Power industry mergers, acquisitions projected to yield R$30bn in 2024

Operations are mainly driven by asset recycling and portfolio reduction

04/18/2024

Leonardo Cabral — Foto: Leo Pinheiro/Valor

Leonardo Cabral — Foto: Leo Pinheiro/Valor

In the operations portfolio of the big banks, transactions linked to the electricity sector have represented a significant weight, especially in terms of financial volume. Financial institutions estimate that the sale and purchase of companies (M&A) will generate at least R$30 billion in 2024 and could reach up to R$40 billion over 18 months.

If this expectation is confirmed, the financial volume has the potential to almost double that recorded in 2023, when mergers and acquisitions in the sector reached around R$20 billion in a year that was lukewarm for transactions in Brazil.

Of the operations that are already on the table, one of great importance is Eletrobras’s thermal power plant package, a process that has already entered its second phase with three interested parties and could be worth around R$8 billion, as anticipated by Valor. Another important one is that of AES Brasil, which has decided to leave the country. One of the interested parties is Auren (controlled by the Votorantim group and CPPIB), which owns 5% of AES—the company even made a binding offer, but it didn’t please AES Corp.

Portugal’s EDP adds to the list. It is trying to sell its hydroelectric plants in Amapá and, at the beginning of the year, re-engaged Bradesco BBI in the process. In the last attempt, the Canadian fund CDPQ made an offer to buy the assets, but the group did not find what it classified as “fair” conditions for the sale.

For the head of Citi’s investment bank in Brazil, Eduardo Miras, the energy sector continues to occupy an important place in the bank’s pipeline in typical portfolio asset recycling operations. “In the electricity sector, unlike other segments, asset recycling is common, even among strategic assets.” That means that companies and financial investors, from time to time, sell assets to look for other opportunities that can bring more return.

In 2023, the bet was on a busier market for the sector, but in the end, the mergers and acquisitions scenario was less than expected in general. As a result, some transactions were postponed due to values that were lower than those anticipated by the sellers. The weaker environment also came in the wake of low electricity prices and a drop in activity across the industry, primarily due to the still high interest rate environment and the local stock exchange having been closed to IPOs for more than two years, damaging financing fronts. Even so, major billion-dollar operations came off the drawing board and marked the year, such as the sale of a 50% stake in eight Neoenergia transmission assets to GIC. Another deal was closed by EDP Brasil, which sold transmission assets for R$2.7 billion to the Actis infrastructure fund.

Given the scenario of lower inflation and interest rates for this year, M&A operations are back on the table and could boost transactions in 2025. According to market sources, there is another impetus. The recent privatization of two giants in the sector, Copel last year and Eletrobras, has put two more companies on the table that were previously practically left out of the M&A scenario but now have no more strings attached to the sale of assets or even new investments in companies. Copel, for example, is receiving proposals for the sale of Compagas, another transaction expected to be completed in 2024.

Mr. Miras, from Citi, points out that the recent fall in the price of energy has acted as an impetus for new conversations since companies are now weighing up options between new investments (greenfields) or M&A strategies, which may make more sense in such a context. The Citi executive also mentions deals involving the oil and gas industry, which are gaining momentum and should accelerate throughout the year.

The breakthrough in this segment came at the end of 2023, when the J&F Group, owned by the Joesley and Wesley Batista brothers, entered the oil and gas sector with the acquisition of Fluxus. In April this year, Azevedo & Travassos bought fields in the Potiguar Basin and returned to oil exploration. More recently, Enauta and 3R signed a merger agreement.

The same heat is felt in Santander. There, operations involving energy and utilities are numerous and account for almost half of the volume if the analysis is based on financial value, said Leonardo Cabral, Santander’s head of investment banking and capital markets in Brazil. The executive points out that operations involving foreign buyers should also gain momentum, given the interest in the sector in Brazil.

In addition, the recent past has shown the strength of the sector and a broad movement of asset recycling. Data from M&A boutique RGS Partners sent to Valor shows that between 2013 and 2023, the electricity sector drove the M&As and capital markets segment in Brazil due to the intense pressure to decarbonize the energy mix with renewable sources, notably wind and solar.

Hugo Pacheco, a partner at RGS Partners, believes that solar distributed generation operations should be the highlight of the year. Recent operations prove as much. Nova Milano, Squared, and Brookfield, for example, have entered the sector with major acquisitions and capital injections.

This is due to regulation changes, which have triggered a “gold rush” in the construction of assets to take advantage of subsidies. Recently completed developments now pass from the hands of the previous owners, who took on the construction risk, to investment funds or consolidators, who prefer to take ownership of the developments without exposing themselves to the construction risk.

