Nubank is currently facing its toughest governance test since it went public — Foto: Divulgação
Nubank is currently facing its toughest governance test since it went public, with pomp, in December. In addition to the controversy of more than R$800 million in compensation for the management team, the lock-up period on the trading of shares sold in the IPO was set to end earlier than expected. The result is reflected in the fintech’s market capitalization, which was $24.6 billion on Wednesday, 40.7% lower than when it went public.
Earlier this week, the digital bank changed the date for the end of the lock-up period. The deadline was shortened by about a month, to May 17, the day after the release of first-quarter results.
As Nubank signaled that it did not intend to slow down in credit despite rising interest rates, the measure led some investors to wonder if this was not a sign of bad results to come. The suspicion was greater because it was compounded by the uneasiness with the compensation package planned for the management team this year, a whopping R$804 million. The number, which appears in official Nubank documents, caused a furor in social networks last week after it was reported by Valor.
Days later, Nubank released a statement to the market to explain itself to investors: 84% of this remuneration goes to David Vélez, cofounder and CEO of the fintech, who will only receive it if ambitious goals are met, and that the banker is committed to donating his fortune in life.
It wasn’t enough to calm things down. First, the total amount continues to differ from what other banks and companies pay. Second, the clarification took a long time – the statement to the Securities and Exchange Commission (SEC) was made five days after the news went viral, an eternity in times of social networks.
Stocks are a snapshot and do not always say much about the quality of a company, but they are the most important signal of the perception that investors have of it. Therefore, Nubank will have to learn how to deal with them. In this sense, transparency always goes down well – even more so at a time when the cost of money is rising and shortening the tolerance of technology investors.
The second quarter is still expected to be marked by sluggish activity on the domestic market, although a “slight” upturn in demand for paper packaging has already been perceived, due to more favorable seasonality, says Klabin CEO Cristiano Teixeira. International trade, on the other hand, is likely to remain firm.
“The domestic market is still likely to go slowly because of the inflation scenario,” he said in a conference call with analysts. In the first quarter, the company’s sales to the Brazilian market represented 55% of the 900,000 tonnes sold in total, against 56% in the fourth quarter and 61% in the same period of 2021.
At the beginning of the year, Klabin benefited mainly from price increases realized in recent quarters and from the reallocation of volumes to the overseas market, which offset the greater pressure of costs and the seasonally weaker consumption of cardboard boxes in the country. As a result, net revenue rose 28%, to R$4.42 billion, and the EBITDA advanced 35%, to R$1.73 billion.
According to the company’s head of the pulp business unit, Alexandre Nicolini, the readjustments announced for hardwood pulp as of May 1, in China, the United States and Europe, have already been applied. In the Chinese market, the increase announced by the company was $30, to $810 per tonne.
Traditionally, Suzano, the world’s largest producer of eucalyptus pulp, used to lead the movement of readjustments by South American producers in the different regions. In recent months, however, Klabin has taken the lead. “The company had a vision of the difference between the resale price and the market price in China and, therefore, there was room for a new increase,” Mr. Nicolini justified.
In Europe, mentioned Mr. Nicolini, an increase of $50 per tonne was applied for May and there is a new increase, of $50 per tonne, announced for June. “The market remains quite resilient, although the situation in China is a little more delicate, because of the lockdowns. Even so, Klabin does not feel any reduction in the demand for its products,” he said.
According to the executive, the company anticipated a higher pressure on pulp prices in China compared to other regions and, last year, decided to increase the volumes for the other markets, including Brazil. The strategy proved to be right, and the realized prices were above the industry average.
In the corrugated cardboard business, said head of packaging Douglas Dalmasi, Klabin opted to forgo volume and concentrate on prices during the first quarter. “We don’t look at specific market share. Our vision is more medium-term. We underperformed the market in terms of volume, but prices were above the sector’s average because we favor profitability,” he said.
In the kraftliner market, Flavio Deganutti, head of the paper business, declared it is possible to see the first signs of a resumption in U.S. exports of this type of paper, but a major announcement of capacity closures contributes to maintaining the fairer relationship between global supply and demand. “We don’t see any major movement [of change in this scenario] in the coming months,” he added.
The rise in diesel prices and the weakening of the real against the dollar in the last few weeks have accentuated concerns about the gap between fuel prices defined by Petrobras and the international parity. The state-run company has not adjusted the prices of diesel and gasoline in Brazil for 55 days, which has hindered imports by other agents. The scenario leads to discussions about the risks of shortages in the fuel market. The main concern of the market is diesel. Sources in the sector, however, rule out the risk of a systemic and generalized shortage, although supply may face problems in some regions.
As the prices gap widened, imports by regional distributors and smaller importers fell. Thus, the biggest distributors and Petrobras itself have been responsible for supplying the market, which are still importing. Some regions have faced greater difficulty in meeting the total demand by smaller distributors. According to sources, the issues are registered in Vitória (Espírito Santo), which is supplied by short-sea shipping, some cities in Goiás and Minas Gerais and places in the Northeast regions.
“What happens is that on a given day a gas station or a consumer can run out of product, or no longer be served by the distributor that normally serves them and start being supplied by some other,” said Sérgio Araújo, head of the Brazilian Association of Fuel Importers (Abicom).
Sources linked to major distributors say that occasional supply problems have occurred mainly at service stations that do not have supply loyalty agreements. The large distributors have managed to maintain imports and make an average, in the final prices, between the costs of fuel purchases at Petrobras’s refineries and purchases abroad. “Although with less surplus, the volumes always meet the demand,” said an executive who asked not to be named.
