Math does not add up, former Central Bank president said


Arminio Fraga — Foto: Edilson Rodrigues/Agência Senado

Arminio Fraga — Foto: Edilson Rodrigues/Agência Senado

Arminio Fraga, a former president of the Central Bank and founding partner of Gávea Investimentos, criticized the government’s new fiscal plan in a Senate session, saying that “the arithmetic simply does not add up.” The session was attended by Finance Minister Fernando Haddad, who led the proposal, Planning Minister Simone Tebet, and Central Bank President Roberto Campos Neto.

“The arithmetic doesn’t add up, people. Unfortunately, it is not enough to reduce the primary deficit to zero, because doing so means that we will borrow money to pay the direct interest, and this is the interest that we know. So, it is key to move towards a higher primary balance. The arithmetic simply does not add up. Other details can and should be discussed, but this is the most important one,” Mr. Fraga said.

One of the government’s goals with the new fiscal plan is to bring the primary deficit to zero next year. “The second point about the fiscal rule that I want to comment on quickly is the emphasis on the revenue side. That’s fine, but how far does it go? I think society has already felt that it’s not going to go much further and that there’s a lack of space. In reality, I see those spaces,” he said.

Mr. Fraga also pointed out the risk of “ending up in a big fiasco” in the economy. “If last year was the year of democracy, I think this is the year of the economy. And I say this because, in my assessment, the way things are going, not only in the macroeconomy but also in the microeconomy, we may see a big fiasco,” he said.

Despite the criticism, he praised the actions of the government’s economic team. “I am pleased with what is happening today because here are the ministers of the economic and fiscal areas who have done a courageous job, even contradicting strong political opinions, even some pushback against fiscal responsibility. I congratulate them for their courage, which will be rewarded,” he said.

*Por Larissa Garcia — Brasília

Source: Valor International
Participants will have one year to discuss adequate tariff policy


The new payment feature through WhatsApp, which allows transactions between customers and shop owners through the app, will have a grace period for acquirers. The contract between the companies stipulates that for one year there will be no fees for acquirers, meaning they will not have to share any of the revenue with the platform. The acquirers are free to set the final price charged to shop owners.

According to the Central Bank (BC), the contract between Meta (WhatsApp owner) and the acquirers was validated by the credit card companies and defined that, for one year, the participants will evaluate the appropriate tariff policy to be implemented in the program and its structure. “This structure may require a change in the regulation of the Visa and Mastercard payment scheme. In this situation, it will be up to the Central Bank to approve the change in the regulation of the arrangement following current regulations,” the regulator said in a note sent to Valor.

Meta, in turn, said only that according to market practices, “may offer exemptions that support the launch and adoption of new products, as is the case with WhatsApp payments for small businesses.”

The pricing issue has been a major point of debate between WhatsApp and acquirers in the process of building the payment feature for purchases on the platform. The option was launched earlier this month after a long discussion process with the Central Bank and payment industry companies. The implementation will be done in phases, starting with three operational acquirers: Cielo, Rede, and Mercado Pago.

For each card transaction, the acquiring companies charge the shop owner the so-called MDR, which is the discount rate used to compensate the several parts of the chain. It is composed of several elements, such as the interchange fee, which is set by the brands and is intended to compensate the issuers. Thus, the more partners involved in a transaction, the more expensive it tends to be for the shop owner. If the value is the same, it will be necessary to share the revenue among more people. In practice, the rate charged by WhatsApp would be another component of the price charged to the shop owner.

Valor asked the companies about the rates for shop owners in this first year, considering that there will be the exemption of WhatsApp for acquirers.

In a statement, Rede said that online transactions usually have a slightly higher cost than those carried out in person, due to the need for greater technological investment in features to ensure the best experience and security. “Thus, and reaffirming its commitment to better serve customers and maintain competitiveness, the brand has structured a cost for payments on WhatsApp very close to other solutions of the brand already known by shopkeepers’ customers who want to sell online,” says the company.

In an interview with Valor on the day of the launch of the WhatsApp feature, Angelo Russomanno, head of Rede, drew a parallel between payments through WhatsApp and payment links. “In the links, we also have other partners aggregated in the solution set and we arrive at an interesting price for everyone.”

Mercado Pago said in a statement that the rates charged will be the same as those practiced for sellers of online stores or using payment links, checkout, or Point card machines. “The fees charged by Mercado Pago start at 0.99% per transaction, depending on the payment method: Pix [the Central Bank’s instant-payment system], debit or credit card, bank account balance or online debit.”

Cielo declined to comment. At the time of the solution’s launch, the acquirer’s CEO, Estanislau Bassols, told Valor that MDR always takes the cost base into account and that the company is launching an “extremely competitive” solution. To encourage the use of the product, Cielo also said that it will offer discounts of around 50% for retailers in the first few months.

The new WhatsApp feature was launched with three credit card partners, but the company itself has already announced that it is testing with others, such as Getnet and Fiserv. Stone is also in talks with Meta, according to Valor, and is in the process of signing a deal.

Getnet’s chief business officer Mayra Borges says the acquirer has already signed the contract and is completing testing with real customers. “To get the solution on the air, we have rigorous security and quality processes for the new tool. There are several stages of testing and approval, both from our side, at the Brazilian level, and from PagoNxt, at the international level.”

In a note, Fiserv did not give a membership forecast either, but reported that the company’s solution is “in the testing phase and final and contractual validations with Meta for the launch to be announced in the future.”

Sought, Visa, and Mastercard declined to comment.

*Por Mariana Ribeiro — São Paulo

Source: Valor International
Uncertainty over fiscal situation, regulated prices keep prices index under pressure


Felipe Kotinda — Foto: Silvia Zamboni/Valor

Felipe Kotinda — Foto: Silvia Zamboni/Valor

The boost from agriculture is expected to make an important contribution to the growth of activity in Brazil this year, especially in first-quarter GDP, without generating inflationary pressures, on the contrary, economists say. Nevertheless, while the projections for the country’s activity and agribusiness GDP in 2023 are rising, the forecasts for the country’s official inflation index IPCA are also moving forward, mainly because of the uncertainties surrounding the government’s need for recovering revenues to make ends meet.

