A diluted reform of Brazil’s pension system that delivers less than half the 1.2 trillion reais ($314 billion) in savings outlined in the government’s plan would threaten future generations, Economy Minister Paulo Guedes said on Wednesday

Guedes has said savings over the next decade from social security reform should total at least 1 trillion reais. If Congress waters that down to 500 billion, it would make it impossible to transform the state-based system to personal retirement accounts, he said.

“We need 1 trillion (reais) so we can have the financial muscle to fund the transition toward a system of individual retirement plans,” Guedes said at a ceremony at the central bank in Brasilia marking the swearing-in of Roberto Campos Neto as the bank’s new president.

“But if Congress dilutes that to only 500 (billion), you end up condemning your children and grandchildren, there’s no individual retirement funds, and the old system stays in place,” Guedes said.

Shoring up the social security deficit, by far the largest drag on the country’s creaking finances, is right-wing President Jair Bolsonaro’s cornerstone policy to revive the economy and stimulate investor confidence in Brazil.

Investors and private sector analysts are more skeptical about Guedes’s 1 trillion reais minimum target, with the median savings over 10 years expected to be around 700 billion reais, according to two major investor surveys recently.

At his swearing-in, Campos Neto repeated pledges he made at his Senate confirmation hearings last month to make Brazil more attractive to foreign investors, expand credit to small firms, and increase the presence of fin techs across the economy.

He also said the central bank must build on the gains delivered by the monetary policy path pursued by his predecessor Ilan Goldfajn, which was characterized by “caution, serenity and perseverance” and has seen interest rates anchored at a record low 6.50 percent for almost a year.

But the U.S.-educated former banker may have his work cut out. The economy almost ground to a standstill in the fourth quarter of last year and annual growth in 2018 was no better than it was the year before, at just 1.1 percent.

Early indications suggest 2019 will be just as challenging. Figures on Wednesday showed industrial production fell 0.8 percent in January, far more than expected.

Interest rate futures markets now imply more than a 60 percent likelihood that rates will be cut by January next year.


Source: Reuters

Brazil’s new central bank president Roberto Campos Neto on Wednesday pledged to make Brazil more attractive to foreign investors, while expanding credit to small domestic firms and increasing the presence of fintechs across the economy.

In his first public address as governor, he said the central bank must build on the gains delivered by a monetary policy path of his predecessor Ilan Goldfajn characterized by “caution, serenity and perseverance.”


Source: Reuters

Changes to Brazil’s constitution are urgently needed to address the dire financial situation Brazilian states and municipalities find themselves in, a senior member of the government’s economic team told Reuters on Wednesday.

The source expressed more urgency to act quickly than a senior Economy Ministry official did in an interview with Reuters on Tuesday.

Many of Brazil’s 26 states are bankrupt and only kept afloat by funding from Brasilia, exacerbating the federal budget deficit which the government calls the biggest risk to Brazil’s economy.

Brazilian states’ combined deficit with the federal government stands at some 200 billion reais ($52 billion), Treasury figures show.

A senator has the power to start the political process for a constitutional amendment forging a new financing deal, or “federative pact,” between the federal and local governments by introducing a bill in the upper house, according to the source, who spoke to Reuters on condition of anonymity.

President Jair Bolsonaro, his chief-of-staff and the two house leaders in Congress are evaluating how exactly that will be done, the source said.

Lawmakers would discuss this process alongside Bolsonaro’s ambitious pension overhaul bill, which aims to shore up Brazil’s public finances by generating savings of more than 1 trillion reais ($261 billion) over the next decade.

Social security payments represent the biggest single hole in the public accounts, but states have been steadily bleeding cash for years, forcing the federal government to pick up the tab.

In an interview with Reuters on Tuesday, Rogerio Marinho, secretary of social security and labor at the Economy Ministry, said a “federative pact” via constitutional change was being considered but the government would not “necessarily” propose it soon.

Last month, Treasury Secretary Mansueto Almeida said states must make difficult decisions to rein in spending, but the federal government is exploring avenues such as loan guarantees to ease the burden.

Rio de Janeiro is the most indebted state, its 37 billion reais negative balance with Brasilia accounting for 14 percent of the total. Next is Sao Paulo with 32 billion reais, or 12.4 percent of the total, although that is far smaller than Rio as a share of its economic output.


