflation erodes the nominal Selic rate.
This binary political scenario favors NTN-B bonds, Freitas says, because investors are protected against potential currency depreciation feeding into inflation and stand to gain if outcomes are benign, with declines in the implicit fixed-rate component of the bonds. Overall, he advises maintaining exposure to equities and multimarket funds as well, because if conditions evolve favorably, the “upside potential is very large—it is worth it even while taking risk.”
A less restrictive external environment and the start of a rate-cutting cycle in Brazil will allow investors to hold portfolios less tied to the CDI, says Jayme Carvalho Junior, executive superintendent for investments at Daycoval. “There is room for greater risk exposure, but not aggressively.” Fixed-rate bonds and actively managed fixed-income funds are among the preferences, based on the expectation that the Selic will be reduced by two percentage points over 2026.
There are also favorable winds for equities, which have managed to move on the fuel of foreign capital “in a market that has become smaller, with fewer companies and no major IPO expectations,” Carvalho says. “But there is a flow in a falling-rate environment that can leave more revenue and net cash in corporate profits, especially for more leveraged companies.” He also sees opportunities in real estate funds.
Foreign exchange, in an election year, is the big unknown in the inflation and interest-rate equation. “There may be room at some point for greater volatility driven by issues that no one knows yet will be raised in the campaign,” Carvalho says. “How will the fiscal issue be addressed? It matters for both the right and the left—will someone tackle it?” The sense is that this picture will be clearer between the end of the first quarter and the start of the second. “But rates will be falling and the economy will not be falling apart.” Daycoval’s economics team expects GDP growth of 2.2% this year and 1.7% in 2026, with the Selic ending at 13%.
Source: Valor International
https://valorinternational.globo.com
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12/30/2025
LAW ENFORCEMENT SPENDING OUTPACES HEALTH AND EDUCATION IN 18 STATES
Approach focused on more patrols, weapons and equipment is driving faster growth in outlays
A public security policy increasingly centered on visible policing and investment in weapons and equipment has pushed state-level spending in the area to grow at faster rates than education or health outlays in most of Brazil’s states this year. The pattern appears in 18 states, based on executed expenditures from January to October compared with the same period of 2024. In ten of them—Alagoas, Amapá, Bahia, Ceará, Espírito Santo, Goiás, Mato Grosso do Sul, Paraná, Rondônia and Roraima—security spending has risen in real terms at a faster pace than both health and education individually.
In four states, security outlays grew at a higher real rate than health spending. In four others, they outpaced education. In one state, security and education increased at the same rate. States that posted a real decline in security spending over the period were excluded from the comparison.
Across the 26 states and the Federal District, the influence of larger state governments with heavier security budgets means education and health spending still grow more strongly than public security, though at broadly comparable rates. From January to October, education spending rose 5.3% in real terms versus the same months of 2024, while health and security increased 4.7% and 4.5%, respectively. All three outpaced aggregate own-source revenue, which grew 2.4%, also in real terms.
Regionally, data collected by Valor from budget execution reports show that in three of Brazil’s five regions—North, Northeast and South—security spending this year is growing at rates higher than or equal to health and education. In the North, security spending rose 4.8% in real terms from January to October, compared with 4% for health and 3% for education. In the Northeast, security advanced 5.8%, matching health and exceeding education’s 1.5%. In the South, security jumped 12.9%, versus 4.1% and 11% for health and education, respectively. The figures reflect executed spending and, for total outlays, include all expenses except intra-budgetary items.
“State security spending as a whole has been rising in recent years. There are fluctuations over a decade, but states are the key level of government, accounting for 80% of spending,” said Ursula Dias Peres, a public policy professor at the University of São Paulo’s School of Arts, Sciences and Humanities. “Governments have been under pressure, and most have opted for a more visible, more repressive policy based on personnel, which raises costs. This approach has spread regionally as organized crime has expanded across the country.”
In nearly all states, Peres said, there is a sizable institutional structure, especially the Military Police. “Security spending shapes revenue decisions even without constitutional earmarking, unlike education and health. It is an extremely sensitive area, where 80%, sometimes 90%, of spending involves career personnel, with increases driven by rank promotions or time in service. Governors have little control, because confronting a police strike, especially by the Military Police, is very difficult.” The Brazilian law-enforcement system is divided between the Civil Police, which investigates crimes, and the Military Police, which conducts patrols and raids.
Data show education and health remain the largest spending items for states. In the aggregate of states and the Federal District, education accounted for 16.5% of total spending from January to October, and health 14.1%. Without earmarked revenues and largely funded by own-source revenue, public security is the third-largest function, at 9.6% of total state spending.
Rio de Janeiro, which has been in the headlines following a large-scale operation against the Red Command (CV) criminal group that left 122 dead, is the only state where the share of security spending, at 16.4%, exceeds both education and health, which account for 10.2% and 9.8%, respectively, over the January–October 2025 period. Minas Gerais also reports higher security outlays, though the state government says the area’s budget does not surpass health and education. Unlike other states, Minas counts reserve military personnel under security spending.
Rio’s state government says that since 2019 it has invested more than R$16 billion in public security, including R$4.5 billion in technology and intelligence. According to the government, the state’s “specific characteristics” explain why security spending exceeds health and education. The amount includes investments and other expenditures of the Military and Civil Police, the prison system and the Institutional Security Office, with payroll as the largest expense.
Samira Bueno, executive director of the Brazilian Public Security Forum, a think tank, said the scenario constrains investment in innovation, as most resources go to wages and the upkeep of facilities and equipment. In Rio’s case, she said, distortions in career structures make security consume a large share of the budget, including automatic progression by time in service and an inverted hierarchy within the forces. In the Military Police, she noted, there are more sergeants than corporals. “In São Paulo there are 10,000 sergeants and 35,000 corporals. Rio has 16,000 sergeants and 15,000 corporals. It’s as if there are too many bosses for too few workers.”
Peres distinguishes the drivers of spending pressure in health, education and security. In health and education, she said, constitutional earmarking ties spending growth to revenues, while health has also been boosted by parliamentary earmarks. In education, she noted additional pressure from higher federal transfers to Fundeb, the public basic education fund financed by the federal government.
“Education and health continue to see strengthened growth, beyond earmarking, due to these policy changes,” she said. Security, by contrast, lacks earmarked funding or a guaranteed source, and is largely financed by states’ ICMS tax revenue, often crowding out other areas. Some governors’ rhetoric, she added, already suggests that calls to remove earmarks for health and education are linked to demands for more resources for security.
In Paraná, security spending in 2025 could exceed R$7 billion, said Norberto Ortigara, the state’s Finance Secretary. According to fiscal reports, security outlays rose 17.2% in real terms from January to October versus the same period of 2024, faster than education’s 13.4% and health’s 15.5%. Since 2021, Ortigara said, security spending has grown about 79% in nominal terms, well above the 41% increase in current revenue. The state restructured police pay scales and expanded hiring. Other current security expenses rose from R$577 million in 2021 to an expected R$2 billion this year, while investment climbed from R$106 million to more than R$850 million, including armored vehicles, helicopters, weapons and security equipment. “It is a response to what has become the main national issue: public security,” he said.
Source: Valor International
https://valorinternational.globo.com
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