The median forecast of the Focus bulletin – a Central Bank’s survey of market expectations – for GDP growth in 2023 is close to 1%, with agriculture growing by almost 7%. Last year, the Brazilian GDP grew 2.9% despite a 1.7% decline in agribusiness, due to the loss of important crops amid weather problems and rising production costs, especially with restrictions in the fertilizer market due to Russia’s war with Ukraine.

“Yes, this favorable agribusiness scenario is disinflationary. This is what we are already seeing: there is a good production in the GDP scenario, especially in the first quarter, and this ends up helping inflation,” said Felipe Kotinda, an economist at Santander.

In the bank’s current scenario, GDP rises to 0.8%, with a 7.6% increase in agriculture. “The fact that Brazil is harvesting a record crop of 155 million tonnes of soybeans, up 20% from last year, helps a lot,” Mr. Kotinda said. “Also, there was a global panic last year that there would be a fertilizer shortage because of geopolitical issues. In dollar terms, fertilizer prices have already fallen. This encourages farmers to increase the production area while lowering inflation,” he added.

Producer price indexes have priced these falls, said Maurício Une, chief economist of Rabobank Brazil. The Extended Producer Price Index (IPA), calculated by the think tank Fundação Getulio Vargas as part of the General Price Index – Market (IGP-M), fell 1.45% in April and 4.5% in 12 months. “We expect IGP-M to be around 4% in 2023. This is a sign of the normalization of global production chains and the more balanced shocks of the pandemic and the war in Ukraine. The dissipation of these shocks contributes to the vision that agriculture can contribute to this general picture of disinflation,” Mr. Une said.

In the wholesale price indexes, soybeans and corn dropped about 20% in 12 months, Mr. Kotinda said. “It’s a significant impact on producer prices. This is propagated and ends up reaching consumers, especially through the protein chain, since soybeans and corn are widely used in animal feed,” he said.

In the 12-month period through April’s forecast, food-at-home prices rose 5.8% in the IPCA, but the prices of meat, for example, fell by 4.1%.

At the same time, Brazilian exports of commodities are likely to reach very high levels this year, mainly because of the strong demand from China. In addition, Argentina, a major global supplier of grains, is in the opposite situation to Brazil: under the influence of the natural phenomenon La Niña, the neighboring country will probably harvest half of last year’s soybeans, according to Mr. Kotinda. “If Argentina doesn’t export, those who buy from them will have to buy more from the United States and Brazil. And Argentina is also a big exporter of meal and oil and can buy grains from Brazil to process in its industry,” the Santander economist said.

Despite the boost to Brazilian agribusiness exports, economists say they do not see risks to domestic supply that could dampen agriculture’s benign contribution to domestic inflation.

“The stronger activity coming from agribusiness is disinflationary because we don’t just see domestic prices falling. That is very important,” said Mirella Hirakawa, an economist at AZ Quest.

“Soybean production is gradually revised upwards and is one of the big factors that can boost the GDP in the first quarter. The disinflationary contribution comes from soybeans, which is one of the items in which Brazil is an international price-maker, but also from others in which the country ends up not having a big contribution, such as wheat, whose prices were heavily affected by the war in Ukraine in 2022, but we have seen some adjustment at the margin,” Ms. Hirakawa said.

Based on the international curves in dollars and “without any strong premise for the exchange rate,” Ms. Hirakawa said she expects the price of soybeans to fall 7% this year on average, while corn may drop 10%, and wheat could decline 21%. “There are several factors occurring simultaneously that end up contributing so that domestic production doesn’t feel pressured by sales and declining supply.”

Mr. Kotinda, with Santander, also notes that “carryover stock” of grains from one year to the next will probably be larger than necessary. “In the end, more will be left over for the domestic market,” he said.

Between the beginning of the year and now, AZ Quest’s expectation for overall GDP in 2023 has gone from slightly negative to 0.5% growth, while the outlook for agricultural GDP has gone to 5% from 2%. “In that period, we have revised down more than 30 basis points of food inflation, with the potential for more if the agro GDP comes closer to the Central Bank’s forecast of 7%,” Ms. Hirakawa said.

Still, AZ Quest’s expectation for the full IPCA rose to 5.9% from 4.8%, while the median rose of Focus increased to 6% from 5.3%. “Why did the market reassessed full inflation to higher parameters? It was all without food. Most of it came from regulated prices, from the return of taxes,” Ms. Hirakawa said, acknowledging that part of the change also came from core measures, which are more related to the resilience of economic activity and consumption.

Santander’s expectations for inflation in 2023 also increased in the latest scenario revision, to 6.1% from 5.9%. The expected exchange rate in December is R$5.4 to the dollar.

“The exchange rate is below this, mainly due to issues more related to the inflow of dollars,” Mr. Kotinda said. For example, with the foreign exchange rate at R$5.4 to the dollar, Santander expects food-at-home inflation to be 2.3%. “If the exchange rate were to stay [closer to the current level], it would be [a downward bias],” Mr. Kotinda said, pondering a scenario that is still very uncertain due to fiscal issues.

According to Mr. Hirakawa, the unveiling of the new fiscal plan has removed “tail risks.” “It eliminates some of premium that led to a large deviation of the exchange rate from the ‘fair’ price, the one that is closer to what the parameters would indicate. We have not changed our forecast for the exchange rate at R$5.2 to the dollar. The doubt was whether there would be a devaluation to even higher levels, but it seems that this risk has diminished. A slightly stronger exchange rate has a downward bias on inflation, which does not consider an exchange rate of R$5 to the dollar,” the economist said.

The stronger real could even help inflation in the short term, said Mr. Une, with Rabobank. “But we still have the perspective that the exchange rate could stay closer to R$5.3 throughout the second half, which will be more challenging,” he said.

A risk in passing on the better wholesale prices to retail, Mr. Kotinda said, is that the increase for producers in recent years has been strong and they may want to take advantage of the current space to recover margins. “In that case, wholesale and retail prices would not slow down in the same proportion,” he said.

