Brazil Won’t Bounce Back Fast After Election, Adviser Says

Even with the right economic policies it will take the winner of October’s presidential election time to put Brazil back on track, Persio Arida, economic adviser to one of the market-favorite candidates, said in an interview.

Gaping budget deficits that require sweeping reforms to spending and taxation alike will take at least two years, said Arida, who advises former Sao Paulo Governor Geraldo Alckmin in his bid for the country’s top job. A bill to cut pension benefits must be approved by Congress and will take time to have an impact on public accounts, he said.
Arida’s view contrasts with that of Paulo Guedes, top economic adviser for the leading candidate, far-right former Army captain Jair Bolsonaro. Guedes says the primary fiscal deficit can be reduced to zero in one year.
Arida says Brazil’s economic situation isn’t comparable to that of 2002, when financial markets boomed when fears that then front-runner Luiz Inacio Lula da Silva would abandon sound economic policy proved unfounded after his election.
“The challenge is much bigger today,” Arida told Bloomberg News in a phone interview. “The economy is not in good shape.”
Persio Arida, 66, holds a Ph.D in economics from the Massachusetts Institute of Technology, was briefly president of Brazil’s central bank in the 1990s, and helped craft the Real Plan that slayed hyperinflation. As a member of a far-left guerrilla group in the 1970s, he was arrested and tortured under the military dictatorship.

Not only does the Brazilian state spend poorly but it also taxes inefficiently, he added, focusing not on income or added-value taxes as text books suggest but on a series of unwieldy levies that stifle productivity.

With single-digit support in opinion polls, Alckmin significantly trails Bolsonaro and the leftist candidate Fernando Haddad, who has replaced Lula as the Workers’ Party candidate.

 

Source: Bloomberg

Foreign investors bet on future but cut exposure to short-term assets

With two weeks before the presidential election, foreigners show confidence in the Brazilian economy’s future but are nervous about the short term. Figures show that in August the country received $10.6 billion in direct investment, one of the ten best monthly performances since the launch of the Real Plan in July 1994 — in the 12 months through August, investors injected $70 billion in Brazil. Meanwhile, short-term fixed-income and equity investments saw last month the largest capital outflow in almost four years. In fixed income, net outflow reached $7.75 billion; as for equities, investors have already withdrawn $1.88 billion in September.

 

Source: Valor

Brazilian presidential candidate Bolsonaro vows to privatize state businesses

Brazilian presidential candidate Jair Bolsonaro said Sunday he would eliminate and privatize a large part of the public businesses and would reduce the number of ministers as part of his economic program if elected on Oct. 7.

“These are unnecessary expenses that must be taken care of by the people,” Bolsonaro said.

The far-right Social Liberal Party (PSL) candidate, made the comments on his Twitter account from his hospital bed at Albert Einstein Hospital, where he has been recovering from a knife wound he suffered on Sept. 6 during a campaign rally in the southeastern state of Minas Gerais.

On Sunday, Bolsonaro met with his economic strategist Paulo Guedes, who earlier this week, announced that he intended to reimplement a tax on financial transactions and increase the taxes on the income of those who make the least.

According to polling firm Datafolha, Bolsonaro currently has support of 28 percent of voters.

His main rival is the Workers’ Party (PT) candidate Fernando Haddad, who had been the running mate for popular ex-President Luiz Inacio Lula da Silva until Lula was barred from seeking re-election.

For his part, Haddad, who was making a campaign stop in the northeastern state of Bahia, said he wants to unite Brazil, and called on the other candidates to put an end to personal attacks in the homestretch of the elections.

 

Source: XINHUA NET

Brazil Keeps Rate at Record Low But Cautions of Higher Risks

Brazil’s central bank kept its key rate at an all-time low but cautioned of growing risks to inflation amid doubts over economic policy following presidential elections and global trade disputes.

The bank’s board, led by its President Ilan Goldfajn, on Wednesday left the benchmark Selic unchanged at 6.50 percent, a stimulus it considered necessary given weak economic growth.

“This stimulus will begin to be removed gradually if the outlook for inflation at the relevant horizon for the conduct of monetary policy and/or its balance of risks worsen,” the central bank said in the statement accompanying its decision.