“In the regulatory environment, due to the opening up of the free energy market, we are already seeing a major conversion of new consumers to this new energy contracting environment, and we are also beginning to see a movement within some trading companies, which should complete the M&A movement,” Mr. Pacheco said.

Copel, Ibitu, Sterlite, and Enel declined to comment. AES said that its parent company, AES Corp, is assessing alternatives to finance its growth and improve its capital structure. Eletrobras and Cemig did not respond to an interview request.

*Por Fernanda Guimarães, Robson Rodrigues — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Analysis: Central Bank president opens options for interest rates

Roberto Campos Neto argued that it is still unclear what, from the recent turmoil, will or will not become more perennial

04/18/2024

Roberto Campos Neto — Foto: Marcelo Camargo/Agência Brasil

Roberto Campos Neto — Foto: Marcelo Camargo/Agência Brasil

Brazil’s Central Bank President Roberto Campos Neto got rid of the forward guidance that indicated a 50-basis-point interest rate cut for the next meeting of the Monetary Policy Committee (COPOM) in May and left open four possibilities. At an XP Investimentos event in Washington, he said that international and fiscal uncertainties have increased too much to allow the COPOM to keep the old promise.

On the other hand, he argued that it is still unclear what, from the recent turmoil, could remain in place for enough time to affect the Central Bank’s work in lowering inflation to the target—and consequently, the trajectory of the Selic policy rate.

Three weeks before the next COPOM meeting, Mr. Campos Neto listed four theoretically possible scenarios that could lead to different outcomes for the decision to be made on the interest rate.

First hypothesis: “We could see a reduction in uncertainty, which means we would follow the usual path.” He was not explicit about what the usual path would be, but apparently it would be a reduction in interest rates by 50 basis points, as was previously signaled, to 10.25% per year from 10.75%.

Second hypothesis: “We could have a situation where uncertainty remains very high, but it does not change significantly. That would mean a reduction in pace.” That is, the Central Bank would cut 25 basis points, to 10.5% per year.

Third hypothesis: “We could have a situation where uncertainty begins to affect more strongly important variables, and we would have to change the balance of risks.” Mr. Campos Neto was not explicit about what this hypothesis would mean for interest rates, but the logic of the gradation he employed seems to indicate a maintenance of the rate.

Fourth hypothesis: “We could have a scenario where uncertainty worsens, creating global stress. In this case, we would change our global scenario,” said Mr. Campos Neto. In this case, apparently, he is referring to the possibility of raising the policy rate.

This way, the Central Bank’s chief provided a sort of roadmap for the financial market to monitor the development of the recent crisis—international and fiscal—in order to anticipate the COPOM’s reaction to each of the situations.

And why didn’t he deliver a hawkish, more direct message? For him, with the current high degree of uncertainty, it’s difficult to anticipate the situation that the COPOM will encounter in three weeks.

“You do not want to react too much to short-term data, but at the same time you do not want to ignore a structural change to the point of losing your credibility,” said Mr. Campos Neto.

To know what the COPOM will do, it’s important to pay attention to what Mr. Campos Neto said about what is a surprise and what is not in recent events. It’s also good to re-examine the Central Bank’s so-called reaction function, that is, how it uses the new information that will emerge in the next three weeks to make its decisions.

He said he kind of expected the worsening in the international environment. This helps to understand why he said last week, after the release of U.S. inflation data, that the scenario had not changed substantially.

But another factor wasn’t in the Central Bank’s calculations: the deterioration of Brazil’s fiscal situation. Still, on at least two occasions he expressed doubts that this worsening will translate into a permanent increase in the risk premium. “When you change [the fiscal target], the premium moves further,” he said. “I hope that doesn’t happen.”

Mr. Campos Neto expressed concern, in particular, about the relationship between fiscal credibility and monetary credibility. The main indicator that the Central Bank has lost credibility will be inflation expectations, especially longer-term ones.

As for the monetary policy reaction function, the main message is that there is no mechanical relationship between fiscal policy, external environment, and monetary policy. It will be necessary to see how these recent events affect the COPOM’s central scenario for inflation and the balance of risks. This is what will determine which of the four hypotheses above will be adopted by the COPOM at its next meeting.

*Por Alex Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Congress analyzes bill to regulate streaming services

The matter was sent to the Lower House; Senate committee authorized charges on platforms to foster local film industry

04/17/2024

The Senate’s Committee on Economic Affairs approved on Tuesday (16) a bill that regulates streaming services in Brazil. The matter will now be analyzed by the Lower House.

The text determines that streaming companies are charged up to 3% for the Contribution to the Development of the National Film Industry (CONDECINE).

The new rules also extend to platforms for sharing audiovisual content and to platforms that offer television channels on online services.

The wording also makes it clear that the provisions of the law must be applied to companies that offer the services to Brazilian users, “regardless of the location of their headquarters or the infrastructure for the provision of the service.”