*Por Anaïs Fernandes — São Paulo

Source: Valor International
Shareholders elect new board at annual meeting


Jean Paul Prates — Foto: Dado Galdieri/Bloomberg

Jean Paul Prates — Foto: Dado Galdieri/Bloomberg

The Petrobras shareholders’ meeting, which on Thursday elected eight of the eleven members of the company’s board of directors, confirmed something that was expected: the election of three names prohibited by the state-owned company’s governance committees. Efrain Cruz, Pietro Mendes, and Sérgio Rezende had their names restricted by the company’s internal bodies because they hold secretarial positions in the Ministry of Mines and Energy (MME), to which Petrobras is subordinate, which could constitute conflicts of interest. However, the contrary recommendations were not enough for the shareholders, gathered in an Ordinary Stockholders’ General Meeting (AGO), to reject the nominations. Of the eight candidates elected, six are linked to the federal government, Petrobras’ owner, and two are from minority investors.

Another critical issue at the AGO was the approval of the full payment of dividends for the fourth quarter of 2022, without the creation of a reserve in the company’s statutes. The decision frees another R$6.5 billion in shareholder remuneration, to be paid on December 27. The creation of this reserve dates back to March 1 this year, when Petrobras announced that the company’s Board of Directors had approved the distribution of R$35.8 billion in dividends, to be paid in two installments: one in May and another in June. The amount proposed for dividends at that time exceeded the formula of the company’s shareholder remuneration policy by exactly R$6.5 billion. The solution found by the Board of Directors was to keep this amount in the reserve. This means that, in practice, a smaller amount, R$29.3 billion, would be paid to shareholders.

Thursday, at the AGM, the shareholders decided on the full payment of R$35.8 billion, but in three installments: May, June, and December. There was a beginning of divergence among the participants about the theme. “We set the date of December 27 so that there would be financial time to operationalize the payment,” said João Gonçalves Gabriel, secretary of the Petrobras AGO.

When the proposal for the capital reserve was presented in March, the reading was that the money would be in cash for possible investments of interest to the new management of Petrobras. However, sources explained that if the federal government, which is the company’s majority shareholder, had opted for the reserve, it would have had to call an Extraordinary General Meeting (EGM) before Thursday’s meeting, which it did not do. At the AGO, the federal government voted to distribute R$6.5 billion in the form of dividends. “If you look at the fiscal side, it will not make sense for the federal government to give up this payment now,” said a source.

Petrobras’ CEO Jean Paul Prates has been critical of the dividend policy and the market expects the state-owned company to reduce the payout. The dividends concerning 2022 is expected to be around R$200 billion.

Board member Marcelo Gasparino, who was present at the meeting, said: “Since the federal government did not request an EGM, the management proposal approved by the board prevailed.” In practice, the federal government will also receive more dividends on hand. The government has been critical of the current dividend policy and has signaled its intention to reduce the amount distributed to shareholders in favor of direct investments. Sources familiar with the issue have assessed that the government missed a window to reduce the volume with the strategic reserve, not so much for the volume of funds, but for the symbolism itself.

In the case of the election of the new board of directors, the signal that the federal government would maintain its commitment to names deemed ineligible by the company’s internal governance bodies was given just before the vote. The federal government’s representative at the meeting withdrew the additional nominations that had been made to replace possible impediments. The substitutes were Renato Galuppo, Anelize Lenzi Ruas, and Evamar José dos Santos.

According to the federal government, the injunction issued by the Supreme Court (STF) suspending parts of the state-owned company’s law (13.303/2016) removed the restriction, allowing Efrain Cruz, Pietro Mendes, and Sérgio Rezende to be elected to the board. Mr. Cruz and Mr. Mendes are the executive secretaries of oil and gas, respectively, of MME, and Rezende is a leader of the Brazilian Socialist Party (PSB), which is prohibited by state-owned company’s law and bylaws.

Vitor Saback, also elected to the board yesterday, had been approved to run by Petrobras’ governance committees. He was the director of the National Water Agency (ANA) when he went through the internal evaluations. Later, however, he was appointed Secretary of Geology, Mining, and Mineral Transformation of MME, which would theoretically put him in the same condition as the other candidates in terms of alleged conflict of interest at Petrobras. At the AGM, one of the shareholder representatives, Daniel Alves Ferreira, said more than once that the election of the banned candidates to the board of directors disregarded the company’s bylaws. “There were flagrant irregularities and ineligibility,” he said.

Another source said: “Of the banned candidates, the most complex case is Pietro Mendes, since he will be on the board of Petrobras and, at the same time, as secretary of oil and gas of MME, he will be in contact with other companies in the sector. Mr. Mendes was elected as chairman of the board of Petrobras for the period 2023-2025.

The corporate governance specialist and independent board member Geraldo Affonso Ferreira also criticized: “With the election of the rejected names, Petrobras’ governance lost the little credibility it had. A very bad example to the capital market, whose agents are painstakingly seeking the evolution of good corporate governance practices in our country. We can only expect a strong reaction from the self-regulators and stewardship from the most vocal investors.”

It was also a surprise that Suzana Kahn, one of the greatest references in environmental issues, renewable energy and energy transition in the country and considered a technical indication, was left off the board. Eugênio Tiago Chagas Cordeiro e Teixeira was also left off the board. This happened because the election for the board was done by the multiple vote system, when the candidates are chosen individually by the shareholders. The multiple vote was requested by investors who supported the candidates Marcelo Gasparino and Juca Abdalla, both elected. By instituting this system, the single-plate voting presented by the controlling shareholder was undone. The federal government had to choose who to vote for, and left Ms. Kahn and Mr. Teixeira by the wayside.

In the end, of the eight seats in dispute, the federal government managed to elect six members — the same number it already had — and the minority shareholders, two seats. There were still three seats that were not in play. One of them is occupied by the employees’ representative, Rosângela Buzanelli, who is now the only woman on Petrobras’ board. The directors elected separately from the controlling shareholder by the common and preferred shares — Francisco Petros and Marcelo Mesquita — also remain as board members and have a term valid until 2024.

In addition, Bruno Moretti and Mr. Prates, current Petrobras CEO and already a board member – whose name was ratified in practice by the EGM – were elected with votes above the minimum threshold (corresponding to 5,216,007,002 shares).