A reduction in the demand for diesel in the domestic market in recent weeks, due to seasonal factors, has also helped to stave off supply problems, sources said. Valeria Lima, head of downstream at the Brazilian Petroleum Institute (IBP), said that there is no risk of shortage, but the market is “very small.” Carla Ferreira, an analyst with the Institute in Strategic Studies of Petroleum, Natural Gas and Biofuels (Ineep), says that specific problems may require a reorganization of players.
There are also reports that some customers of the Mataripe refinery (Bahia) are no longer buying products from the refinery, in search of better prices in units operated by Petrobras in other states of the Northest region, such as the Abreu e Lima Refinery (Rnest), in Pernambuco. The Mataripe refinery was privatized at the end of last year and is currently operated by Mubadala’s Acelen.
The distance of almost 800 kilometers between Acelen’s refineries and Petrobras’s units has been covered by trucks from clients seeking the lower prices charged by the state-owned company, especially in this first week of May, sources say. “If the gap in prices is maintained, there is no doubt that this inversion of logistic flows will be accentuated,” says a source, who points out, however, that there are limits to this type of operation, since Rnest itself is not capable of meeting all consumption in the Northeast region.
The production of the national refineries cannot supply the entire demand in Brazil. According to data from the National Petroleum Agency (ANP), in March, Brazil imported 23.7% of the diesel consumed in the country. Of the imported volume, 46% was brought into the country by Petrobras itself and 54% by other companies. In the same month, considering the supply by local refineries, Petrobras was responsible for delivering 82% of the diesel consumed in the country to the distributors, and the Mataripe Refinery, for 9.7%, with the remainder coming from smaller companies.
According to Marcus D’Elia, the managing partner of the consulting firm Leggio, Petrobras has sought to increase the utilization of its own refineries, which has exceeded 90% in recent months. “This puts a little more product on the market, but does not solve the difference between demand and supply, which is structural. Today, effectively maintaining the country’s supply depends on imports, which are discouraged with a gap between fuel prices. Imports continue to occur, but, in a structural way, in the medium and long term this will always embed a risk,” he said.
The most acute situation occurs with diesel, a fuel sold by Petrobras to distributors with a difference of 26% in relation to international prices, according to calculations by consultancy StoneX. Abicom, on the other hand, calculates that the diesel price has an average difference of 24% in relation to international prices. Specialists explain that the international market is going through an unusual moment, in which the price of diesel has skyrocketed in relation to oil prices. “We are living an atypical moment, due to the variation in world demand, logistic issues and the variation in the level of stocks,” said Mr. Araújo, with Abicom.
In the case of gasoline, Ativa Investimentos points out that the gap between prices went to 19.1% on Wednesday from 14.9% on Friday. StoneX estimates that the gasoline sold by Petrobras is 6%, on average, below international prices, and Abicom calculates that prices are 12% below international prices, requiring an increase of R$0.54 a liter, on average.
Petrobras’s last adjustment was made on March 11, when the company raised diesel prices by 24.9%, and gasoline prices by 18.7%, in addition to a 16% increase in liquefied petroleum gas (LPG).
José Mauro Ferreira Coelho — Foto: Leo Pinheiro/Valor
Since then, President Jair Bolsonaro’s dissatisfaction with price increases led to a change of command in the state-owned company, with the replacement of CEO Joaquim Silva e Luna by José Mauro Coelho on April 14.
Sources linked to Petrobras say that the company is unlikely to pass on the current price gap immediately to consumers. “Petrobras follows the policy of parity regarding the average prices over the last 12 months, it is normal to have periods in which the gap is wider. This month, due to the volatility of the exchange rate, there was an escalation,” said Ilan Arbetman, an analyst at Ativa Investimentos.
The government has been monitoring the situation. In a virtual event on Tuesday, the deputy executive secretary of the Ministry of Mines and Energy (MME), Pietro Mendes, said that, in the case of diesel, a monitoring desk was created to collect information from distributors. He ruled out supply problems in May.
“The government needs a plan for this kind of situation. It is not just a question of price policy, but of guaranteeing supply,” said Edmar Almeida, a professor at the Energy Institute at the Pontifical Catholic University in Rio (PUC-Rio).
In a note, Petrobras said that the sales prices seek a balance with the international market, following the upward and downward variations, but avoiding immediately passing on to prices the external volatility and changes in the exchange rate caused by broader factors. “Pricing decisions are based on technical and independent analyses based on the external and internal scenarios of the oil and oil products market, and there is no interference from the calendar of disclosure of results.”
MSD says molnupiravir showed 89% efficacy against deaths in infected patients who started treatment up to five days after the onset of symptoms. — Foto: Divulgação/MSD
The Brazilian Health Regulatory Agency (Anvisa) approved, after a meeting on Wednesday, the emergency use of the drug molnupiravir, produced by U.S-based pharmaceutical company Merck Sharp & Dohme (MSD), effective against Covid-19.
MSD told Valor that the drug showed 89% efficacy against deaths in infected patients who started treatment up to five days after the onset of symptoms. The dosage for adult patients is 800 mg (four 200 mg capsules) to be taken orally, every 12 hours, for five days, with or without food.
In a statement, Anvisa said that molnupiravir is an oral antiviral drug that, in clinical trials, “showed beneficial effects in mild and moderate adult patients, with the ability to reduce hospitalizations and deaths.” For home use, it works to reduce the chances of the Sars-CoV-2 virus multiplying and reproducing in the body. In practice, the mechanism of action prevents the virus from replicating within the human body.