The text cites the “valorization of Brazilian audiovisual content,” including independent content. For this, the bill foresees minimum amounts of Brazilian audiovisual content in the streaming services, which vary according to each one’s catalog. Compliance with the new legislation, if approved, can be gradual and completed in up to eight years.

By the final wording, streaming platforms with up to 2,000 shows must reserve 200 for Brazilian audiovisual content; those with 3,000 shows must reserve 150; those with 5,000 must reserve 250; and those with 7,000 must reserve 300.

If the analysis is completed, the economic agents providing the video-on-demand service, audiovisual content-sharing platforms, and internet application television providers must apply for accreditation before regulator ANCINE within 180 days after the start of offering the service to the Brazilian market.

*Por Julia Lindner — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Embraer’s Eve Air to start delivering flying cars in 2026

EVE-100 has a backlog of 2,800 orders totaling $8.6bn; company awaits ANAC certification

04/17/2024

Daniel Moczydlower — Foto: Divulgação/Embraer

Daniel Moczydlower — Foto: Divulgação/Embraer

The first full-scale model of the EVE-100 electric aircraft, developed by Embraer’s Eve Air Mobility, is expected to be ready by the end of 2024. The pilot project will be used to carry out the first flight tests of the electric vertical take-off and landing vehicle (eVTOL), which is under the regulatory stage at the National Civil Aviation Agency of Brazil (ANAC).

EVE-100

The schedule was unveiled to Valor by Embraer X CEO Daniel Moczydlower on Tuesday (16) at the WebSummit event in Rio de Janeiro. Commercial operation of the eVTOL should start in 2026, the year when the company expects the certification process by ANAC to be completed.

The testing and development stage aims to provide the agency with reports and data. There is no specific regulation yet for eVTOLs, as the model is new to international aviation.

According to Mr. Moczydlower, flight tests with the pilot model of the vehicle would start by the end of this year at the Embraer factory located in the municipality of Gavião Peixoto, São Paulo.

“One of Eve’s biggest competitive advantages is that it will use the entire Embraer infrastructure. That makes us faster, with a lower development cost,” he highlighted.

The electric aircraft project was originally incubated by Embraer X and is currently being led by Eve Air Mobility, a company listed on the New York Stock Exchange with Embraer as its main shareholder.

EVE-100 has a backlog of 2,800 orders, totaling $8.6 billion. Among its customers are helicopter operators, airlines, leasing companies, and shared flight platforms from all continents in the world.

Eve Air Mobility reported that, of the total, 335 vehicles were ordered in Brazil—100 by Avantto, 50 by Helisul, 50 by OHI (Revo), 40 by FlyBIS, 25 by Flapper, and 70 by Voar. “The first lot of orders should be delivered as soon as ANAC certifies the vehicles,” said Mr. Moczydlower.

“We expect to produce few units in the first years and accelerate the pace in 2027 and 2028,” the CEO added. The first factory will be set up in Taubaté, São Paulo. The business model does not include direct sale of the aircraft to individuals. Commercial use is expected to be similar to air taxi companies, with flights of 10 to 15 minutes.

The potential of the urban air mobility market in the world is estimated at two billion passengers per year from 2030 to 2035, according to Embraer X. The company plans to democratize air transport with short-haul urban trips at affordable prices.

“We are estimating that flights could come to a price range that would not be much higher than what you would spend in a taxi stuck in traffic for two hours,” said Mr. Moczydlower.

Shared trips, the use of electric batteries, and the cost of maintenance are regarded as some advantages of Embraer’s eVTOLs. The vehicle will be fully electric and capable of transporting four passengers plus the pilot for up to 100 kilometers.

*Por Paula Martini — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Brazil is losing AI investments to Paraguay, Nvidia says

Lower import taxes and proximity to Itaipu attract investors to Paraguay, executive says

04/17/2024

Marcio Aguiar — Foto: Leo Pinheiro/Valor

Marcio Aguiar — Foto: Leo Pinheiro/Valor

Brazil is losing investment from European groups to its neighbor Paraguay in the expansion of data centers to support the advance of artificial intelligence (AI) using renewable sources.

The alert was made by Marcio Aguiar, Nvidia’s executive director of corporate sales in Latin America, in an interview with Valor, during the Web Summit Rio 2024, an innovation event taking place until Thursday (18) in Rio de Janeiro.

The U.S. manufacturer of graphics processing units (GPU) is a leading provider of computing capacity to supply the processing demand generated by AI. It held 83% of the data processing chip market in 2023.

“We have received requests from European companies that invest in data centers in Paraguay, a country with lower import taxes and which is close to [hydropower plant] Itaipu,” said Mr. Aguiar. Data centers are electric-intensive facilities. This situation has intensified over the last six months. “Brazil could take advantage of this current trend by reviewing some taxes to encourage companies to come here. That would be the big step,” he added.

