The Brazilian central bank will add excess reserves to its toolkit to control liquidity and increase the efficiency of monetary policy, central bank chief Ilan Goldfajn said on December 20th.

In a briefing, Goldfajn announced measures to reduce credit costs for companies and consumers in the medium- to long-term as part of the government’s push to revive an economy mired in recession.

He said the creation of the excess reserves, a mechanism in which the bank pays interest on excess reserves kept at the bank, is not aimed at reducing the fiscal deficit or the country’s debt burden.

“We are here presenting our agenda for the future,” Goldfajn said. “We are showing that the central bank can go beyond monetary policy and inflation targeting.”

He said the government will have to submit legislation to allow for the creation of the excess reserves, which will complement repo operations and reserve requirements as tools to control market liquidity.

Analysts say the use of excess reserves will reduce repo operations with federal securities, which have helped inflate the public sector’s gross debt to 70 percent of gross domestic product.

Other measures announced by the central bank include simplifying reserve requirement rules to lower costs for banks as well as improving foreign exchange regulation and lowering the time that credit cards have to repay vendors.

Many of those steps had been considered by previous governments to improve the country’s financial framework and reduce the banking spread, or difference between the interest that banks charge on their loans and their cost of funding.

“These measures aim to streamline and simplify. They are trying to bring some dynamism (to the economy), but those measures will not have short-term impact,” said Jankiel Santos, chief economist with Haitong.

Source: Reuters Brazil

Brazil will challenge government funding for Bombardier Inc at the World Trade Organization (WTO), escalating the latest trade spat between the Canadian jet maker and its Brazilian rival Embraer SA.

Brazil’s Foreign Ministry said on December 18th that its trade chamber authorized WTO proceedings against Canada regarding $2.5 billion in state support for Bombardier from the province of Quebec.

Bombardier and Embraer have battled for decades over the regional jet market and traded accusations of unfair subsidies in the 1990s that their countries hashed out at the WTO.

The latest case stems from recent support for Bombardier’s roughly $5.4 billion CSeries airliner program, which challenges Embraer’s largest commercial jets, along with the smallest narrow-body aircraft made by Boeing Co and Airbus Group SE.

“There are indications that Canada’s federal government soon intends to make another significant capital injection in the company to ensure the viability of the new CSeries and its placement in the market at artificially reduced prices,” the Brazilian Foreign Ministry said in a statement.

Bombardier’s chief executive said last week the company was still seeking federal funds.

Prime Minister Justin Trudeau said the government was working “very productively” with Bombardier and he hoped to make announcements in coming months.

“Canada’s subsidies have created serious distortions in the market, in addition to violating current international norms,” said Embraer Chief Executive Paulo Cesar Silva in a statement welcoming the Brazilian government’s decision.

Bombardier, which considered bankruptcy protection last year, got a $1 billion bailout from the Quebec government. The planemaker also sold a 30 percent stake in its rail division to public and private pension fund manager Caisse de depot et placement du Quebec for $1.5 billion.

Alex Lawrence, a spokesman for Canadian Trade Minister Chrystia Freeland, said by email on Monday that no proceedings have been filed on this matter at the WTO.

“We will continue to comply with all of our international trade obligations,” he wrote.

The Quebec government and the Caisse could not immediately be reached for comment.

Foreign Minister Jose Serra told in an interviewin July that Brazil was mulling a WTO challenge of investments in Bombardier, which Trudeau brushed off the following day.

“There is no country in the world that doesn’t heavily subsidize its aerospace sector,” he said at the time.

Embraer shares were little changed on the news, slipping 1 percent from December 15th’s close, while Bombardier rose 6 percent in midday Toronto trading.

Source: Reuters Brazil.

Brazilian President Michel Temer on December 15th unveiled a slew of stimulus measures to reduce the debt burden of businesses and consumers struggling with the country’s worst recession on record amid growing popular discontent.

Although limited in scope, the measures aim to appease Brazilians angry at the deepening recession in Latin America’s biggest economy and allegations of corruption against Temer and some of his closest allies.

“We are taking measures to pull the economy out of the recession,” Temer said in a briefing flanked by the head of the Senate and the Lower House. “Even during these turbulent times the government doesn’t stop.”

The government will write off some of the taxes owed by companies reporting losses and allow others to pay their debts in installments to expand their liquidity and improve their access to new credit.

Other microeconomic measures includes forcing banks and credit card companies to either reduce the time they take to process payments or lower the fees they charge businesses. The government will also stimulate long-term credit for real estate.

With the country’s finances in tatters, Temer has ruled out direct fiscal stimulus in his bid to ease the debt burden of Brazilians as the recession, now finishing its second year, forces droves of companies into bankruptcy and eliminates millions of jobs.