In addition to the burgeoning global trade war and concerns over emerging markets, risks to structural reforms have also increased and affect investor expectations, the bank said. All of the market-friendly candidates are trailing by a wide margin in opinion polls ahead of October presidential elections.

A winner not committed to reforms would cause “the currency to worsen, making the central bank raise the Selic earlier than expected,” said Newton Rosa, chief economist at Sul America Investimentos. “Perhaps even this year, after the election.”

Brazil’s currency has lost roughly 20 percent of its value this year. Yet unlike central banks in Turkey or Russia that hiked interest rates following a selloff in emerging markets, Goldfajn has so far stood pat.

The industrial, retail and services sectors contracted recently, indicating that demand has weakened ahead of contentious presidential elections, in which few candidates have presented convincing measures to tackle the country’s wide budget gap.

During his tenure, Goldfajn has won investor praise for making central bank communication more transparent, taming inflation and taking the Selic to a record low from 14.25 percent. He has become more cautious in recent months as policy makers weigh an increasingly feeble economy and below-target inflation on one hand and, on the other, a currency sell-off that could stoke price increases down the road.

Brazil’s economy is now expected to grow 1.4 percent in 2018, down from a 2.7 percent estimate at the start of the year, according to a central bank survey.

For the first time this year, the central bank included a question about the source of financial market turbulence in a survey it sends to analysts before each key rate decision. Specifically, it asked economists if they think recent volatility can be attributed more to international or domestic factors.

Tumultuous Elections

Brazil’s presidential race is becoming increasingly polarized between far-right lawmaker Jair Bolsonaro and Fernando Haddad, the chosen successor of leftist icon Luiz Inacio Lula da Silva. While Haddad’s Workers’ Party has spooked investors with pledges to undo austerity measures, financial markets have slowly warmed up to Bolsonaro, whose top adviser advocates free-market enterprise. If no candidate wins more than 50 percent of the vote on Oct. 7, there will be a run-off on Oct 28.

In spite of the currency depreciation, Brazil’s consumer prices fell in August amid a drop in food and transport costs. Analysts surveyed by the central bank see inflation at or below target through 2020.

If that outlook changes, the central bank signaled its poised to act, said Isabela Guarino, an economist at XP Gestao de Recursos, a Sao Paulo-based fund manager.

“The highlight here is their indication that they could increase interest rates if the balance of risks worsens.”

 

Source: Bloomberg

Port operators resume lobbying for longer concessions

Brazil’s port operators have not given up after the Federal Court of Accounts (TCU) blocked the government from allowing them to extend current concessions to up to 70 years. The companies say they have identified a clause that could enable the change. Contracts signed under the first Law of Ports, in 1993, only allowed concessions to run for two consecutive 25-year periods. Most concessionaires are in that situation. They are being represented by the Brazilian Association of Port Terminals (ABTP), with support from the Brazilian Association of Public-Use Container Terminals (Abratec). Ogarito Linhares, port concessions director of the National Secretariat of Ports, warns against any decisions that may block the process again and says his agency is working to meet the TCU requirements to allow the law to proceed.

 

Source: Valor – International

Brazil’s economy grows 0.57 pct in July: central bank

Brazil’s economy grew 0.57 percent in July from June, Brazil’s Central Bank said on Monday, citing the Economic Activity Index (IBC-Br).

The data shows a second consecutive month of Gross Domestic Product (GDP) growth in South America’s largest economy.

According to the indicator, the economic activity of Brazil fluctuated slightly in the first months of the year until it registered a fall of 3.35 percent in May, when a truckers’ strike paralyzed the country for eleven days.

Economic activities recovered in June, with an increase of 3.42 percent from May, and in July it recorded a growth of 0.57 percent, similar to that of April, 0.58 percent.

The year-on-year growth of July is 2.56 percent, according to the central bank.

Such growth allowed Brazil’s economic activity to accumulate an expansion of 1.19 percent in the first seven months of the year compared with the same period of 2017 and 1.46 percent in the past 12 months to July, compared with the data registered between August 2016 and July 2017.