Nvidia is also advancing in offering computing capacity to research institutions in the country and plans to deliver a second supercomputer to a Brazilian research institute in the coming months. Since 2015, the company’s Santos Dumont supercomputer has served the National Scientific Computing Laboratory (LNCC), in Petrópolis, Rio de Janeiro.

Nvidia also wants to set up a data center for Brazilian research institutions. “Why not centralize processing and deliver it to universities across the country remotely? It would be much more effective and less costly for the country,” the executive suggests. “There are several government bodies interested.”

In the corporate market, competition from microprocessor manufacturers and the entry of technology giants—Nvidia clients—such as Google and Microsoft in the AI chip segment do not seem to worry Nvidia.

“We are not fighting for market share but to open new markets,” said Mr. Aguiar in the opening panel of the Web Summit Rio, on Tuesday (16).

In addition to selling its chips to large cloud providers such as Google, Microsoft, and Amazon, and to local data centers focused on GPU servers, Nvidia is betting on demand from the biopharmaceutical, robotics, and digital twin industries. The latter, which is based on virtual representations of infrastructures that operate as in the real world, using AI, “is a game changer,” Mr. Aguiar points out.

Nvidia manufactures its chips exclusively through Taiwan’s TSMC, which is joining rivals such as Intel, AMD, and Samsung in announcing major chip manufacturing projects in the United States. Investments exceed $200 billion, using funds from the Biden administration amounting to $53 billion.

The launch of AI chips by Nvidia clients such as Google and Microsoft is seen as a natural move by the executive. “To date, we are the only company developing hardware and software platforms compatible with all cloud providers,” Mr. Aguiar claims. “No company wants to be so dependent on others. That shows the value of this market and how much we have been focused on the sector. For others, this is a new business for their use.”

Investors follow suit with this movement. A week ago (April 9), Intel released the new version of the AI chip, Gaudi 3, hoping to advance Nvidia’s dominance. As the news circulated, Intel shares on the Nasdaq began to rise, while Nvidia shares plummeted. But that has changed. Nvidia closed up 1.64% and Intel fell 0.14% on Tuesday (16) session. In the last 12 months, Nvidia shares gained 226.80%.

The reporter’s travel costs were covered by the Web Summit.

*Por Daniela Braun — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Haddad blames external factors for weakened real

Exchange rate reached highest level in more than a year after federal government presented new fiscal targets

04/17/2024

Fernando Haddad — Foto: Diogo Zacarias/MF

Fernando Haddad — Foto: Diogo Zacarias/MF

Finance Minister Fernando Haddad said on Tuesday in Washington that news from abroad explain “two-thirds” of what is happening domestically.

The rise in the exchange rate in the last two days coincides with the government’s new fiscal target, which now forecasts a zero result in 2025, compared to the previous prediction of a surplus of 0.5% of GDP. On a bad day for emerging currencies in the world, the exchange rate rose 1.64% on Tuesday, to R$5.2697 per dollar, the highest closing level since March 23, 2023, with an intraday high of R$5.2873.

According to Mr. Haddad, among the factors that affect the exchange rate are data that indicate heated economic activity in the United States, U.S. inflation data “that has not yet been fully digested,” and the escalation of the conflict in the Middle East after Iran attacked Israel, with an impact on the price of a barrel of oil.

For the minister, the rise of the exchange rate in Brazil is also due, in part, to turbulence caused by the disclosure of the new fiscal target. “It is necessary to better explain over time what will happen to Brazilian government accounts.”

The minister said that the new goal is realistic and embodies learning from the government in recent months. He also argued that the goal aligns with the long-term aim of stabilizing public debt.

Analysts said, however, that as long as the primary surplus does not come close to 1% of GDP, gross debt will continue to rise. The government had previously envisioned achieving an economy of 1% of GDP in 2026, but now sees this only happening in 2028 — therefore, in a new presidential term. For 2026, now the forecast is for a surplus of 0.25% of GDP.

Mr. Haddad said that Brazil is experiencing a week of turbulence and that, after this tense moment, “things will settle down.” However, he took the opportunity to say that it may be a good time to “rethink strategies.”

“The external scenario isn’t helping. As for the domestic scenario, we are correcting it by dialoguing with the federal government and the National Congress. Since the issue is more delicate, let’s now take a moment to rethink the strategy and redefine the role of each one to restabilize expectations.”

Mr. Haddad gave examples of programs such as the Emergency Program for the Rebound of the Events Sector (PERSE), whose rapporteur, Congresswoman Renata Abreu, defends tax waivers of R$5 billion per year. He is in Washington for the biannual meeting of the IMF and the World Bank.