Finance Minister Henrique Meirelles said the government’s new measures to raise productivity will go in tandem with government efforts to rebalance the depleted public accounts.

The plan aims to lower the cost of doing business in Brazil, streamlining some taxes and cutting red tape to reduce the time it takes to open a new business or export and import goods.

Since Temer formally took office in August, he has faced pressure from business groups and political allies to swap austerity measures for policies aimed at jump-starting growth.

Economic activity fell 0.48 percent in October, the eighth drop in 10 months, official data showed earlier on December 15th, dashing hopes of an imminent recovery despite a jump in confidence after the impeachment of Temer’s leftist predecessor Dilma Rousseff.

The sluggish recovery and corruption allegations threaten to derail Temer’s austerity plan aimed at plugging a widening budget deficit that last year cost the once-booming Brazil its investment grade credit rating.

Temer’s own political survival is threatened by accusations that he, members of his cabinet and his party’s leaders, received under-the-table payments from engineering conglomerate Odebrecht.

Odebrecht, Brazil’s largest construction and engineering firm that prosecutors say benefited the most from a graft scheme at state-run oil company Petrobras, has signed a leniency deal that includes plea statements by dozens of executives and employees who are expected to implicate over 100 politicians.

Source: Reuters Brazil.

Brazilian prosecutors and legal advisers of OAS SA are resuming talks for a plea bargain deal linked to the engineering group’s participation in a massive corruption scandal, a person briefed on the matter said on December 13th.

The talks that could lead to formal negotiations for a plea deal for OAS and several company executives may take a few more weeks, said the person, who asked for anonymity because the matter is confidential. Newspaper Valor Econômico first reported the news earlier in the day.

The Prosecutor-General’s Office halted a first round of talks in August after parts of former Chief Executive Officer Léo Pinheiro’s testimony were leaked in the local press.

Pinheiro, who was sentenced to over 16 years in prison for his role in the “Operation Car Wash” scandal, is among OAS executives seeking a plea deal, the person said.

A public relations official for Sao Paulo-based OAS did not have immediate comment. The media office of the Brasilia-based Prosecutor-General’s Office did not comment.

According to the report, prosecutors and OAS lawyers have been negotiating the resumption of talks for more than a month. Eventual testimonies may involve accusations against lawmakers and other politicians, Valor said, without identifying those politicians.

OAS [OAEP.UL] is among the 31 Brazilian engineering and construction groups accused of rigging state contracts in the “Car Wash” case, Brazil’s biggest corruption scandal yet known.

The scandal accelerated the downfall of President Dilma Rousseff, who was impeached on Aug. 31 for doctoring budget accounts.

Source: Reuters Brazil

Brazil’s President Michel Temer called U.S. President-elect Donald Trump on December 13th, agreeing to work together to improve business relations between the two largest economies in the Americas, a statement from Temer’s office said.

Brazil is keen to explore business opportunities that could open up if Trump follows through on campaign promises to rewrite a trade deal with Mexico.
“Temer and Trump agreed to launch, immediately after the swearing in of the new American president, an agenda for Brazil-U.S. growth,” the statement said.

“(Temer) emphasized Brazil’s interest in receiving more American investment,” the statement added.

Reuters reported last week that Temer planned to call Trump, having sent a telegram of congratulations following his election.

Trump’s calls during the campaign to protect U.S. companies by limiting trade worried some Brazilian investors, but the Temer administration, under pressure to rescue an economy stuck in a two-year recession, sees a silver lining for local businesses.

Brazilian industries, benefiting from a weaker real currency could increase their market share in the United States if Trump makes good on his threats to rework or withdraw from the North American Free Trade Agreement with neighboring Mexico and Canada. Trump takes office on Jan. 20.

In December 13th call, Trump and Temer agreed to put together teams to work on a mutual growth program from February next year.

According to the statement, Temer said that business leaders from both the United States and Brazil already understood each other well and wanted to work more closely together.

Robson Andrade, head of Brazil’s most powerful industrial lobby, the CNI, said Trump could open up opportunities for Brazilian businesses if he drops or re-works U.S. trade partnerships currently being negotiated across the Pacific and with the European Union.

“That will make it easier for Brazil to forge new trade alliances,” Andrade told Reuters. “I don’t think Trump will cause the economic cataclysm people are talking about.”

Source: Reuters Brazil

A Brazilian federal court dropped a case against Joseph Safra, the world’s richest banker, over an alleged scheme to pay bribes to government officials in return for waiving tax debts.

The media office of the Brasilia-based Regional Federal Tribunal for the 1st Region said the decision favoring Safra was approved by the court in a 2-to-1 ruling.

In a statement, the Safra Group said the ruling prevents “the continuation of the action for lack of just cause and the proceeding … is now closed.”