The data is compatible with the consolidated results of the economy reported by Brazilian government.

Brazil’s official statistics agency IBGE said in late August that Brazil’s GDP increased by 0.2 percent in the second quarter of 2018 compared to the first and maintained the slow recovery from the deep recession that the economy suffered in 2015 and 2016.

The result was driven by the services sector and pressured by a strong decline in the industry and investment sectors, which confirmed a slower-than-expected economic recovery.

Brazil’s GDP grew by 1 percent in 2017, ending two years of severe recession.

The latest figures also coincide with the projections of the financial market, which estimates an economic growth of 1.36 percent in 2018 and 2.5 percent in 2019 in Brazil.

The IBC-Br, which gathers information on the level of activity in the industrial, commercial, services and agribusiness sectors, is calculated by the Central Bank as a preview of the GDP with the aim of facilitating decision-making on monetary policy.

 

Source: Xinhua

Brazil central bank may signal it is closer to raising rates

Brazil’s central bank will likely hold interest rates at a record low on Wednesday despite a plunge in the currency, a Reuters poll showed, but may strike a more hawkish tone in a first step toward narrowing a policy gap with its peers.

A big domestic unknown this year is the outcome of the presidential elections, due to start on Oct 7. It is the most hard-to-predict national vote in decades, set against a backdrop of double-digit unemployment, underwhelming economic growth and relatively tame inflation.

The single dissenter, Societe Generale, expected a 25 basis-point hike to 6.75 percent.

“We suspect authorities will prefer to alter the guidance from neutral to hawkish, instead of opting for an outright rate hike at this meeting,” ING economist Gustavo Rangel wrote in a report to clients.

“Given the low inflation (rate) and still substantial ammunition to intervene in the FX market, if necessary, authorities can wait until after the elections, when a better assessment of the political and fiscal outlooks will be possible.”

The concerns of investors and currency traders that the next president will refrain from slashing government spending to rein in ballooning public debt have magnified Brazil’s participation in a global emerging-market selloff, hammering the real to near all-time lows.

Heightened uncertainty about the shaky economy, particularly after a nationwide truckers’ strike in the final weeks of May brought it to a near-standstill, have driven the central bank to hold off from offering any forward guidance on interest rates.

Now, with the currency in a tailspin, the central bank may be forced to take a more hawkish tone in its policy statement, several economists said, potentially laying out conditions that would warrant a hike going forward.

A 21-percent plunge in the real this year, which has put it among the world’s worst-performing currencies, will likely bump up import prices, which in turn will boost inflation, currently hovering near 4.3 percent.

Brazil’s central bank is targeting a 4.5 percent inflation rate in 2018 and 4.25 percent in 2019, plus or minus 1.5 percentage points, so there is no reason to move just yet. Double-digit unemployment is also likely to curb any pass-through.

The bank has repeatedly said that currency moves will only drive monetary policy if they influence wider consumer prices or expectations for future inflation.

That has seemingly convinced economists that the bank can afford to stand pat for a while yet. Only three out of 34 who replied to an extra question expected policymakers to hike rates this year, with most predicting it will happen some time in the first half of 2019.

Of the 25 who had replied to the same question in last month’s poll, 12 maintained their forecasts, six pulled the next rate rise closer and seven pushed it back, suggesting it is not clear how the battered real will shape the bank’s thinking.

Economists at Bradesco, the nation’s No. 2 private lender, expect the central bank’s inflation forecasts, which assume a constant foreign exchange rate, to be 4.7 percent in 2018 and 4.4 in 2019, surpassing the mid-point of its goal in both years.

But that is unlikely on its own to trigger a hike, as “it’s not clear whether the current level for the currency will last long,” they wrote in a report. “It seems to us that the optimal strategy for the central bank is to wait for more clarity on the fiscal front.”

The latest Reuters foreign exchange poll suggested the Brazilian real is likely to recover in coming months after electoral jitters die down, though forecasters grew much more tentative due to rampant volatility.

Far-right candidate Jair Bolsonaro, who was stabbed last week and is unlikely to campaign any time soon, has tapped a University of Chicago-trained banker as his main economic advisor.