The drug has already been approved in the United States (by FDA), in Europe (EMA), in Japan, in the UK, in Australia, and also by the World Health Organization, and is in use in 17 countries. MSD told Valor that the drug is already being used in 30 countries.
According to the head of Anvisa, Meiruze Freitas, who was the rapporteur of the process and voted for its approval, it is important to have therapeutic options for certain clinical conditions, especially in individuals who are at high risk of developing the severe forms of Covid-19. The initial target audience, therefore, would be the elderly and people with comorbidities. Ms. Freitas, however, pointed out that molnupiravir is not a substitute for the Covid-19 vaccines, which remain the best option for preventing the disease.
According to Anvisa, the drug is for adult use, with sale on prescription, and is not recommended during pregnancy, breastfeeding, and for women who may become pregnant and who are not using effective contraceptives. Laboratory studies in animals, Anvisa said, have shown that high doses of molnupiravir can affect fetal growth and development. The agency also does not recommend use for more than five days in a row or preventive use. MSD, however, says it is conducting promising studies regarding prophylaxis with the drug, the results of which are expected to be published later this year.
In addition, the Oswaldo Cruz Foundation (Fiocruz) has signed a cooperation agreement with MSD to exclusively distribute molnupiravir to the Brazilian health care system (SUS) and perform the technological transfer of the drug.
According to Marco Krieger, Fiocruz’s vice president of Production and Innovation in Health, the agreement aims to take the drug to basic health units by the end of the first half – which depends on decisions by the Ministry of Health – and to advance in its reverse engineering, not only to have local production in the future, but also to explore the platform, with great potential for efficiency against other arboviruses infections, such as dengue and chikungunya. The agreement had been in the works for a year and two months and was signed Wednesday.
Policymakers also affirmed that the future steps of the monetary policy may be adjusted to ensure the convergence of inflation to its targets — Foto: Beto Nociti/BCB
The Central Bank’s Monetary Policy Committee (Copom) raised the policy interest Selic rate by 100 basis points and signaled an extension of the monetary tightening cycle for its next meeting. “For its next meeting, the Committee foresees as likely an extension of the cycle, with an adjustment of lower magnitude,” the Central Bank said in a note. The Copom raised the benchmark interest rate to 12.75% a year from 11.75%.
According to the document, the committee notes that “heightened uncertainty of the current scenario, the advanced stage of the current monetary policy cycle, and its impacts yet to be observed require additional caution in its actions.”
The policymakers also affirmed that the future steps of the monetary policy may be adjusted to ensure the convergence of inflation to its targets “and will depend on the evolution of economic activity, the balance of risks and inflation expectations and projections for the relevant horizon of monetary policy.”
In its decision, Copom maintained its assessment that risks exist in both directions for inflation and highlighted the persistence of global inflationary pressures and uncertainty regarding the future of the country’s fiscal framework among the factors that would push prices upwards.
On the other hand, a possible reversal, even if only partial, of the increase in commodity prices in reais and a sharper-than-projected slowdown in economic activity could impact the price index in the opposite direction.
In the March meeting, the Central Bank had outlined two scenarios for oil. Wednesday, the monetary authority opted for keeping the alternative scenario as the main one — in it, the barrel ends this year at $100 and increases 2% a year starting in January 2023.
The Copom also evaluated that the external environment continued to deteriorate. “Inflationary pressures arising from the pandemic period have intensified due to supply problems related to the new wave of Covid-19 in China and the war in Ukraine. The repricing of monetary policy in advanced countries increases uncertainty and generates additional volatility, particularly in emerging countries,” it said. In relation to the Brazilian economic activity, the monetary authority stated that growth is in line with what was expected.
The Copom reiterated that consumer inflation continued to surprise negatively. “These surprises occurred both in the more volatile components and on the items associated with core inflation,” it pointed out.
Read the English version of Copom’s full statement distributed by the Central Bank:
In its 246th meeting, the Copom unanimously decided to increase the Selic rate to 12.75% p.a.
The following observations provide an update of the Copom’s scenario:
The global environment has deteriorated further. Inflationary pressures arising from the pandemic period have intensified due to supply problems related to the new wave of Covid-19 in China and the war in Ukraine. The repricing of monetary policy in advanced countries increases uncertainty and generates additional volatility, particularly in emerging economies;
Turning to the Brazilian economy, the set of indicators released since the previous Copom meeting suggests a rate of growth in line with the Committee’s expectations;
Consumer inflation continued to surprise negatively. These surprises occurred both in the more volatile components and on the items associated with core inflation;
The various measures of underlying inflation are above the range compatible with meeting the inflation target;
Inflation expectations for 2022 and 2023 collected by the Focus survey are around 7.9%, and 4.1%, respectively; and
In the reference scenario, the interest rate path is extracted from the Focus survey, and the exchange rate starts at USD/BRL 4.95* and evolves according to the purchasing power parity (PPP). The Committee decided to keep the assumption that oil prices follow approximately the futures market curve until the end of 2022, ending the year at USD 100/barrel, and then start increasing 2% per year in January 2023. The energy flag is assumed to be “yellow” in December of 2022 and 2023. In this scenario, Copom’s inflation projections stand at 7.3% for 2022 and 3.4% for 2023. Inflation projections for administered prices are 6.4% for 2022 and 5.7% for 2023. The Committee judges that the uncertainty in its assumptions and projections is higher than usual.
The Committee emphasizes that risks to its scenarios remain in both directions. Among the upside risks for the inflationary scenario and inflation expectations, it should be emphasized (i) a greater persistence of global inflationary pressures; and (ii) an increase in the risk premium due to the uncertainty about the country’s future fiscal framework, partially incorporated in inflation expectations and asset prices. Among the downside risks, it should be noted (i) a possible reversion, even if partial, of the increase in the price of international commodities measured in local currency; and (ii) a greater deceleration of economic activity than projected. The Committee assesses that the uncertain and volatile current scenario requires serenity when evaluating the risks.