“We understand that Congress has its goals, but we have to bring this program close to normal, close to reasonableness. It is very unrestrained, open to fraud—there has been fraud and the Federal Revenue Service is combating it.”

Mr. Haddad said the country cannot get off the “growth track.” “What is happening today is a message to the federal government, it is a message to the National Congress, it is a message to the justice system, it is a message to the Finance Ministry, it is a message to Planning Ministry, it is a message to the Central Bank. Let’s understand and reposition. We have no reason from the point of view of the fundamentals of the Brazilian economy to get off the correct track of making this country grow again with low inflation and job generation,” he said.

After the new IMF projections for the Brazilian economy, he said he expected the organization to review “for the better” the country’s GDP growth estimates. “We will also follow what happens in the global economy because we depend on it too.”

The IMF said on Tuesday that it expects the Brazilian economy to grow by 2.2% this year and 2.1% in 2025. The forecast for Brazilian GDP this year is 0.5 percentage points higher than that released by the Fund in January. The forecast for next year was raised by 0.2 percentage points.

The IMF’s projections are higher than those of the Focus survey, collected weekly by the Central Bank, forecasting a GDP increase of 1.95% this year and 2% in 2025.

“We continue to project 2.2% [of GDP growth in 2024], although activity indicators are heated. We are receiving good news from the end, both from the point of view of collection and from the point of view of production and sale. Credit is particularly increasing in Brazil. However, we will be parsimonious, we will continue to maintain our expectation of 2.2%, but with a small upward bias,” he said.

Mr. Haddad also said he believes that, despite the turmoil, there is room for interest rate cuts.

According to him, the fundamentals of the Brazilian economy “are better than a year ago.” For him, the adjustments made by the government ensured an improvement both from the point of view of revenue and the point of view of expenditure. However, he expressed concern about Social Security finances after recent bills passed by Congress, adding that the government is likely to appeal in the courts.

“We’re not going to have the primary spending that we had last year. We’re not going to have the primary revenue that we had last year. The revenue will be much better, the expense will be much lower. Where do the tax receipts come from? From the measures that Congress passed,” he said.

Asked about the exhaustion of the measures, he answered that the extension of the tax relief, especially in the municipalities, was not on anyone’s radar.

“The payroll relief is something that bumps into the Social Security reform, which everyone defended, from this point of view, all the time. All political parties argued that Social Security could not lose revenue. Then comes an amendment, in a bill. The president vetoes, overturning the veto, and we reopen the discussion,” he said.

*Por Alexandra Bicca — Washington

Source: Valor International

https://valorinternational.globo.com/
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DNV analyzes offshore wind potential in Brazil

Norwegian company says projects submitted to environmental agency total 190 GW

04/16/2024

Celebrating its 50th year in Brazil, Norwegian consultancy DNV views the country as a strategic market in the medium and long term. While its main focus remains on oil and gas, the company recognizes the potential of future offshore wind energy generation, still pending regulation.

Alex Imperial — Foto: Divulgação

Alex Imperial — Foto: Divulgação

Celebrating its 50th year in Brazil, Norwegian consultancy DNV views the country as a strategic market in the medium and long term. While its main focus remains on oil and gas, the company recognizes the potential of future offshore wind energy generation, still pending regulation.

At the request of the World Bank, the company began an analysis last year of the scenarios of the offshore wind energy industry in Brazil. The initiative is part of the World Bank Group’s Offshore Wind Development Program, with support from the Energy Sector Management Assistance Program (ESMAP) and the International Finance Corporation (IFC).

DNV operates in risk management and project certification. It assists companies in meeting international safety standards, conducts risk assessments, and evaluates investment costs.

At least 96 offshore wind exploration projects have been submitted to Brazil’s environmental protection agency (IBAMA). DNV estimates that these projects total around 190 gigawatts, of which 50 gigawatts have been commercially evaluated by the Norwegian company.

The consultancy did not disclose which companies it was hired by. “Our work begins in an early phase, before these projects start operating, with analysis of the technical aspect and economic viability,” said Alex Imperial, vice president and regional manager of the DNV group in the Americas.

The consultancy said that the oil demand will decline after reaching a peak, but will not reach zero in 30 years. Therefore, the decarbonization of processes associated with oil and gas production is expected to become a window of opportunity. However, balancing global consumption and directing investments toward renewable sources is expected to be the industry’s biggest challenge in the coming years.

Brazil is well-positioned in the energy transition. “We see opportunities with onshore wind and solar energy, where we already have a strong position,” said the group’s global CEO, Remi Eriksen. “There is also great potential in offshore wind exploration due to the experience in oil and gas, which would generate more nautical activities to support it,” he added.