Mr. Saback was the last to be elected and, in the division of votes for the federal government, he came in even with a total below the floor. The meeting also approved an alternative proposal presented by the federal government for management compensation (executive board, boards and committees). Initially, the proposal was for a hike of almost 44% in the salaries of the executive board, but ended up staying at 9%.

*Por Fábio Couto, Juliana Schincariol, Kariny Leal — Rio de Janeiro

Source: Valor International


Six of the eleven justices so far have voted in favor of the taxpayers, forming a majority


The Federal Supreme Court (STF) has formed a majority to establish a 20% ceiling for fines imposed for late payment of taxes. The discussion — which was suspended by a request for examination in the virtual plenary — affects all taxpayers punished by the so-called late payment penalty.

The discussion is relevant because, according to its rapporteur, Justice Dias Toffoli, there has already been one case in which a 150% fine was imposed. According to the Brazilian Association of Tax Lawyers (Abat), which is acting as an interested party (amicus curiae) in the case, at least 12 states impose late payment penalties of more than 20% on taxes and fees not paid on due time.

The discussion reached the Supreme Court based on an appeal by ArcelorMittal Brasil. The company was penalized by the municipality of Contagem, in Minas Gerais, and ordered to pay a fine of 30% of the services tax ISS allegedly due and not collected on time.

For the time being, five justices agreed with the vote of the rapporteur. They were Rosa Weber, Cármen Lúcia, Edson Fachin, Luiz Fux and Luís Roberto Barroso. Five votes have not been delivered yet.

In the same ruling, the justices also analyze a conflict between states and municipalities over whether sales tax ICMS or ISS can be levied on contract manufacturing operations when such operations are at an intermediate stage in the production cycle of goods.

In his vote, Mr. Toffoli, in addition to preventing fines of more than 20%, believes that ICMS can be levied on contract manufacturing operations when the goods are destined for another stage of industrialization or sale.

Regarding the penalty for late payment, the rapporteur’s vote established a standardization in the absence of a complementary federal law in this regard. Today, according to the justice, there is a scenario of “enormous discrepancy of treatment” of the late payment fine by the several states.

“There have already been cases in which incredible fines of 150% or 100% have been imposed. In other cases, we have seen similar fines of 60%, 50%, 40%, and 30%,” he said, justifying the need for uniformity.

According to the justice’s proposal, the temporal variations for the imposition of the fine — per day or month of delay — can also be left to each law.

The 20% limit, says Mr. Toffoli, is in line with the ruling of the STF, which established in 2011 that late payment penalties of 20% of the value of the debt are constitutional and not confiscatory.

“In this case, there is a judgment of certainty that the late payment penalties set at this percentage are reasonable, as they are burdensome enough to punish those who simply fail to pay taxes on time,” he said.

“The STF panels had signaled positively about the 20% ceiling for the imposition of the penalty, but now, with the rapporteur’s vote, it is clear,” said Nina Pancak, an attorney who represents Abat.

In this case, ArcelorMittal Brasil argues that it would be correct to collect ICMS on contract industrialization operations. According to the current score, the STF is moving towards granting the taxpayer’s request.

The justices who have already voted understand that the ICMS — and not the ISS — can be levied when the goods are destined for industrialization or commercialization.

In these cases, the ISS levy referred to in subitem 14.05 of the list annexed to Supplementary Law No. 116 of 2003 would be unconstitutional. This item provides for taxation by the ISS on, for example, restoration, reconditioning, packaging, painting, cutting, and polishing.

The rapporteur proposed that the acknowledgment of the ICMS levy should take effect from the date of publication of the minutes of the judgment on the merits. He justified the adaptation of the effects of the ruling by the risk that more than 5,500 municipalities would be required to return the unlawfully collected funds.

Under the proposal, taxpayers who collected the ISS would be prevented from demanding the return of the tax. And the states and the federal government would be prohibited from demanding the ICMS and IPI, respectively, on the same taxable events.

Municipalities, on the other hand, would be prohibited from collecting ISS on triggering events that took place up to the day before the date of publication of the minutes of the judgment on the merits. According to the vote, the lawsuits filed until the day before the same date are excluded from adaptation.

*Por Bárbara Pombo — Brasília

Source: Valor International
Uncertainty over Petrobras’s plans for petrochemical company influenced negotiations


The process of sale of Braskem is slowly moving into another chapter. However, the lack of clarity over Petrobras’s plans for its stake in the petrochemical company seems to be limiting the pace of progress.

Six months after sending Novonor a new proposal and requesting hundreds of pieces of information about the Brazilian company, Apollo has finally asked its board of directors for authorization to proceed with the most complex phase of due diligence, Valor found.

According to sources close to the negotiations, the board of the U.S.-based asset manager is expected to make a decision this week on the request, which was made days ago.

Although it has reiterated its interest in the deal, Apollo has so far limited itself to asking the petrochemical company and Novonor, which is advised by Morgan Stanley, for additional information and documents. “It’s been a due diligence of the company so far,” one source said.

Due diligence of the company’s liabilities will require more significant investments, especially regarding the geological problem in Alagoas, and tends to be more extensive, the source added.

Apollo placed a bid for 100% of Braskem, including Petrobras’s stake. There is still no binding or non-binding purchase offer on the table. “The due diligence to identify liabilities has not started either,” one source said.

The reading is that the U.S.-based asset manager is waiting for a signal from Petrobras on the future of its stake in Braskem to take the next step. With the change in the federal government, the state-owned company suspended the sale of assets with unsigned contracts for 90 days, starting in March, amid the ongoing reassessment of the National Energy Policy and the reformulation of the National Energy Policy Council (CNPE).

About a month ago, Petrobras’s new CEO Jean Paul Prates told Bloomberg News that the state-owned company could sell or increase its stake in Braskem. A few days later, the oil company said that “there has been no decision by the management team or the board of directors regarding the process.”

Novonor controls Braskem with 50.1% of common stock and 38.3% of the total capital. Petrobras has 47% of the common stock and 36.1% of the total.