Taking into account the assessed scenarios, the balance of risks, and the broad array of available information, the Copom unanimously decided to increase the Selic rate by 1.00 p.p. to 12.75% p.a. The Committee judges that this decision reflects the uncertainty around its scenarios for prospective inflation, an even higher-than-usual variance in the balance of risks and is consistent with the convergence of inflation to its target throughout the relevant horizon for monetary policy, which includes 2023. Without compromising its fundamental objective of ensuring price stability, this decision also implies smoothing of economic fluctuations and fosters full employment.
The Committee considers that, given its inflation projections and the risk of a deanchoring of long-term expectations, it is appropriate to continue advancing in the process of monetary tightening significantly into even more restrictive territory. The Committee emphasizes that it will persist in its strategy until the disinflation process consolidates and anchors expectations around its targets.
For its next meeting, the Committee foresees as likely an extension of the cycle, with an adjustment of lower magnitude. The Committee stresses that the heightened uncertainty of the current scenario, the advanced stage of the current monetary policy cycle, and its impacts yet to be observed require additional caution in its actions. The Copom emphasizes that its future policy steps could be adjusted to ensure the convergence of inflation towards its targets and will depend on the evolution of economic activity, the balance of risks, and inflation expectations and projections for the relevant horizon for monetary policy.
The following members of the Committee voted for this decision: Roberto de Oliveira Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros, Diogo Abry Guillen, Fernanda Magalhães Rumenos Guardado, Maurício Costa de Moura, Otávio Ribeiro Damaso, Paulo Sérgio Neves de Souza and Renato Dias de Brito Gomes.
*Value obtained according to the usual procedure of rounding the average USD/BRL exchange rate observed on the five business days ending on the last day of the week before the Copom meeting.
Note: This press release represents the Copom’s best effort to provide an English version of its policy statement. In case of any inconsistency, the original version in Portuguese prevails.
Brazilian delegation has prepared proposal to extend the flexibility that may eventually be agreed upon against Covid-19 — Foto: Tânia Rêgo/Agência Brasil
Brazil will propose that flexibilities for patent breaking and technology transfer for the production of anti-Covid vaccines be extended to medicines and treatments against tropical and endemic diseases, sources say. The proposal will be formally presented to the more than 160 members of the World Trade Organization (WTO) next week.
The so-called Quad – the European Union (EU), the United States, India, and South Africa – has defined an agreement to facilitate the breaking of patents to combat Covid-19, which will continue to be negotiated now with the other countries. But this comes at a time when the pandemic has already slowed in several countries.
Africa’s largest anti-Covid vaccine factory is downsizing due to a lack of demand for doses. India’s Serum Institute, the world’s largest vaccine producer, stopped manufacturing Covishield, its version of the Oxford/AstraZeneca vaccine, last December, claiming it had 200 million doses in stock, as reported by Financial Times.
At the WTO, the agreement text limits “eligible members” to developing countries and only to those that exported less than 10% of the world’s Covid-19 vaccine sales in 2021. Brazil considers that it will be eligible, all the more so because it does not even appear on the list of exporters.
Now, ahead of the conference of trade ministers scheduled for June in Geneva, the Brazilian delegation has prepared a proposal to extend the flexibility that may eventually be agreed upon against Covid-19.
“Technology and know-how transfer are important tools for building capacities to combat Covid-19 and beyond,” the Brazilian text says. “Transfer of technology initiatives designed for Covid-19 can and should be used to create capabilities for other health emergencies, particularly those endemic to developing countries and that receive less attention from global research and development frameworks.”
Thus, for Brazil, the use of TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights) flexibilities, voluntary licensing agreements and other solutions involving intellectual property rights “must be accompanied by a political commitment to support initiatives to transfer technology and know-how to developing countries to combat not only Covid-19, but also other health crises.”
The Brazilian government argues that one lesson learned from the Covid-19 pandemic is that inequity in access to health products, notably vaccines, therapies and diagnostics, and unequal capacities among countries to prevent and respond to a health emergency are a threat to all. “Addressing these inequities and capacity imbalances will amount to ensuring that the world as a whole will be safer and better prepared to face other health crises,” the text says.
It notes that, alongside Covid-19, other health emergencies place a heavy burden on the developing world and inflict devastating health, social and economic consequences. It mentions estimates that tuberculosis, malaria and HIV/AIDS will have caused more than 2.8 million deaths by 2020, mainly in developing countries. The WHO estimates that neglected tropical diseases affect the health and livelihoods of more than 1.5 billion people around the world.
“Encouraging medical research and development for diseases that disproportionately affect people in developing countries is a particular challenge,” the Brazilian text says. It mentions a 2015 analysis, which found that poverty-related and neglected diseases account for 14% of the global disease burden, but attract only 1.3% of global research and development spending.
The conclusion is that the trade and health initiative at the WTO should not be indifferent to these issues. “The scope of the WTO discussions must be broad enough to consider not only abstract future health threats, but also current endemic challenges and poverty-related diseases in the context of the developing world. In other words, the discussions need to respond to other health emergencies,” the text adds.
Brazil recalls that the transfer and dissemination of technology is a central objective of the multilateral trade system inscribed in the TRIPS Agreement. This document recognizes, in its objectives and principles (articles 7 and 8), that the protection and enforcement of intellectual property rights must contribute to the promotion of technological innovation and to the transfer and dissemination of technology. The agreement also created a legal obligation for developed countries to provide incentives to companies and institutions in their territories to promote and encourage technology transfer to the least developed countries to enable them to create a sound and viable technological base.