The full development of offshore wind activity in Brazil depends on regulatory frameworks. Bill 11247/2018 was passed by the Chamber of Deputies (Lower House) in November last year but still needs to be analyzed by the Senate. “We are working in workshops with the Ministry of Mines and Energy to assist in regulation. It is a role we have already played in other countries,” said Mr. Eriksen.

Petrobras, Yara, Modec, SBM, and Grupo OBC are among DNV’s main clients in Brazil, which ranks among the company’s top 15 markets. The operation in the country stands out for having one of the highest growth rates among the others, as highlighted by the group’s global CEO.

Mr. Eriksen spoke with Valor on Wednesday, during his visit to Rio for the company’s 50th anniversary celebrations in Brazil. In the Brazilian market, DNV has 300 employees and nine offices in six states: Rio de Janeiro, São Paulo, Minas Gerais, Rio Grande do Sul, Ceará, and Bahia.

According to the executive, revenues from the Brazilian operation grew by 65% between 2019 and 2023, while global growth was 50% in the same period. “During this time, we had COVID-19, which makes these 65% even more significant,” said Mr. Eriksen. “There is potential for growth in several sectors in Brazil,” he said.

With 160 years of history, DNV is present in 100 countries. Revenue ranking is led by the United States, Norway, Germany, the Netherlands, the United Kingdom, and China. In Brazil, the company operates in various sectors—such as food and beverage industries and healthcare companies—but the naval and energy sectors remain its main activities in the country.

“Norway discovered gas in the 1960s, and we started in Brazil in 1974. That is why oil, gas, and maritime transportation have been the main drivers of our growth here,” said the CEO. “Today, this is a very mature and well-regulated industry. These are the markets where we like to operate,” added Mr. Imperial.

*Por Paula Martini — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Monetary policy costs rise without fiscal anchor, central banker says

Roberto Campos Neto said monetary authority’s work becomes more challenging if fiscal policy lacks credibility

16/04/2024

Roberto Campos Neto — Foto: Rovena Rosa/Agência Brasil

Roberto Campos Neto — Foto: Rovena Rosa/Agência Brasil

The work of the Central Bank becomes more difficult if there is a perception that there is no fiscal anchor, said Roberto Campos Neto, the president of the Brazilian Central Bank, during an event in New York on Monday. Asked how changes in fiscal rules affect the work of monetary policy, he explained that central banks have to refrain from making comments on fiscal policies.

However, he emphasized that “fiscal and monetary anchors go hand in hand, and whenever there is a change that makes the fiscal trajectory less transparent or less credible, it means having to bear higher costs on the other side. Therefore, the cost of conducting monetary policy increases.”

The president of the Central Bank noted, however, that the market “had a much worse outlook for the fiscal situation than the target actually adopted by the government.” Mr. Campos Neto added, “I have been saying for a long time that the ideal is not to change the goals and do as much as possible to achieve these goals.” But “if, for some reason, we have to change it, it’s very important to communicate well, because if people lose confidence in the fiscal anchor, the monetary anchor will be affected.”

The fact that the United States is postponing the start of the monetary easing cycle, with expectations consolidating around a higher rate at the end of the cycle, may begin to draw attention to the debts of the main developed countries, the central banker said.

“When we look at what happened in the U.S., people thought for a while that rate cuts would start in March. And when that doesn’t happen, the window basically moves in time as a result, and now that the [inflation and activity] data is disappointing [coming in stronger than expected], the terminal rate changes as a result.”

In his view, “there was a re-pricing of rates [by the market], but what we should observe and which will probably become the next big issue is that we are about to start a debate on global debt.”

According to the president of the Brazilian Central Bank, “the fact that the U.S. is now postponing the cycle, but also has a higher terminal rate, will make people talk about the debt.” Mr. Campos Neto cited that the largest blocs of developed economies—Japan, Europe, and the U.S. — have a sovereign debt representing a large proportion of the total global debt.

“If you look at the fact that they paid close to 1% [before inflation returned] on the debt rollover, and if that goes to 3%, it means a threefold higher cost on the largest debt on the planet. So I think the next topic we’re going to talk about is not the inflation window. Last year, when no one was talking about it, we mentioned that we didn’t see disinflation processes as smooth as some people were saying. Now agents are pricing to some extent that the cycle is going to be delayed a bit. The next big question will be about what happens to total debt.”

According to Mr. Campos Neto, “the fiscal policy is becoming less and less coordinated with the monetary [in most of the world].” For him, when we entered the pandemic, it was very easy to coordinate the responses. “You increase spending and reduce [interest] rates,” he said about stimulus programs

“But the end of that is being very difficult to coordinate. And there’s nothing more permanent than a temporary spending program. That was a phrase I borrowed from Milton Friedman. But you see it in many different places, and I think it will become a problem.”

