Large challenges loom for Brazil’s president-elect Bolsonaro

Brazil’s President-elect Jair Bolsonaro signaled Monday his administration would make tackling the country’s budget-crushing pension system a top priority, doubling down on a campaign promise that made him the choice of the business community despite frequently saying he doesn’t understand the economy.

The tough-talking former army captain cruised to a 10-point victory Sunday by capitalizing on widespread frustration in Latin America’s largest economy, which has fallen on hard times less than a decade after being a darling of investors among emerging markets.

Bolsonaro’s victory moved Brazil, the world’s fourth-largest democracy, sharply to the right after four consecutive elections in which candidates from the left-leaning Workers’ Party won.

Perhaps more than belief in Bolsonaro himself, his victory represents a widespread rejection of the Workers’ Party, which was at the center of a massive corruption investigation and oversaw both Brazil’s boom and its bust.

Like other right-leaning leaders who have risen to power around the globe, Bolsonaro, who takes office Jan. 1, built his popularity on a mixture of often outrageous comments and hard-line positions, but he consolidated his lead by promising to enact market-friendly reforms.

In the end, many outside his base in Brazil accepted the bargain he offered: Swallow his more extreme views and his crude way of expressing them in exchange for economic policies they hoped would put Brazil on the path to recovery.

In the face of what’s expected to be stiff resistance, Bolsonaro will have to move quickly to reassure international investors that he’s up to the job of righting Brazil’s finances.

A looming $34 billion deficit in 2019 has economists warning that without drastic spending cuts or substantial tax increases the country is only a year or two away from a full-blown crisis, which could include run-away inflation and soaring borrowing costs.

Reducing the deficit will be especially hard because Brazil has only slowly begun to grow again after a punishing recession in 2015 and 2016, and unemployment remains high.

In the face of this, Bolsonaro has said adviser Paulo Guedes, a University of Chicago-educated economist, would oversee the privatization of many industries and a reform of the pension system.

“The first big item: pensions. We need a pension reform,” Guedes said late Sunday after Bolsonaro’s victory, adding that the next item would be selling off state companies to reduce Brazil’s debt and associated interest payments.

“It is not reasonable that Brazil spends $100 billion every year on debt interest payments,” he said.

Congressman Onyx Lorenzoni, tapped to be Bolsonaro’s chief-of-staff, said Monday the administration would submit a pension reform proposal early next year.

Bolsonaro must also address many other issues with no easy solutions: high unemployment, increasing crime in a nation that is already the world leader in total homicides, and deep divisions after years of political turmoil and a punishing election campaign marred by violence. Bolsonaro himself was stabbed and almost died while campaigning in early September.

 

Souce: Richmond

Bolsonaro will focus on Brazil pension reform, bilateral trade: Guedes

Brazilian president-elect Jair Bolsonaro’s top economic advisor and proposed economy minister, Paulo Guedes, said on Sunday that reforming the country’s costly pension system would be a top priority for his government.

Guedes, speaking shortly after Bolsonaro’s commanding win, said that Latin America’s biggest economy would seek bilateral trade deals, criticizing the restrictions of South America’s Mercosur trade bloc.

He said a proposed tax overhaul would generate some 10 million jobs by cutting payroll taxes.

 

Source: Reuters

 

Carf rules silent partners can be tax exempt

The Board of Tax Appels (Carf) approved on Tuesday that the so-called silent partners can manage the business and receive dividends exempt from income tax, as is already the case with regular partners. Silent partners are allowed in special partnership companies used to provide real estate, legal, hospital and educational services, among others. In this model, the “ostensive partner” takes responsibility for the business while “silent” ones enter as participating partners. They also do not pay income tax on dividends received for their services. By a majority vote, the Carf’s 1st instance understood that this is a legal tax planning. The federal government will appeal the decision.

 

Source: Valor – International

Votorantim Energia and CPPIB buy control of Cesp for R$1.7bn

A joint venture created late last year by Votorantim Energia and the Canadian Pension Plan Investment Board (CPPIB) made the winning bid of R$1.7 billion for 35.6% of Cesp, the state-owned power company of São Paulo. The 1,627 megawatts operated by Cesp will add to the joint venture’s 564MW. At a little over 2,100MW of capacity, the joint venture, known as São Paulo Energia, will grow closer to traditional industry groups like AES Tietê, which has 2,600MW. The partners also bid R$1.4 billion to renew the contract of Porto Primavera, Cesp’s top asset, until 2048. They may have to spend R$4.8 billion to buy all of the company’s shares.

 

Source: Valor – International

Brazil’s JBS to increase meat production in response to Chinese demand

Brazilian company JBS SA, one of the largest food companies in the world, will increase its production capacity at two of its factories to respond to demand for beef exports to China.

The plants located in the Brazilian state of Minas Gerais will receive an investment of 45 million reais (US$12 million).

The investment in both factories will make it possible to double beef production.

Renato Costa, responsible for the meat division of JBS, said that this year’s exports, when compared to 2017, already represent a 125% increase in volume.

JBS SA is a Brazilian company headquartered in Goiás, founded in 1953.

The company operates in the processing of beef, pork, sheep and chicken meat.

The company currently has more than 216,000 employees worldwide and 340 units, including factories and sales offices.