Mr. Prates has not yet met with Novonor to discuss the Braskem issue, two sources said. Some officials want Petrobras to keep its stake in the petrochemical industry, as other major oil companies have done. In addition, the sale of an asset considered strategic to foreigners is not well seen in Brasília.

According to sources, Novonor intends to sell the petrochemical company this year, partly because the recent rise in interest rates increases its debt. However, it seems increasingly unlikely that there will be enough time to complete the deal within this period.

The creditor banks, which hold Braskem shares as collateral for nearly R$15 billion in debt, would not push for a transaction at any price, the sources added. Late last year, Novonor reached an agreement with the banks that now includes an automatic 30-day extension of the deadline for the sale of the petrochemical company.

In addition to Apollo, two other potential buyers, Unipar and J&F Investimentos, remain interested in Braskem, with acquisition proposals that envisage different formats and could accommodate Petrobras’s interest in some of the petrochemical company’s operations.

Novonor, J&F, and Unipar declined to comment on the matter. Apollo and Petrobras did not reply to requests for comment.

*Por Stella Fontes, Ivo Ribeiro — Lençóis Paulistas, São Paulo

Source: Valor International
Chamber of Deputies got a head start last year by passing a bill with only ten articles


Carlos Viana — Foto: Cristiano Mariz/Agência O Globo

Carlos Viana — Foto: Cristiano Mariz/Agência O Globo

The public debate on the opportunities and risks associated with the use of artificial intelligence (AI) — which has intensified with the rapid popularization of ChatGPT — has triggered a dispute in Congress mainly among senators for the leading role in the formulation of the new Brazilian law that will regulate this market.

The Chamber of Deputies got a head start last year by passing a bill (PL 21/20). The proposal, with only ten articles, defines the general “bases and principles” for the development and use of AI platforms in the country. The bill is making its way to the Senate, where it joins at least three other projects, still undefined as to which will be the path of discussion and approval.

The senators also received in December a report of more than 900 pages, prepared by a Senate committee of jurists, created by President Rodrigo Pacheco. For eight months, specialists led by Ricardo Cueva, Justice of the Superior Court of Justice (STJ), held an international seminar and 12 panels to deepen the analysis, using the legislation of other countries as a reference. The report includes a more comprehensive bill with 45 articles.

Mr. Pacheco even suggested that starting this year, the new phase of analysis of the legal framework, with interaction with academia and market representatives, will be led by Senator Eduardo Gomes. He is the rapporteur of one of the current bills, PL 5.051/19.

The strategy of the President of the Senate conflicts with the initiative of the new President of the Commission for Science and Technology (CCT), Senator Carlos Viana. He has decided to conduct the discussion through another bill, PL 5.691/19. The senator plans to pass the new AI legislation after a quick debate in three public hearings in the commission.

Despite the deadlock, the senators have not yet entered into public conflict. Each is pursuing his or her agenda on the issue, both inside and outside the Senate.

Last month, Mr. Gomes proposed to the CCT the creation of a temporary subcommittee to “discuss the regulation of artificial intelligence in Brazil” within 180 days. The idea was to produce a final text in six months, after debating the legal framework bills making their way into the Chamber and the lawyers’ report. The request, submitted last month, was never read and was ignored by the CCT.

Mr. Gomes made himself the Senate’s spokesperson on AI issues a few years ago when he was the rapporteur of one of the bills. With the creation of the legal commission by Mr. Pacheco at the beginning of 2022, the senator had to wait for the completion of the analyses at the end of that year to resume the debate with the sector and try to move forward with the milestone.

Despite the resistance of the Commission, the senator continues to represent the Senate in seminars that are held almost weekly on AI. Last 17th, for example, he participated in an event promoted by the Federal Judicial Council (CJF) and the STJ, and on Monday he attended an event at the University of São Paulo, in partnership with NIC.Br.

To Valor, the president of the CCT stressed that Mr. Gomes has done an “excellent job,” but considers that, from now on, the task must be shared. He refers in particular to the senators who took office this year, including former minister Marcos Pontes, the astronaut.

“He [Pontes] was Minister of Science and Technology and has an important contribution to make. The issue is too big for us to leave it to just one senator,” said Mr. Viana.

The government is following the AI debate in Congress from afar. The Ministry of Science, Technology, and Innovation (MCTI) told Valor that it is “working on the construction of a new legal framework” for AI but will only provide input requested by lawmakers. The ministry pointed out that it does not want to interfere with the competence of the legislature to lead this discussion.

The author of PL 21/20, passed in September in the Chamber of Deputies, deputy Eduardo Bismarck, defends that the Senate maintains its proposal to build a law with general principles. For him, this would free Congress from the trap of opening an “endless discussion” on the subject, without also “plastering” the environment of innovation and development of AI systems with “very specific” rules. If the bill is amended in the Senate, it will have to be analyzed again by the Chamber.

*Por Rafael Bitencourt — Brasília

Source: Valor International
Selic at current level is not sustainable, Tarciana Medeiros told Valor in an exclusive interview


Tarciana Medeiros — Foto:  Wenderson Araujo/Valor

Tarciana Medeiros — Foto: Wenderson Araujo/Valor

The first woman to lead Banco do Brasil (BB) in its 214-year history, CEO Tarciana Medeiros, 44, agrees with the government’s appeals and believes that the conditions are already in place for the Central Bank to begin lowering the key interest rate Selic, which currently stands at 13.75% per year. “The interest rates cannot remain at the current level for a long time,” she told Valor in her first interview with a news outlet since she took over the state-run bank – exactly 100 days completed this Wednesday. “A very high interest rate inhibits economic activity and slows down the economy.”

The presentation of the fiscal plan, she said, will help with the “sustainable reduction” of the interest rate. “Society and companies have always sought to adapt to the level of the key rate, but this is an effort that has a limit and a maturation time.”

Appointed by President Luiz Inácio Lula da Silva, Ms. Medeiros has worked for Banco do Brasil in the past 23 years. She highlighted her administration’s strategy of supporting micro and small businesses (MPEs) in particular, stressing that there will be no credit slowdown by BB at a time of concern from the government and the market. She said that in the first 100 days of this year, the bank grew 34% in credit granting to the segment (including working capital, receivables, and investments). In the entire corporate portfolio, including the wholesale sector (medium and large companies), the growth was 14%, with R$48.9 billion released.