*Por Sérgio Tauhata — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil will support Palestine’s bid for full UN membership

Criticized by Israel for a statement on the Iran attack, Brazil’s foreign minister is heading to the United Nations to emphasize that the conflict should not distract from the humanitarian crisis

16/04/2024

Mauro Vieira — Foto: José Cruz/Agência Brasil

Mauro Vieira — Foto: José Cruz/Agência Brasil

Brazilian Foreign Minister Mauro Vieira is expected to speak on Thursday (18) at the open discussion of the United Nations Security Council in New York, where he will advocate for Palestine’s demand to be recognized as a full member of the UN. This topic will be the focus of the meeting, which will include the foreign ministers from the 15 countries that constitute the Security Council. Brazil left the collegiate body in December, having held its presidency throughout October, during which Hamas attacked Israel, sparking the current conflict.

In his speech, the foreign minister is set to emphasize that recent developments in the conflict between Israel and Iran should not distract from the humanitarian crisis in Palestine. To date, Brazil’s only official statement on Iran’s launching of drones and missiles toward Israel was issued on Saturday (13) evening. In it, the government expressed “grave concern” about the unfolding conflict, urged the parties involved to “exercise maximum restraint,” and called for international mobilization to “avoid an escalation.”

The note was criticized by Israel’s ambassador to Brazil, Daniel Zonshine, for its failure to condemn the attacks, which, even in the United States, are being described as “choreographed” because they were forewarned three hours in advance, allowing 99% of the drones and missiles to be intercepted.

The attack occurred 12 days after the Israeli bombing of the Iranian Embassy in Damascus, the Syrian capital, which resulted in the deaths of seven people, including two commanders of Iran’s Revolutionary Guards.

Following domestic reactions to President Lula’s comments comparing Israel’s attacks on Gaza to the Holocaust, the directive is to proceed with more caution.

At a press conference with Argentine Foreign Minister Diana Mondino on Monday afternoon, Mauro Vieira was urged to condemn the attack and added, “Brazil always condemns any act of violence and always calls for understanding between the parties.”

President Lula’s upcoming trip to Colombia on Tuesday (16) will test his diplomatic stance, as Colombian President Gustavo Petro has taken strong positions on the Israel-Palestine conflict. He has aligned himself with accusations of “genocide,” made comments similar to President Lula’s regarding the Holocaust, and halted Israeli arms imports after Israeli forces fired on Gazans gathering for food. Like the Brazilian ambassador, the Colombian ambassador in Tel Aviv was summoned for consultations and has not returned to the country.

Meanwhile, Mr. Vieira has not officially confirmed his trip to the UN. However, since his return from the West Bank a month ago, the Foreign minister has been conversing with international colleagues at the behest of Palestinian Authority President Mahmoud Abbas to garner broader support for Palestine’s full membership in the United Nations, a significant step toward formal state recognition. During his visit, Mr. Vieira observed the extensive militarization of the West Bank, where there are 700 civilian checkpoints.

Brazil’s backing of Palestine traces back to the Oslo Accords of the 1990s, brokered by then-U.S. President Bill Clinton between the Israeli government and Yasser Arafat, then president of the Palestine Liberation Organization (PLO). The agreements called for the Israeli armed forces’ withdrawal from Gaza and the West Bank and the right to self-governance in areas under the Palestinian Authority. The accord garnered the Nobel Peace Prize for then-Israeli Prime Minister Yitzhak Rabin and Yasser Arafat in 1994.

Mr. Vieira, who traveled over the weekend, spoke with the foreign ministers of Spain, Belgium, Portugal, Norway, and Luxembourg. Two of these countries, Spain and Norway—along with Ireland—have already expressed their support for the Palestinian bid for full UN membership.

Palestinian diplomats are hopeful that Brazil will help secure Argentina’s support for Palestine’s full participation in the UN. That is a sensitive issue in Argentina, still marked by the bombing of the Argentine Israelite Mutual Association (AMIA) 30 years ago, which killed 85 people and remains the deadliest attack in Argentine history. Brazil is also expected to encourage Uruguay to adopt a similar stance.

The Security Council’s approval of the Palestinian request is challenging. In 2011, the council considered the issue but failed to gather the nine votes needed to move the recommendation to the General Assembly. Currently, Palestine’s bid would secure 10 of the 15 votes, but it faces opposition from two permanent members, the United States and the United Kingdom. France is poised to join Russia and China in a separate resolution supporting full Palestinian membership. In addition to the five permanent members, the Security Council is composed of Algeria, Ecuador, Guyana, Japan, Malta, Mozambique, South Korea, Sierra Leone, Slovenia, and Switzerland.

The Palestinians are counting on the potential electoral repercussions for U.S. President Joe Biden if he denies this request. Israel has already violated a ceasefire resolution in the region, with backing from U.S. Secretary of State Linda Thomas-Greenfield, who described the resolution as “non-binding.” After the violation, Israel requested an emergency Security Council meeting on Sunday afternoon.