In March, prosecutors asked that Safra be charged on claims he had knowledge of a 2014 plan by executives at an asset management unit of his Banco Safra SA to pay 15.3 million reais ($4.6 million) in bribes to federal tax auditors. Safra repeatedly denied any wrongdoing.

The probe and subsequent charges against Safra stemmed from a broader police inquiry known as “Operation Zealots,” focused on kickbacks paid by companies through lobbyists.

Dozens of Brazilian firms, including steelmaker Gerdau SA and several banks including Banco Bradesco SA, have been under investigation for suspected bribes.

The investigation centers on whether companies bribed members of CARF, a body within the finance ministry that hears appeals on tax disputes, to get favorable rulings that reduced or waived the amounts owed.

According to a person with direct knowledge of Safra’s process, the court’s ruling cannot be appealed. The Lebanese-Brazilian billionaire, whose fortune is estimated at about $19 billion by Forbes Magazine, controls a banking and financial conglomerate that operates in 19 countries.

Operation Zealots has not only implicated some of Brazil’s most influential firms but also some of the nation’s foremost power brokers. Luiz Carlos Trabuco, Bradesco’s chief executive officer, has been accused alongside three of the bank’s main executives.

Trabuco has denied any wrongdoing.

Source: Reuters Brazil

Brazilian President Michel Temer plans to call U.S. President-elect Donald Trump as Brazil looks for business opportunities that could open up if Trump follows through on campaign promises to rewrite a trade deal with Mexico.

A senior Brazilian official said on December 8th that Temer would call Trump for their first conversation since the New York businessman was elected to the White House last month.

Temer sent a telegram of congratulations to Trump, instead of calling him soon after his election as some other Latin American leaders did.
Trump’s vows during the campaign to protect U.S. companies by limiting trade worried Brazilian investors, but the Temer administration, under pressure to rescue an economy stuck in a two-year recession, sees a silver lining for local businesses.

Brazilian industries, benefiting from a weaker real currency, could increase their market share in the United States if Trump makes good on his threats to rework or withdraw from the North American Free Trade Agreement with neighboring Mexico and Canada. Trump takes office on Jan. 20.

“We still don’t know what Trump’s strategy will be toward Brazil but there could be opportunities,” said the official who asked for anonymity to speak freely. “This is our initial outreach.”

Ties between the Western Hemisphere’s two largest economies were rocked in recent years by trade disputes and disclosures that the U.S. National Security Agency spied on former leftist President Dilma Rousseff.

Temer, who formally replaced Rousseff in August after her impeachment, has vowed to bolster international trade and increase the productivity of Brazilian businesses struggling with high taxes and deficient infrastructure.

A former Brazilian ambassador to the United States, Rubens Barbosa, said opening a line of communication with Trump was a step in the right direction toward increasing Brazilian exports.

He said he believed, however, that Mexico would remain a key trade partner for Washington.

“There are opportunities if Brazil gets its house in order with reforms and we make an effort to enter that market,” Barbosa said. “But Trump cannot distance Washington from Mexico because the business interests are too big.”

Outcry in recent weeks over an attempt by lawmakers to shield themselves from corruption probes by curbing the power of the judiciary has deepened institutional rifts in Brazil and raised doubts over Temer’s capacity to revive the former emerging market star.

Trump’s surprise election win added further volatility to Brazilian assets, some of the hardest-hit along with Mexico among emerging economies, amid uncertainty over his policy direction.

Source: Reuters Brazil

Brazilian antitrust watchdog Cade said it reached an agreement with five large international banks, fining them a combined 183.5 million reais ($54 million) for forming a cartel in offshore foreign exchange markets.

The banks, which were accused of manipulating exchange rates of the Brazilian real, are Barclays Plc (BARC.L), Citicorp (C.N), Deutsche Bank SA (DBKGn.DE), HSBC Bank Plc (HSBA.L) and JPMorgan Chase & Co (JPM.N), Cade said late on December 7th.

The banks agreed to admit to anti-competitive practices and cooperate with Cade in revealing how they manipulated exchange rates published by news agencies such as Reuters as well as the Central Bank of Europe.

Source: Reuters Brazil

If there is a silver lining to Brazil’s recent shortcomings in grain exports, the country is now more prepared than ever to pump out big volumes in 2017, perhaps to the dismay of its competitors.

Brazil is the No. 1 and 2 shipper of soybeans and corn, respectively, but earlier this year, the drought-stricken country found itself with much less exportable supply than expected at the wrap-up of harvest.

Brazil should be at the height of corn shipping season from October through December, but saying that corn exports have been dismal over the last two months might be far too generous.

Shipments for corn and its byproduct, ethanol, were down by nearly 80 percent in October and November versus a year ago. Soybeans fared slightly better with exports down two-thirds over the same time frame, although exports of the oilseed do not usually get going until February or March.