“I’m not worried at the moment,” she replied when asked if there was a credit crisis in the country. Nevertheless, she said the bank launched in advance specific strategies for debt renegotiation – an increase of 40% compared to last year (equivalent to R$2.5 billion). She also said that there are no upsets in default rates, even for MPEs and individuals, areas of great concern for the government.

In line with private banks, Ms. Medeiros agrees that it is necessary to make a study of the credit card sector before imposing an interest rate cap on revolving credit, a desire of Finance Minister Fernando Haddad. “There are deeper discussions that need to be made before setting a cap or not,” said the executive.

Read below the main excerpts from the interview:

Valor: You are the first woman to head BB and you completed 100 days as CEO last Wednesday. What have you done so far?

Tarciana Medeiros: I am making sure to work as a conglomerate, with all the companies. The first objectives have already been achieved and I would like to mention the creation of a strategic, formal, and institutional diversity committee. We have a credit committee, and now we have a diversity committee with the same level of importance. There has also been the inclusion of more women in management positions.

Valor: And in terms of results?

Ms. Medeiros: There have been developments. One example is family agriculture. In the first 100 days, we had a 36% growth compared to 2022, with R$4.4 billion released. This is a reason to celebrate. We had a difficult period with family agriculture credit, in the National Program to Strengthen Family Farming (Pronaf), and the employees bought into the strategy of reconciling commercial and social actions. We are strongly involved in the production chain, from the small producer to the financing of the exporting industry. And we have grown without neglecting any important business in agribusiness: in the first 100 days, we released R$35 billion in agribusiness, which means a 34% growth compared to the same quarter last year.

Valor: Can you give an example of how it is possible to reconcile the social and the commercial fields? Some people say there is a dichotomy.

Ms. Medeiros: We have completed 2,340 units of the My Home My Life housing program (MCMV) in these first months. It is a government program and BB is one operators. When we deliver these units, we finance, for example, micro and small businesses in the region and the public transportation infrastructure of the municipalities. In addition, we have acquired 2,340 new clients for the bank. Yes, it is possible to work on both sides of the economy: taking care of the social and the commercial fronts.

Valor: How has BB worked given the current credit scenario in Brazil, one of the main concerns of the economic team, especially for micro and small companies?

Ms. Medeiros: It is a segment that suffered in the first 100 days, and there was an expectation that BB would stop its business, but on the contrary. We grew 34% in the volume of disbursements. And I have made it a point in every business that we do to look at women in this context. Regarding MPEs, R$8.3 billion went to companies managed by women, 36% more than in the first quarter of 2022.

Valor: Is there a credit crisis in Brazil?

Ms. Medeiros: As far as the bank is concerned, a very targeted capital and default management must be taken into account. I want to make it a mantra to deliver a bank for every client, and I have talked about the price per client. There is a floor and a price limit for each credit line in which we can operate. BB is going through a moment where we are reaping the results. We do not have difficulties doing business, we are focused on the strategy of customizing credit granting and indicate other products for clients. As a result of this more targeted approach, we have been able to increase our loan portfolio in the last 100 days.

Valor: But does this targeted situation mean that the bank will be more rigorous in its lending?

Ms. Medeiros: Not necessarily. It means that customers will pay the price of the credit that is related to his behavior, with the best product.

Valor: How so?

Ms. Medeiros: A micro business may be looking for working capital, but what it needs is an investment. We will guide them properly because the purpose of an investment fund is quite different from the working capital.

Valor: So, there is no concern about the credit scenario?

Ms. Medeiros: I am not worried at the moment. We are going ahead with the planning we have set for 2023. The results curve may shift from one quarter to another, but nothing that will jeopardize the plan.

Valor: Although BB is more controlled than other banks, it also had an elevated level of defaults in the last quarter. What is your scenario for the year?

Ms. Medeiros: We expect to maintain default rates at an acceptable level.

Valor: But is the bank working with an increase in these rates, even if at the margin?

Ms. Medeiros: I do not have any information on the closing of the results, but in all the follow-ups we have done, there has not been an increase that deserves special attention.

Valor: Not even for small companies and individuals?

Ms. Medeiros: No.

Valor: So, there will be no suspension or deceleration on credit?

Ms. Medeiros: It is not the scenario of BB.

Valor: The government is developing the so-called Desenrola program [a debt negotiation program], which intends to reach up to 70 million people in default. Isn’t that a scenario that worries the bank?

Ms. Medeiros: Until the Desenrola is launched, in line with responsible management, we have not stopped renegotiating the debts of individuals and micro businesses. There was a 40% increase compared to the same period last year. We need this customer healthy, so he can continue to be inserted in the economy.

Valor: President Lula has talked a lot about targeted credit. Is BB studying specific lines of credit?

Ms. Medeiros: We are looking at microcredit in the context of Pronaf. As for microcredit for individual micro businesses (MEI), we are talking with the government. Banco do Nordeste, for example, has great expertise and the government wants to export to other players, including BB.

Valor: You are taking over BB after management that is considered historic, with record profits. The guidance for this year indicates that the strategy is to maintain and even increase this profitability. Will this be possible in the current scenario?

Ms. Medeiros: BB will give the result of the size of the bank. The strategy and guidance are given. We are working to achieve what we have already announced to the market. For the next years, the trend is to maintain the results.

Valor: But there is an assessment within the government’s budget team and among experts that state-owned companies could lose profitability and, consequently, pay fewer dividends to the federal government.

Ms. Medeiros: The bank will remain profitable for the shareholders, including the majority shareholder (the Brazilian government). When we look at our dividend policy, there is even a discussion about whether BB could pay and increase dividends. Our strategy is linked to management responsibility. Within the group companies, there may even be a review of the dividend policy, but at the moment this is not yet the case for BB.

Valor: What should be the role of a bank like BB, a semipublic bank?