A balanced and comprehensive outcome on trade and health at the WTO should recognize and incorporate this perspective, the Brazilian delegation says. According to a source, the Brazilian proposal has been well-received by other countries.
The last month with a negative balance of foreign capital at Exchange B3 was November 2021 — Foto: Divulgação
Amid a more challenging global context for risk assets, with uncertainties over the growth of the world’s main economies and volatility in commodity prices, foreign investors withdrew funds from the secondary market of the local stock exchange, in the spot segment, in April. The total deficit was R$7.67 billion, marking the first month in 2022 in which there was an outflow of funds. Before, the last month with a negative balance of foreign capital at Exchange B3 was November 2021.
The April scenario is the opposite to that observed during the first three months of the year. In January, foreign investors invested R$23.39 billion, followed by R$20.58 billion in February and R$ 21.35 billion in March.
With the support of international investors, benchmark stock index Ibovespa had an expressive rally and, on April 1st, reached its record level for the year, ending the trading session at 121,570 points, a 16% appreciation in local currency. In April, when the external flow showed a reversal, the performance of local stocks was the opposite: Ibovespa dropped 10.10%.
In this sense, market professionals have adopted distinct visions about the possibility of the outflow continuing in the coming months. While there is caution among players with the monetary tightening scenario and slowdown in global growth, there is also the reading that Brazil is a relative winner in this scenario.
“We still see Brazil as a relative winner and remain ‘overweight’,” says Bank of America’s (BofA) Latin America equity strategy team, composed by David Beker, Paula Andrea Soto, and Carlos Peyrelongue.
“Even though the foreign flow to Brazil’s local stock exchange was slightly negative in April (there were outflows of R$7.67 billion in April, but the balance is positive at almost R$58 billion year-to-date in equities), Brazilian commodities are expected to continue benefiting from global dynamics and the weaker real supports exporters,” say the professionals. Still, according to them, the activity data in Brazil is improving and interest rates may peak soon.
In its monthly allocation strategy report, BTG Pactual’s macroeconomics and strategy team says it is constructive on local equities, a view based on the thesis that there are companies that will benefit from a resilient commodities price environment, as well as those that perform better than Ibovespa in high interest rate (financial) environments, and those more exposed to high income consumption.
The strategists, however, highlight four pillars to evaluate the current market prospects: macroeconomic scenario, corporate earnings, fundamentals and valuations, and flow. The first three topics, according to them, inspire optimism for the stock market, with flow being the only one that demands more caution.
“After a great first quarter of foreign inflows into our stock market, April was marked by a negative flow reading, reflecting a volatile commodity and market environment, in general,” the professionals state. They point out that local funds also continue to contribute negatively to this equation, as a result of the redemption dynamics that the industry continues to experience.
Also according to B3 data, institutional investors withdrew R$2.446 billion from the secondary market in April, increasing the annual deficit to R$63.519 billion.
“We understand that this vector is still not expected to improve in May due to the market context and, consequently, demands greater caution,” point out the BTG’s professionals.
B3 also informed that in April individual investors were net buyers in the secondary spot market, with a positive balance of R$4.972 billion.
The Amazon rainforest is in a trap: the elements that reflect the failure of its unstructured occupation are also the key to solutions for the territory. The largest region in Brazil reveals the worst social indices and the highest rates of violence at the same time as it has a demographic bonus, open land with enormous potential and forest – three fronts of development, well-being and wealth. The paradox of the Amazon is that its large number of young people suffer without economic options, 90% of the deforested areas are unproductive, and the forest is only valuable on the ground. Despite its riches, the Amazon rainforest has serious poverty problems.
The diagnosis of the difficulties is as complex as the size of the area. The Amazon rainforest occupies 60% of the Brazilian territory but has 13% of the population. It accounts for only 8% of the national GDP and emits more than 40% of greenhouse gases. It is a very polluting economy: it emits little carbon and generates little wealth.
Diagnosing, analyzing and searching for ways out of the three overlapping crises in the Brazilian Amazon – the social, the environmental and the Amazonian ones – are the focus of an ambitious project for the region’s economic development. “Amazônia 2030” began two years ago, has already concluded 39 of the 50 studies commissioned and involved 60 researchers from universities in the region, Fundação Getulio Vargas (FGV), business school Insper, and many other institutions in the country. It is being considered as one of the broadest and most profound diagnoses of the Amazon ever made, and is funded by the Institute of Climate and Society (iCS).
A synthesis of the results will be presented this week at an event at Princeton University, in the United States, to an audience of 100 people, 70 of whom are Brazilians. In the audience or on stage will be names such as Tasso Azevedo (MapBiomas), Suely Araújo (Climate Observatory), Armínio Fraga (Gávea), Guilherme Leal (Natura), Márcia Castro (Harvard), João Moreira Salles (Serrapilheira and Moreira Salles institutes), Ilona Szabó (Igarapé), Sérgio Rial (Santander), Candido Bracher (Itaú Unibanco and Mastercard boards of directors), Roberto Waack (Amazon Concertation), and indigenous leaders such as Txai Suruí and Juma Xipaia, among other names connected to the Amazon.
Juliano Assunção — Foto: Divulgação
The project’s mapping of knowledge gaps about the region and proposed solutions also intends to inform the electoral debate. “This is our finishing point: to have a set of concrete proposals for this year’s elections, both presidential and state governmental, drawing attention to the importance of the Amazon,” says economist Juliano Assunção, one of the coordinators of “Amazônia 2030.”