But now with the drought of 2016 mostly in the rear view mirror, record corn and soybean crops are a real possibility heading into 2017, particularly if favorable weather holds.

And although Brazil has notoriously faced transportation and logistical issues at ports in the past, that is much less the case today.

The upcoming 2016/17 export season could be one of the smoothest Brazil has seen in recent years. And if domestic soybean and corn prices are internationally competitive once the products arrive to market, the United States, one of the country’s main trade rivals, will start feeling the pressure.

In 2015/16, the Brazilian soybean and corn harvests were originally projected to top 100 million and 80 million tonnes, but late-season drought cut the volumes to 95.4 million and 66.6 million tonnes, respectively. The second crop corn, also called safrinha, was hit especially hard.

But the 2016/17 season is already showing promise as both soybean planting and development is ahead of normal, and 94 percent of the first corn crop is in good condition. Analysts polled by Reuters within the last week expect both crops to set new records this year – 102.64 million tonnes for soybeans and 86.58 million tonnes for corn.

If the good weather continues, soybean harvest could begin later this month. This means that the oilseed could arrive on the market a little earlier than usual this year, potentially cutting in to the U.S. business. Early soybean harvest also means an earlier start to the sowing period for safrinha, which accounts for roughly two-thirds of Brazil’s total corn.

Corn does not typically start being shipped out en masse until August, as the safrinha crop is more heavily exported than the full-season corn, which is mostly dedicated to domestic use since the ports are full of soybeans when it is harvested.

Vessel traffic at Brazilian ports is unusually light for this time of year. This owes mostly to the drastically lower year-on-year export volumes out of major ports, but improvements in logistics over the last year or so have also helped.

The average number of days that vessels had to wait outside the No. 1 port of Santos last month was nine, down from 20 days last November. Wait times at another key southern port, Paranagua, were cut from 56 to six days over the same time frame.

Brazilian shippers have also massively increased the usage of ports in the northern part of the country over the last year, which has also helped lighten the load on the southern terminals. Northern ports are particularly attractive to the largest soybean-producing state of Mato Grosso due to their proximity.

Brazil is expected to ship a record volume of soybeans in the 2016/17 marketing year, which begins in February 2017 and runs through January 2018 for the South American country.

Current industry estimates range from 57.5 million to 60 million tonnes, well above figures for the 2015/16 year which stand at or just above 50 million tonnes.

Relatively speaking, the drought impacted corn exports much more than soybeans, as shipments in the current marketing year will fall up to 50 percent from the record 2014/15 campaign. Industry estimates for Brazilian corn exports range from 16 million to 19 million tonnes for the 2015/16 season, which will conclude at the end of February 2017.

Analysts peg Brazil corn exports to be the second-largest volume on record in the 2016/17 marketing year, beginning in March 2017. Shipments are likely to range between 25 million and 30 million tonnes.

As the agriculture market learned from Brazil’s previous season, a lot will be subject to change over the next few months, especially if the weather starts to sour. But if the weather remains supportive and export prices are attractive to buyers, Brazil’s trade competitors have good reason to start getting nervous.

Source: Reuters Brazil

Brazil’s annual inflation rate probably eased in November to the lowest level since late 2014, leaving the country’s central bank comfortable to soon accelerate the pace of interest rate cuts, a poll showed on December 7th.

Consumer prices as measured by the benchmark IPCA index BRCPIY=ECI likely rose 7.08 percent in the 12 months through November, down from an increase of 7.87 percent in October, according to the median of 26 estimates.

Although the inflation rate in November is expected to stay above the 6.5 percent upper end of the government’s target band, it will still be significantly lower than the double-digit rates seen in the first months of the year.
In 2017, inflation is expected to fall to around 4.5 percent, the midpoint of the government’s target. That scenario has prompted the central bank to consider accelerating the pace of a rate-cutting cycle started in October, offering relief for an economy mired in severe recession for two years.

“According to the (central bank policy committee) Copom, short-term inflation has also been more favorable than anticipated, with signs of broader disinflation,” UBS economists Guilherme Loureiro, Thiago Carlos and Rafael de la Fuente wrote in a note. “That, combined with the prospects of a more gradual economic recovery, suggests a faster inflation drop, including core and services inflation,” they added.
On a monthly basis, prices probably rose 0.27 percent in November, nearly unchanged from an increase of 0.26 percent in October, according to the median of 29 forecasts.

Statistics agency IBGE publishes the November inflation numbers on Fridays at 9 a.m. local time (1100 GMT).

Estimates for the month-on-month inflation rate ranged between 0.20 and 0.35 percent, while forecasts for the annual inflation rate were between 7.01 and 7.17 percent.

Source: Reuters Brazil.