Source: Reuters

Brazil’s government is sticking to its goal of having its pension reform bill, with promised public savings of more than 1 trillion reais ($262.5 billion) over the next decade, ready for a vote in the lower house of Congress by the end of May.

In an interview with Reuters in Brasilia on Tuesday, Rogerio Marinho, secretary of social security and labor at the Economy Ministry, pushed back against market concerns that the timeline and savings target are too optimistic.

Investors say tackling Brazil’s crippling social security deficit is critical to putting the country on a firmer economic and financial footing. The Economy Ministry has warned that failure to pass any reform will plunge the economy into recession as early as next year.

“The proposal we are putting forward to Congress is one that we think is adequate for the country,” Marinho said when asked if savings of 1 trillion reais was an achievable target.

Asked if anything less was therefore “inadequate,” Marinho said the Brazilian parliament would discuss the bill and “make modifications, even improvements.”

The government’s reform package aims to raise the minimum retirement age for men and women, increase the length of time workers must pay into the system, and reduce benefits for rural workers and military personnel. The bill projects total savings over the next decade of just under 1.2 trillion reais ($315 billion).

Economy Minister Paulo Guedes said last weekend that 1 trillion reais was an “important line” in the sand. But recent surveys from Morgan Stanley and Brazilian brokerage XP Investimentos show investors expect that will be watered down to around 700 billion reais.

Marinho recognized that the complexity of the proposals and challenges in overhauling a decades-old system. The draft bill was only presented on Feb. 20, but he is confident it will be ready for a vote by the full lower house in May.

“In terms of timing, we are able to meet our deadlines. Everything will depend on the dynamics of the debating process in parliament,” he said. “We know pension reform is not an easy process. But we’re very happy to have that debate.”

Once passed by the lower house, the bill will go to the Senate for final approval.

While Marinho and other officials say support for pension reform among lawmakers has never been higher, a lack of political cohesion in Congress could delay approval. Some analysts say it could drag out until the final months of 2019.

In that regard, Marinho applauded President Jair Bolsonaro’s recent tweets, statements and video selling pension reform to the public, following criticism from some allies that he had been too silent on the issue.

Asked if pension reform depended on Bolsonaro’s support, Marinho said: “I think so, but it also depends on a narrative based on facts.”

“He has credibility. Without doubt he is the leader of this process, and anything he does will be beneficial, including galvanizing and mobilizing people to get onside with this change that’s so necessary for the country,” he said.

Analysts at BNP Paribas on Monday noted that of Bolsonaro’s more than 500 tweets since becoming president, only five were about pension reform. That is fewer than the eight jokes he has tweeted out to his 3.68 million followers.


Source: Reuters

Brazil posted a trade surplus of $3.673 billion in February, government data showed on Friday, surpassing market estimates of $3.0 billion, with imports falling more than exports due to sluggish domestic demand.

Imports totaled $12.620 billion, a 21.2 percent drop from the same month a year ago, while exports fell by 15.8 percent to $16.293 billion, the trade ministry reported.

It was the highest surplus for the month of February since the series began in 1989.

Brazil’s trade surplus last year narrowed 13 percent to $58.3 billion from $67 billion the year before. It is forecast to drop further to $51 billion this year, according to economists polled by the Central Bank.

Economic growth in Brazil almost ground to a standstill at the end of last year. Gross domestic product expanded by just 0.1 percent in the fourth quarter, while over the course of 2018 growth was unchanged form the previous year at 1.1 percent.

The GDP data suggest activity this year will be lackluster again. Economists at Barclays cut their 2019 growth forecast to 2.2 percent from 2.5 percent, and Goldman Sachs economists cut theirs to 2.0 percent from 2.2 percent.

As part of his orthodox economic reform agenda of cutting taxes, slashing public spending and overhauling the pension system, President Jair Bolsonaro has also said he wants free “bilateral trade with the entire world without an ideological bias”.


Source: Reuters

Brazil’s mining minister on Tuesday defended iron ore miner Vale SA as vital to the country’s economy, even after prosecutors accused the company of pressuring auditors to suppress evidence that its Brumadinho dam was unstable, months before the dam collapsed in January, killing hundreds.