He has led voter intention polls, but is tied with his main rivals in a second-round vote.

Leftists Ciro Gomes and Fernando Haddad seem most likely to reach the second round, after jailed former President Luiz Inácio Lula da Silva, who had led polls even after being arrested for corruption, dropped out of the race.

 

Source: Nasdaq.com

Suzano and Fibria shareholders give the go-ahead to merger

Suzano Papel e Celulose and Fibria took another step towards materializing their merger announced on March 16. At meetings held on Thursday in São Paulo and Salvador, shareholders of both pulp and paper producers approved the transaction, which now depends on the endorsement of regulatory agencies in Brazil and Europe. The merger with Suzano was approved by 84% of Fibria’s shareholders, not considering abstentions, while part of minority holders voted against the deal. They have been criticizing the transaction’s structure and tried to postpone the meeting, but the request was rejected by the Securities and Exchange Commission of Brazil (CVM).

 

Source: Valor – International

Fibria deal boosts M&A activity while volume drops

Merger and acquisition deals amounted to R$84 billion in the first half, the highest level for the period since 2010, compared with R$54.3 billion in the same period of 2017. But it was still down 38.5% from the same months of 2017 in volume terms, according to the Brazilian Financial and Capital Markets Association (Anbima). Suzano’s R$47.7 billion bid for Fibria, the biggest deal in Brazil since 2008, ended up inflating the total as the electoral scenario and exchange-rate volatility discouraged strategic moves. The Brazilian market also experienced a wave of private-equity divestments, with firms pocketing R$6.3 billion and spending R$1.7 billion, from R$200 million and R$4.5 billion a year ago.

 

Source: Valor – International

 

 

Brazil Is Latest Jurisdiction to Enact Data Privacy Regulations

Similar to the European General Data Protection Regulation in scope and breadth, Brazil’s newly passed data protection regulation covers the processing of personal data and establishes a fundamental right of privacy for data subjects, among other protections.

On August 14, 2018, Brazilian President Michel Temer signed Brazil’s first comprehensive data protection regulation into law, the result of a years-long effort by Brazil to match the more inclusive data protection rights found in European laws, most recently with the passage of the European General Data Protection Regulation (GDPR). The new Brazilian law (Law 13,709/2018, known as the Lei Geral de Proteção de Dados or LGPD), amends the Brazilian Civil Rights Framework for the Internet (Law No. 12,965) which was passed in 2014 and governed the use of the internet in Brazil. The LGPD is expected to go into effect in February 2020.

The LGPD is organized into 65 articles and is similar to the GDPR in its expansive scope. It covers the processing of personal data (with special protections carved out for sensitive personal data and children’s personal data) and establishes a fundamental right of privacy for data subjects, including the right to obtain information about data processing from data controllers. It is also similar to the GDPR in its extraterritorial breadth, protecting personal data even when it is collected outside of Brazil, so long as it is processed for the purpose of providing goods within Brazil.

The LGPD includes security measures and notification requirements in the event of a data breach, requiring controllers to notify the national authority and any affected data subject in the event of a security incident that could cause damage to data subjects. Also similar to the GDPR, the Brazilian law includes guidelines for the processing of personal data by public authorities and personal data processing agents, and prohibitions against the international transfer of data in certain circumstances.

Sanctions for infractions by data processing agents include a fine of up to 2% of “conglomerate revenues in Brazil for the prior financial year” and/or a daily fine. (These fines cannot exceed a total maximum of 50 million reais ($12,315,880.00) per infraction). Nonmonetary sanctions include publicizing the infraction and possibly blocking or deleting the personal data at issue until compliance is achieved.

When signing the regulation into law, President Temer vetoed the sections that created an independent data protection authority to enforce the LGPD, arguing that the legislature did not have the power to create such an entity. Thus, as of now, it is unclear how the bill will be enforced. News sources report that President Temer has indicated he will quickly send a bill to Congress that creates a new data protection authority.

The Brazilian law is the latest in a string of similar data protection lawspassed in the wake of the GDPR’s long-awaited enactment in May.

 

Source: JD Supra