 

Source: MACAUHUB

Brazil’s Petrobras, China’s CNPC sign accord advancing venture

Brazilian state-run oil firm Petroleo Brasileiro SA and China National Petroleum Corp Ltd have signed an agreement to study the economic viability of completing construction of the Comperj refinery in Rio de Janeiro, another step in the Chinese government getting a refining foothold in the Americas.

Petrobras, as the firm is commonly known, said on Tuesday that once the studies are completed, the two parties aim to form a joint venture to complete the refinery. Petrobras would own 80 percent and a CNPC subsidiary, China National Oil and Gas Exploration and Development Co (CNODC), would own 20 percent.

Under the planned accord, CNODC would also hold a 20 percent stake in the Marlim offshore oil cluster, which includes the Marlim, Voador, Marlim Sul and Marlim Leste concessions, Petrobras said.

With the agreement, the Chinese move toward getting their first refining capacity in the Americas. The accord follows the signing of a more general letter of intent between the parties in July.

The talks highlight rising Chinese interest in the Brazilian energy sector, which has attracted billions of dollars from oil majors over the past year for rights to new exploration blocks.

The talks also come as Jair Bolsonaro, the right-wing front-runner in Brazil’s Oct. 28 presidential run-off election, expresses scepticism over China’s increasing role in Brazil’s economy.

 

Source: Reuters

BRF negotiates leniency agreement

BRF is negotiating a leniency agreement with the Federal Prosecution Service and the Ministry of Transparency. The company filed its request a few weeks ago, and now the parties are setting up negotiating teams, sources say. The initiative is part of orders by the food company’s CEO, Pedro Parente, to turn a page, supplying all information that the control bodies may request in order to scrutinize the company’s past. Sources say that BRF intends to detail, among other things, the workings of a kickback scheme to inspectors of the Ministry of Agriculture, in exchange for easing their inspections.

 

Source: Reuters

Brazilian bonds outperform emerging-market peers

Even though international markets deteriorated recently, the current advantage of a pro-market presidential candidate in Brazil is helping the country’s bonds outperform its emerging market peers in October. The trend will depend on global patterns and investor appetite for higher-yielding assets, analysts say. “There was an adjustment of positions after the first round, but foreign investors are still cautious because of the international scenario,” says Sérgio Vailati, the XP Investimentos partner in charge of offshore investments. Still, the average yield of ten-year sovereign bonds of six emerging markets grew 0.320 percentage point until October 11, while the return of Brazilian bonds fell 0.283 point in the period – bond yields move in the opposite direction of demand.

 

Source: Reuters

Brazil’s real, Mexican peso firm as dollar weakens

The Brazilian real and Mexico’s peso firmed on Monday as the dollar slipped on mounting geopolitical concerns in a week when investors will watch central bank minutes and earnings.

The dollar dipped after U.S. retail sales data for September missed expectations. The dollar and global stock markets were also pressured by tensions between Saudi Arabia and the West, along with concerns such as the U.S.-China trade war and rising oil prices.

The Mexican peso strengthened for a third straight day ahead of minutes of the central bank’s October meeting expected on Thursday.

However, “volatility is expected to continue in the short term” for Mexico’s peso “as investors adjust their portfolios to incorporate a picture of higher yields of U.S. bonds, in a stock market with relatively high valuations,” analysts at Santander said in a note.

The country’s stock market climbed back from an early decline as the Dow Jones Industrial index and the S&P 500 bounced off session lows.

Bazil’s real rose more than 1 percent, resuming trading after a three-day weekend. The currency has gained nearly 9 percent so far this month, second only to the Argentine peso. The real has been boosted by growing investor hopes that market-preferred presidential candidate Jair Bolsonaro will win the election.

Brazil central bank President Ilan Goldfajn said late on Thursday that the country was well positioned to withstand shocks to its economy, and reiterated that basic interest rates will be raised only if there is a worsening balance of risks and inflation expectations.

The stock market rose after two losing sessions, with gains driven by a 2.4 percent rise in iron ore miner Vale as its third-quarter production reached an all-time high.

Gains however, were capped by a 33 percent plunge in shares of Smiles Fidelidade SA a loyalty program of airliner Gol Linhas Aéreas Inteligentes, after Gol said it plans to buy out minority shareholders in Smiles via a share swap whose terms will be determined by an independent committee.

 

Source: Reuters

Brazilian agribusiness exports to hit 100 bln USD

Brazil’s agribusiness exports are expected to reach a record 100 billion U.S. dollars in 2018, the minister of Agriculture, Cattle-ranching and Supply, Blairo Maggi, said on Wednesday.

“It’s a figure we have been striving for and now we are going to attain it,” Maggi said at a ceremony to install the new president of the Brazilian Agricultural Research Company (Embrapa), Sebastiao Barbosa.

Brazil saw its highest level of agricultural goods exports in 2013, when the sector generated 99.97 billion U.S. dollars.

President Michel Temer stressed the importance of the sector to Brazil’s economy, saying it contributed “in large part” to the recovery of the nation’s gross domestic product.

Following a severe recession in 2015 and 2016, which saw GDP plummet nearly 9 percent, Brazil registered 1 percent growth in 2017.

Agribusiness accounts for nearly a fourth of Brazil’s GDP, and almost 50 percent of its exports.

 

Source: Xinhua