“Everything that is thought about Brazil is different in the Amazon. It is as if there were two countries, with very different social, environmental and economic realities”, says agricultural engineer Adalberto Veríssimo, an associate researcher and co-founder of Imazon, one of the main research and strategic action centers in the Amazon, and another coordinator of the project.
“The Amazon experiences a demographic bonus. The region has many young people, while the rest of the country is aging. Youth is the way to achieve economic growth, at least the chances are good,” summarizes Mr. Veríssimo. The fact is that the dynamism of the labor market is much more precarious in the North region. “Young people find the work environment difficult, with low quality and many people working informally. There is a huge discouragement,” he says.
The historic deforestation of the Amazon has not resulted in jobs and opportunities for young people. In the nine states of the Legal Amazon region, people aged between 18 and 24 find it much more difficult to enter the job market than in the rest of the country. In this age group, 42% of young people are unemployed in the Amazon, compared to 29% in the rest of Brazil.
“Among young people, in the Amazon, there is discouragement,” Gustavo Gonzaga, a professor at the Pontifical Catholic University of Rio de Janeiro (PUC-Rio), a labor economics specialist and author of the study, told Valor at the time of its release. “There is a concept, in labor economics, which is called the scarring effect,” said the specialist. These are people who start their careers, fail to engage in the labor market, and become discouraged. “This discouragement causes them to get involved in drug trafficking, in crime, and has health implications, cases of depression.”
“If the demographic bonus has its positive side, we have not managed to take advantage of it. The Amazon is the most violent region in Brazil,” says Mr. Assunção, who is also an associate professor at PUC-Rio and director in Brazil of the think-tank Climate Policy Initiative (CPI).
Adalberto Veríssimo — Foto: Divulgação
“An important and evident agenda for the development of the region is that of young people. It is necessary to take advantage of this demographic bonus that today has become a kind of burden,” says Mr. Veríssimo.
Violence in the region, which had relatively low rates until the early 2000s, began to grow and exploded with the illicit environment of land grabbing, illegal extraction of gold and wood, and drug trafficking. The immense territory and the little presence of the state helped to spread conflicts.
The homicide rate in the Amazon in 1999 was about 70% of the rate in the rest of the country. Today it is 60% higher than in the rest of Brazil. Data from the study by economist Rodrigo Soares shows that the difference in homicide rates between the Amazon and the rest of Brazil was 12,610 more homicides in the region between 1999 and 2019, in municipalities with less than 100,000 inhabitants. “This upward trajectory of violence in the Amazon does not reveal any possibility of cooling at this time,” Mr. Assunção acknowledges.
The amount of open and unproductive land is another bottleneck for development in the Amazon. Of the 83 million hectares already deforested in the region, around 70 million hectares are underused or totally abandoned. “Only 10% have good productivity. There is a lot to recover,” says Mr. Veríssimo, who calculates this amount of land at something equivalent to the combined area of the States of Minas Gerais and Paraná. “It is a fallacy to say that it is necessary to open up forest areas to produce food. What is needed is to recover what has been lost,” he summarizes.
In the areas of lost forests there is room for forestry, pulp and paper industry projects, native forest and agroforestry planting, room to improve livestock and grain production, area for oil palm plantations. “And there’s still some area left. This means growing without deforesting,” says Mr. Veríssimo.
He recognizes that the land environment is a knot that needs to be undone and says that Congress cannot complicate the picture any further. “The right to property is important in the legal ordering of the territory,” he continues. In the Amazon, two thirds of the land are in the hands of the federal and state governments, and one third belongs to private parties.
In the Amazon, 30% of the lands are undesignated areas. They are public lands, not all of which are covered by forest anymore, already with deforested areas. “The undefinition is a good opportunity for the advance that takes place over the territories. Therefore, the role of the Brazilian government, especially the federal government, is important,” he continues. “The private sector has no way to solve that,” Mr. Veríssimo says.
“When governments or the Congress ease rules so that recent occupants who have deforested can have title to the land, there is a huge incentive for more encroachment on forests. What is worsening is the right to property instead of encouraging good land use,” summarizes Mr. Veríssimo.
There is a third fundamental element in the mosaic of development options for the Amazon – the millions of hectares covered with forest. “The problem is that we still haven’t learned how to make money with the forest, which is not an economic vacuum. We haven’t realized its potential because we haven’t seen the forest as a strategic resource that puts Brazil in the economic vanguard,” he continues. “We have done a lot of things wrong in the past and now our task is to make very good use of these areas.”
In the Amazon the population is small for the size of the region. “The development strategy for the Amazon has to be a coherent and consistent state policy. It is a non-transferable task of the state that has to create a lawful environment and organize the territory,” says Mr. Veríssimo. “We don’t have 30 or 50 years to have a clear vision of how to develop the region. We won’t be able to conserve the forest if the region continues to be poor and contaminated by illegality,” he continues.
“Amazônia 2030” does not bring immediate solutions but outlines several paths to develop the region. Illegality discourages investment in the Amazon. Developing an agroforestry economy is a huge opportunity, the researchers recommend, and reduces the pressure on the forest. Another study points to the need for infrastructure in the region. “The Amazon needs infrastructure, but one that does not increase deforestation,” says Mr. Assunção.
Another agenda to be stimulated is the digital-based economy. The region is far behind in broadband telephony. “Putting quality broadband in place would allow young people, who are disconnected from the local job market, to be, for example, programmers. They could seek another economic space unrelated to his physical surroundings,” suggests Mr. Veríssimo.