Ms. Medeiros: It must compete. We are a bank, a semipublic bank. But when we talk about competition, it is not about beating the other one on price. There is an idea of giving more results, but sometimes it is to be more sustainable in the financial system. If a customer comes to BB and is also a client of Itaú or Santander, he keeps his business but also does business here. The bank’s mission is to compete with the others, and a bank of our size helps to bring balance to this economic system. What the customer expects from BB has changed. It is important to have a government player that competes at the same level as we do.

Valor: What does the customer expect from BB today?

Ms. Medeiros: A bank that is present all over the country: physically or digitally. The customer and the market expect BB to be strong in agribusiness and the society expects a focus on family farming, also providing financial inclusion of micro and small businesses, in addition to credit for entrepreneurship.

Valor: Do you agree that Brazil’s key interest rate is high, as the government and President Lula say?

Ms. Medeiros: Not only in Brazil, but in any market economy, an extremely high interest rate curbs economic activity and slows down the economy. This is not an opinion, it is a fact. Society and companies have always tried to adapt to the level of the key rate, but this is an effort that has a limit and a maturation time. Interest rates cannot remain at the current level for a long time. The conditions are increasingly present for the key rate to fall. The market took the March IPCA [Brazil’s official inflation index] well, with clear signs of price deceleration. Oil has gone up with the war and we are in a moment of more accommodated prices. We have the new macroeconomic agendas, with the fiscal framework that, in addition to the tax overhaul, will bring progress in the sustainable fall of interest rates. Based on these issues, I believe in a consistent reduction of the Selic, so that we have a level of key interest rates that stimulates investments again.

Valor: The Central Bank defends the current level, arguing that a decrease in the Selic without credibility could have a harmful effect in the medium and long term.

Ms. Medeiros: I’m not going to comment on the regulator’s issues, nor am I going to get into the heart of the regulator’s discussion with the government, but I repeat: it is not sustainable for a long time. In some situations, it is necessary to keep inflation under control, but it is not sustainable to maintain the current level.

Valor: Is the bank’s governance more robust today to avoid possible political pressure as happened in the past, such as the government’s attempt to use state-owned banks to lower interest rates?

Ms. Medeiros: We have a strong and consolidated governance structure. The decisions are collegiate and very discussed, which gives comfort to decision-making.

Valor: And what do you think about using state-owned banks to lower interest rates, as has been done in the past?

Ms. Medeiros: This project of a bank for each client, with customization in credit granting based on their needs, already leads us to grant credit at interest rates that are appropriate to the consumer profile. An example is the pay-roll deduction loan to the National Institute of Social Security (INSS): BB already has one of the lowest rates in the market, as we understand the risk and the customers’ ability to pay. Although there was a cap, we operated at a lower price because that is a characteristic of the business.

Valor: But what do you think about using state-owned banks to regulate prices in the rest of the financial system?

Ms. Medeiros: In a way, if we already lend at an appropriate level to the client, we are already working with that regulation and providing a balance to the market.

Valor: But can state-owned banks be used to reduce interest rates in certain moments, such as crises?

Ms. Medeiros: The bank’s performance in times of crisis or not is focused on the responsible management of our capital. In a moment of crisis, our proper management of default, capital, and credit portfolio allows us to maintain the leading role, and the figures of this quarter show this.

Valor: Finance Minister Fernando Haddad wants to impose an interest rate on the revolving credit card. Private-sector banks, however, are resisting this proposal, so the government has backed down for the time being. Is it necessary to set a cap for this modality?

Ms. Medeiros: It is necessary to study the issue. We are participating with Febraban, a commission is going to find solutions and make a detailed analysis, which may even lead to a cap, as in the case of overdrafts. But the credit card system in Brazil has several other aspects that must be studied, such as the profile of the customer who uses revolving credit as working capital or as personal credit. And there is an analysis of the profile of the actors because part of the population has access to credit through cards, but perhaps it is not the most appropriate line to finance consumption. There are deeper discussions that must take place before defining a cap or not. I don’t rule it out. If there has been a setback, it is because there are many aspects that need to be analyzed.

Valor: What is missing to pick the bank’s agribusiness chief?

Ms. Medeiros: This would be addressed if the issue had reached the board of directors, but it did not. We have some directions in the agribusiness market about a change in treatment. In terms of lending, we want to make more and greener but also in terms of working on the sustainable agro chain, expanding family agriculture. So, there is a discussion about the characteristics of the person for the position. There is no defined name.

Valor: There are rumors that the government is waiting for changes in the state-owned company’s law to appoint former Senator Kátia Abreu to the position. Would you like her name?

Ms. Medeiros: I do not know her personally, but I know her [work] as a minister of Agriculture. And she did a good job.

Valor: What are your expectations for the Crop Plan? The former BB management argued that it lost funds with the entry of Caixa Econômica Federal.

Ms. Medeiros: The expectations are that BB will have funds proportional to our capacity to deliver. In the last Crop Plan, we had a value much lower than what was possible. It is not a question of reducing the other players, but of delivering what is appropriate to us.

Valor: The industry has been advocating an industrial Crop Plan with subsidized interest rates. Is there a plan for the sector?

Ms. Medeiros: There is an expectation of credit for the industry. With the agreements that the president has made around the world, we are expecting investments for the industry, and we are seeing a movement by the sector trying to seek credit in the capital market through direct financing.

*Por Guilherme Pimenta — Brasília

Source: Valor International
Funds start 2023 with below-benchmark returns


The life of asset managers who build their strategies in interest rates, exchange rates, and equity markets in Brazil and abroad based on reading the macroeconomic outlook has been tough. If there were difficulties in assessing how far Central Banks would go in their monetary tightening policies, the turmoil in the U.S. and European banking systems in March made things even more challenging. At the local level, the negotiations over the Lula administration’s new fiscal plan have been closely watched and have caused assets to oscillate erratically.

With the collapse of Silicon Valley Bank (SVB) and other regional U.S.-based lenders, financial agents quickly changed their stances and began to price into the country’s future interest rates a series of cuts by the U.S. Federal Reserve (Fed). On the New York Stock Exchange, buying prevailed, driving up the value of stocks in several industries, with the exception of banks.