Minister of Mines and Energy Bento Albuquerque said Vale executives are likely to learn from the disaster, which killed more than 300 and sparked an outcry for tighter mining regulations.

The January disaster was the second deadly burst in less than four years in Brazil at a Vale-controlled tailings dam, a type of dam that stores the muddy detritus of the mining process.

Albuquerque told Reuters the world’s largest iron ore miner plays an important role in Brazil’s economic development. The country’s National Mining Agency, the industry’s main regulator, is linked to the ministry.

“The company is very important for Brazil, for the economy of many states in Brazil, and we consider them to have an important role in our development,” Albuquerque said on the sidelines of the Prospectors and Developers Association of Canada mining conference in Toronto.

On Friday, Brazilian prosecutors alleged that Vale fired an inspection firm months before the disaster because it refused to certify one of its dams as safe. Albuquerque acknowledged the severity of the allegations.

“If the certification by any means, was adulterated, then they can be accused of collusion, or obstruction,” said Albuquerque, a former admiral in Brazil’s navy who was appointed earlier this year.

Still, Albuquerque’s praise of Vale, despite a storm of criticism over what many called a preventable disaster, indicates how the company’s clout as one of Brazil’s top exporters may prompt some politicians to oppose tougher regulations.

“I think they will learn the lessons and they will succeed in overcoming this situation,” Albuquerque said.

Brazil has banned the type of tailings dam used at the Brumadinho facility, and Vale’s chief executive officer temporarily stepped down last week. The disaster has prompted hand-wringing throughout the global mining industry, with rival CEOs vowing to set stricter standards for tailings dams.

Still, the world is hungry for Vale’s iron ore, a point of pride across Latin America’s largest economy, especially in the pro-development administration of new President Jair Bolsonaro. Vale has more than 100,000 employees in Brazil.

Albuquerque said his ministry has started an inspection of every tailings dam in Brazil and should finish by year end. The ministry expects to finalize changes to the tailings dam certification process by June, he said.

Brazil’s federal government and Vale have always had “good communication,” which should continue under the company’s new leadership, Albuquerque said. It was not yet clear if Vale’s new management will be made permanent.


Source: Reuters

The Chinese government is looking to boost its presence in the Brazilian food processing sector and reach agreements on joint food safety controls that would allow for long-term supply deals between the countries, a Chinese official said on Wednesday.

Yang Wanming, who took over as China’s ambassador to Brazil roughly two months ago, said in a presentation to businessmen and Sao Paulo state government officials that the Asian nation is also looking into opportunities in the country’s infrastructure projects and oil refining sector.

“The two countries should boost trade flows, work to liberalize and facilitate trade, expand two-way access to markets,” Yang said in the presentation, through a translator.

“The agricultural sector is an important part of our trade cooperation. China would like to enlarge that cooperation toward processing of agricultural products and intensify cooperation in food safety controls with the aim to build a long-term partnership, where both countries would win,” he said.

Some Brazilian food processors were bruised by a large food safety probe started in 2017 that investigated the relationship between meatpackers, agriculture ministry officials and laboratories with a mandate to certify the safety of meat products.

The probe, which is still ongoing, alleged that some firms bribed inspectors to keep processing plants running, issue international health certificates, and allow the sale of products in violation of food safety standards.

China has been Brazil’s largest trade partner since 2009, a relationship that reached almost $100 billion last year.

There were signs of possible obstacles to expanding relations during last year’s presidential campaign in Brazil, when right-wing candidate Jair Bolsonaro, who won the election, criticized recent acquisitions of Brazilian assets by Chinese companies.

Yang said he has spoken with several ministers in the new administration since he arrived in Brasilia earlier this year, and was well-received.

“All of them expressed interest in boosting our relation. The President himself expressed his will to deepen our relationship, particularly in trade,” the ambassador said.

He did not provide details of China’s plans in food processing or oil refining.

Chinese company CNODC, a subsidiary of China’s National Petroleum Corporation (CNPC), signed an agreement with Brazil’s Petrobras last year to partner on building the Comperj refining complex in Rio de Janeiro.


Source: Reuters