Improving the digital environment in the region would also help provide better healthcare to remote populations with teleconsultation systems. The same could happen with education.
“What needs to be understood is that deforestation is not a factor for economic growth in the Amazon, and hasn’t been for a long time,” says Mr. Veríssimo.
Together with Mr. Assunção, he will present on Thursday a summary of the project’s studies in Princeton. The event, which will take place at Princeton’s campus in New Jersey, is organized by the Brazil Lab at Princeton University. On Thursday the event is open, with broadcasting on the Brazil LAB YouTube channel.
The strategy by the Brazilian Central Bank that prioritizes keeping the Selic at a level around 13% for longer instead of raising the benchmark interest rate to even tighter levels is valid. Thomas Wu, the chief economist at Itaú Asset, believes that it is preferable that monetary policy “be a marathon, not a 100-meter dash,” considering the current interest rate.
In line with the market, Mr. Wu projects a hike of 100 basis points in the Selic rate in Wednesday’s Monetary Policy Committee (Copom) announcement, and another one of 50 basis points in June, taking the rate to 13.25% at the end of the cycle. “Maybe it can go up in August, but 50 basis points more will not change the entire strategy. The Central Bank is very close to stopping,” said the economist, who has already worked at Verde Asset and was a professor at the University of California, Santa Cruz.
In an interview with Valor, his first since he joined Itaú Asset in January, Mr. Wu points out that raising interest rates to a much more restrictive level may not be advantageous to bring inflation to the target in 2023 if this hinders the more general notion of well-being that it ultimately should represent. “What it [the Central Bank] needs to make very clear is that it will only cut interest rates when inflation starts to fall,” Mr. Wu said, acknowledging that the choice “for consistency” brings challenges. Read the interview below.
Valor:The Central Bank started to indicate in March that it wants to end the cycle of interest rate hikes. How do you see this strategy?
Thomas Wu: Any problem has three variables: its size, the dose of the medicine and the duration of the treatment. The interest rate is already restrictive, our neutral rate is not at double-digit levels, although the way we estimate the neutral real interest rate is somewhat vague. If we look at the 360-day nominal interest rate and subtract the 12-month inflation expectation showed by the Central Bank’s Focus bulletin and the neutral rate estimated by the monetary authority, we have tightening similar to that of 2015 and 2016. How big is the problem? Each month we find that the gap between inflation and the target is wider. The Central Bank, then, could set a fixed relevant horizon and, if it finds that the problem is bigger, increase the dose of the medicine and go to [a Selic of] 14%, 15%, 16%. Or, as a central bank, it also has the right to do something else. If it suspects that the dose of the medicine is starting to cause more side effects, it can think that it has already reached the size and extend the horizon. It will get there, but will take longer.
Valor:Is the Central Bank close, then, to ending the cycle?
Mr. Wu: As a strategy, the Central Bank is very close to ending. He may give 100 basis points next time and maybe 50 basis points in June. Maybe it can go up in August, but 50 basis points more will not change the entire strategy. In the estimation of models, the interest rate is already in the contractionary territory. It must make very clear that it will only cut interest rates when inflation starts to fall. It is a strategy for consistency, which does not raise the dose of medicine up high. Roughly speaking, I think it is valid, although it has its challenges. It is not easy.
Valor:What are these challenges?
Mr. Wu: To stop raising interest rates while underlying inflation is still on the rise. The statement has to be very well done and has to say that it is stopping [raising the Selic], but not because it is abandoning it. The risk of this strategy is that some people interpret that the Central Bank is not doing what it needs to do and that expectations become even more unanchored.
Valor:Inflation expectations for 2023 are already quite far away from the center of the target…
Mr. Wu: We are working with inflation above the target next year. We have 8.1% this year and 4.6% in 2023. Does this mean that we think the Central Bank will not do its job? Not at all. Inflation is a global problem. Inflation is high and accelerating around the world, and Brazil is one of the few countries where interest rates are in the contractionary territory. I don’t project inflation at the target next year because I don’t think it is necessary to put the interest rate at such a level that convergence happens in 2023. In my estimates, the rate needed for that would do more harm than good. You would anchor inflation, you would bring it to the target, but the target, in a general context, indicates more sustainable long-term growth. If you take this literally and raise interest rates to bring inflation to the target next year, maybe this more general concept of sustainable growth starts to lag further behind.
Valor:When would this convergence occur?
Mr. Wu: We have had several shocks around the world. Interest rates tackle the secondary effects. I think we are going to live for a long period with high inflation and above the target. It will take a long time for interest rates to drop. We are discussing some convergence in 2024. It is a matter of preference. Some economists will say that, unfortunately, for reasons of anchoring and credibility, there is no other way out than to take interest rates to 15%, 20%… This is also valid. I prefer it to be a marathon, not a 100-meter dash. It’s about persevering with an already contractionary dose of medicine, resisting all the pressures to cut and only start reducing interest rates when it is clear that the problem has been addressed. Starting an easing cycle at the end of next year is risky. The market has already priced it in at the turn of the year. I think it is a quite optimistic assumption, especially because we don’t know yet how big is the problem.
Valor:Major central banks around the world are also beginning to tighten their monetary policies. Doesn’t this help to contain some of this global inflation?
Mr. Wu: All central banks except Japan are saying that they are going to start doing some kind of monetary tightening, each one at a different timing of its cycle. Is a recession coming? I think it will come in the same way that we are sure that winter will come. It doesn’t mean that I am super pessimistic. But you can’t fight inflation without holding back aggregate demand. At the moment, the biggest problem is that inflation is still accelerating. A great part of it has to do with a very strong demand in the United States.