This combination hindered the quarterly performance of some portfolios built based on higher interest rates and inflation – asset management companies such as Verde, Ibiuna, Legacy, and Absolute described in their monthly letters losses on strategies linked to interest rates in developed countries.

A large part of the macro-oriented hedge funds shows returns below the interbank deposit rate (CDI) this year. For a basket of funds monitored by Nord Research, the average return for the year to April 12 was 1.22%, compared with 3.6% for the CDI. Given the drastic change in the environment observed in the first months of 2023, Luiz Felippo, a partner at Nord, believes that the performance was even satisfactory. “In a reversal scenario, the quarter was not glorious, but it was far from disastrous,” he said.

The important thing, he said, is to look for long-term consistency and work with good asset managers who know how to extract value in different markets and cycle changes. By avoiding jumping from asset to asset, the investor has the chance to be exposed when the funds capture some big price change, because in those periods they tend to perform better. “The good manager, when it is wrong, it loses little and survives. The worst is to get out of the game because of high leverage and lack of discipline.”

In a broader sample of more than 180 hedge funds classified as macro and multi-strategy (excluding long-short and long-biased strategies, typical of the stock market) in the Quantum Axis database, fund specialist Samuel Ponsoni found a median return of 2.48% this year, compared with 3.83% for the CDI up to April 18. After a 2022 marked by strong gains in the segment, he said that the recent weaker results have also brought the 12-month and 24-month windows to below the CDI, with medians of 10.31% and 18.05% for these periods, compared to 13.37% and 21.08% for the benchmark.

For hedge funds with higher volatility, short time horizons are often misleading, too short given the risk of the product and the types of assets the funds hold, Mr. Ponsoni said. Ideally, you should to look at 24- to 36-month horizons. “One thing that led many managers to foresee the end of the U.S. rate hike thesis is that it was accelerated by something that nobody saw, which was the fragility of some regional banks, the biggest being SVB, with others being dragged in the aftermath. The U.S. yield curve began to embed declines as early as 2023, and stronger declines in 2024.”

In Brazil, asset managers who started the year betting in stocks because prices were very attractive left positions as the government-Central Bank clash about interest rates and inflation targeting undermined hopes for faster monetary easing, sending prices lower. “When the stock market came back, they were not allocated to take advantage of the move,” Mr. Ponsoni said.

He added that besides worrying about a very complex market environment, the multi-market segment has been dealing with significant withdrawals.

*Por Adriana Cotias — São Paulo

Source: Valor International
New measurements will include emissions from fuel production and transportation; and power generation in the case of electric cars


The government will change the way carbon dioxide emissions from vehicles are calculated. Today, the measurement only takes into account the gas that comes out of the exhaust. The change will include CO2 emissions from fuel production and transportation and, in the case of electric cars, power generation. The decision will be one of the main innovations of the second phase of the Rota 2030 automotive program, which the Ministry of Development, Industry, and Foreign Trade expects to complete by June, said Margarete Gandini, director of the high-to-medium technological complexity industry department.

The new calculation will give ethanol an advantage on two fronts: not only do cars running on this fuel emit less greenhouse gas than cars running on gasoline, but the CO2 in the atmosphere is absorbed in the process of growing sugar cane. In addition, the new methodology allows Brazil to become more prominent in the decarbonization discussion by taking a broader view of energy efficiency in transportation.

Ms. Gandini said she has committed to the minister and Vice President Geraldo Alckmin to deliver the implementation plan for the second phase of Rota 2030 by June. “The focus will be decarbonization and innovation,” she said. The first phase of the program created at the end of 2018 covered the period from 2019 to 2023. The second will last until 2027.

“A new well-to-wheel energy efficiency target will be defined,” said Ms. Gandini, referring to a term used by industry and government to define the calculation. The one in place today is called the “tank-to-wheel” measurement. According to Ms. Gandini, the team she coordinates has been working for more than a year on this calculation, which has already been submitted to the Ministry of Mines and Energy. She said the methodology was already defined.

The change in the calculation of emissions in favor of ethanol was expected by car makers who defend the development and production of hybrid cars powered by sugarcane products. Hybrid cars have an internal combustion engine (which, in this case, runs on ethanol) and has an electric engine as well. Both engines alternate depending on the vehicle’s use. Stellantis announced that it is about to present an investment program for the 2025-2030 period, which includes the production of this type of vehicle.

Ms. Gandini is now one of the government officials who understands the automotive sector best. With a master’s degree in economics and economic development, she has been working in industrial development since 2006 and has been coordinating areas related to mobility for at least eight years. She is also responsible for the coordination and supervision of automotive regulations.

No wonder the government representative was one of the most greeted people on Monday during an auto parts industry meeting that preceded the opening of the Automec trade show in São Paulo.

The preference for hybrids was repeatedly emphasized by auto parts manufacturers and automakers attending the meeting. The auto parts industry is constantly challenged by global electrification.

Emissions are not the only topic of technical work focused on the automotive sector in Brasília. Fleet renewal is also under discussion and is expected to be announced soon, Ms. Gandini said.

The first phase of this program called Renovar will include incentives to remove old commercial vehicles, mainly trucks, from the roads. This program was created at the end of the Bolsonaro administration but the idea now, Ms. Gandini said, is to expand the number of vehicles involved. The oldest fleet is in the hands of independent truck drivers. For this reason, the plan is to create a public-private action that offers incentives for them to change vehicles.

Another issue that the sector has taken to the government is the creation of a program to stimulate the sale of cars at more affordable prices than those offered today. It would be a kind of return of a policy aimed at entry-level cars.

Ms. Gandini said that based on the proposal of the National Federation of Automotive Vehicles Distribution (Fenabrave), which represents the dealers, the specialists have carried out a series of simulations. According to her, the interested car manufacturers have not yet participated in this phase. They are only asked for the data that the specialists need to make the calculations.

According to Ms. Gandini, one of the positive aspects of this proposal is that it will increase the activity of this industry, which faces an idle time of almost 50%. The issue of CO2 emissions is part of the public discussion. So is the financial issue. “There is no point in making the car cheaper if there is no financing,” she said. “We have several projects on the table. But the plan must stand on its own feet.”

*Por Marli Olmos — São Paulo

Source: Valor International