Valor:What is the asset manager’s projection for U.S. interest rates?
Mr. Wu: This terminal rate around 3% that appeared in the last FOMC meeting seems low to me. For a terminal rate to be in the contractionary territory in the U.S., the risk is for it to be above 4%.
Valor:And here in Brazil, do you see evidence of demand inflation?
Mr. Wu: We have a very high diffusion. The number of products at a high inflation rate is large, it goes beyond food. When you see something like that, you imagine it has a common demand component. Interest rates are at a contractionary level, consumer default rates are rising, but consumer spending is strong and I think it will take time to disinflate. As for the labor market, it is not wonderful, but it is resilient, it is not weakening.
Valor:Isn’t the interest rate tightening having any effect?
Mr. Wu: Like the whole market, we have been surprised by the strength of consumer spending. The question we asked ourselves was: Isn’t the interest rate in the contractionary territory? Or is the effect more delayed than usual? We concluded that it [the higher interest rate] will take longer to impact [the activity]. Corporate results are healthier. At the opposite end, individuals enter this cycle more leveraged – for a good reason, as more people have access to credit. On the other hand, we are experiencing a good moment in terms of how people feel about the pandemic, and there is pent-up demand when people are concerned. The authorization to withdraw money from Workers’ Severance Fund (FGTS) accounts and the anticipation of the 13th salary [a year-end bonus] also help the balance of households. This is why I have the perception that the Central Bank’s strategy to disinflate the economy has to be done with persistence. It will require patience, perseverance, discipline. But we also have to be humble; the moment is one of great uncertainty.
Valor:Is it the effect of this monetary policy ahead that justifies Itaú Asset’s projection for the GDP to go to 0.2% in 2023 from 0.8% in 2022?
Mr. Wu: Yes, with great uncertainty around, but we think that these effects will be greater in 2023. It is going to be a difficult year, because we are already going to feel the tightening of interest rates more strongly in activity, but I don’t know if underlying inflation is already giving clear signs that it is heading towards the target. We have 9.25% [of the Selic for 2023], but with an upward bias.
Valor:The exchange rate has become quite volatile again in the last few days. With which perspective do you work?
Mr. Wu: Looking at the Central Bank’s strategy of a tightening cycle that started in March of last year, to anchor inflation around 2024, the importance of the exchange rate in the model is not necessarily to find out the date of the Copom cut and see how much it gave. The Fed [U.S. Federal Reserve] started to become more hawkish about raising interest rates as of November [2021] and, in general, when a central bank as important as the American one becomes more aggressive, assets that are considered riskier lose value. The exchange rate suffers, but this is not what happened until very recently. It was a surprise, but now we can understand that one of the most relevant changes this year, after all these cyclical issues have passed, is that the world changed structurally at the beginning of 2022 with the conflict [in Ukraine]. Apart from the whole tragic issue, we focus on understanding what really changes with the end of the war and we realize that the relevance of Brazil and Brazilian assets in the world portfolios has increased. Structurally, I think Brazil will see more inflows over the next few years on average. Of course, there is a lot going on right now, like the lockdown in China, the Fed raising interest rates, the conflict. Looking at the end of this year, we had, until last week, more confidence that it would be a trajectory of appreciation [of the real against the dollar]. Now we are discussing four 50-basis point hikes, it is starting to get a little more tense, so there is a risk that this year will be bad, in a structural context in which the importance of Brazil has increased.
Less than 25% of the economic analysts consulted for the Focus survey of market expectations believe that the Central Bank’s Monetary Policy Committee (Copom) will end the monetary tightening cycle this week.
This is what the map of the distribution of market expectations, released by the monetary authority, shows. Less than 25% of economic analysts believe that the Selic, Brazil’s benchmark interest rate, will end the year between 12% and 13% per year.
The Copom will release its monetary policy decision on Wednesday and it is expected to raise the Selic to 12.75% per year from 11.75%, as widely signaled by the policymakers.
The question mark is whether the Copom will continue to raise interest rates in the coming meetings. In March, Central Bank President Roberto Campos Neto said that it would most likely stop at 12.75% per year. But negative surprises in the inflation indexes released since then have made analysts reinforce bets on a deeper tightening.
The map of the distributions of expectations shows that more than 70% of analysts see the Selic between 13% and 14% per year. The median expectation stands at 13.25% per year.
Besides the higher interest rate peak, analysts see a longer monetary tightening cycle. The median interest rate forecast for the end of 2023 rose to 9.25% per year from 9% last week.
The map of the distribution of expectations shows that about 50% of analysts expect an interest rate at the end of 2023 higher than 7.75% per year, with bets up to 9.25% per year. There is a large group, of about 45% of the analysts, who believe that the Selic will exceed 9.25% per year by the end of 2023, with bets as high as 10.75% per year. Around 5% of analysts think that the interest rate will exceed 10.75% per year.
The revision of bets on the size and duration of the monetary tightening cycle is linked to the faster current inflation and higher market expectations for the price index.
Last week, the median of the analysts’ projections for Brazil’s official inflation index IPCA in 2023 rose to 4.1% from 4%. Thus, it is getting further and further away from the target for the year, of 3.25%, which is today the central target of monetary policy decisions.
Only something like 5% of analysts project inflation around the 2023 target, ranging between 2.88% and 3.48%. In March, the Central Bank projected that inflation would reach the 3.25% target, but these calculations are increasingly questioned by private-sector analysts.
Some 45% of analysts project inflation between 3.48% and 4.08%. In addition, 45% of analysts forecast inflation between 4.08% and 4.68%.
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