Despite American pressure for Israel to claim a tactical victory by intercepting almost all missiles, the White House, according to the Wall Street Journal, hopes for a measured retaliation that allows both sides to claim victory without escalating the conflict further.

*Por Maria Cristina Fernandes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Imazon defends “urgent” plan for the Amazon

Beto Veríssimo says public policies need to go beyond combating deforestation and land grabbing

04/15/2024

Beto Veríssimo — Foto: Divulgação

Beto Veríssimo — Foto: Divulgação

Brazil urgently needs to implement a structured socio-economic development plan for the Amazon that encourages the preservation of the forest while also enhancing the productivity of economic activities that already take place in the region, including cattle ranching. To achieve that, Beto Veríssimo, the founder of the Institute of People and the Environment in the Amazon (Imazon), suggests that certain public policies need to be implemented beyond just combating deforestation and land grabbing. He highlights land regulation that does not favor land grabbers and a carbon policy that positions Brazil as a major global player in this market as priorities.

“The relentless fight against deforestation and land grabbing is fundamental, but it’s not enough. We need to regulate land that has already been deforested in the past. By initiating a carbon policy, we can start exporting our credits and begin making forest restoration a reality,” Mr. Veríssimo told Valor during the Skoll World Forum. This event brings together social entrepreneurs from around the world in the UK.

According to the founder of Imazon, regulating land would allow the economic activities already being conducted in the Amazon to shed their illegal status and become more productive, from the extraction of native forest products such as açaí, cupuaçu, and cocoa to cattle ranching. He explains that cattle ranching in the Amazon is not problematic in itself; the critical issue that draws environmentalists’ criticism is the meager productivity rates of cattle ranchers in the region.

This occurs, Mr. Veríssimo explains, because it is common for land grabbers to invade land in the Amazon and place cattle on it to mark the territory and secure their control. “The problem is not cattle ranching per se, but rather the speculation to profit from the land. It’s a classic occupation in which cattle play a role but is not the actual activity, which is why cattle ranching in the Amazon is so unproductive,” he noted.

In this context, Mr. Veríssimo argues that land regularization, without amnesty for land grabbers, would be crucial in distinguishing legitimate producers from criminal entities and would help curb the advance of deforestation. “Cattle ranching is going to be in the Amazon. There’s no way to stop it. The important thing is to build a framework so that it becomes more productive, more profitable, and contributes more positively to the region’s economy. There are already good cases of cattle ranching in the Amazon, but they are still isolated cases.”

Mr. Veríssimo notes that livestock production in the Amazon averages about 70 to 90 kilos of meat per hectare per year. He suggests that if the activity were conducted legally and in an organized manner, production could increase fivefold. He cites the example of ranchers in the Paragominas region who produce 11 times more than that average, and this is not even considered an extraordinary performance.

He also mentions that the specter of illegality in the Amazon, in both cattle ranching and other activities such as logging, deters serious investors who fear associating their image with anything potentially wrongful, as well as dealing with criminals in the area.

“Investors are terrified of entering the Amazon today because they fear that any business they engage in could be associated with illegal activities or that they are in a region where there are real criminal activities nearby. A company undertakes a forest planting operation and suddenly faces land grabbing, deforestation, and an atmosphere of insecurity. The Amazon is becoming very violent,” he said.

Regarding the carbon market, Mr. Veríssimo believes that Congress needs to expedite the regulation of the market so that landowners are incentivized to continue preserving the forest, based on the principle that “a standing forest is more valuable.” That would occur because by preserving or restoring their land, landowners would be able to export carbon credits that reward their efforts to prevent deforestation.

“It would reinforce an important agenda with the standing forest for the services it provides,” he remarked. “Every hectare of standing forest should be compensated, regardless of whether it belongs to the farmer, the Indigenous person, the settler, the extractivist, the river dweller, or the government. The idea is for the world to pay [through the carbon market] because the Amazon provides a global benefit,” he emphasized, noting that the initiative tends to encourage forest restoration, something that needs to start happening urgently. “And this restoration industry has the potential to make an unparalleled socio-economic contribution to the region, in addition to providing climate benefits.”

For the founder of Imazon, the challenge is enormous, but he notes that the time is right for a robust plan to be structured. He mentions the current federal government’s willingness to accelerate the movement and notes that the entire political and social entrepreneurial community globally has started to take a genuine interest in the Amazon. “I’ve been coming to the Skoll World Forum since 2010, and I see that this is the first year that Brazil has taken a leading role. They’re really looking at the Amazon this time,” he said. “The Amazon needs all sectors of the economy to be able to communicate and keep the forest standing.”

The reporter traveled at the invitation of the Associated Press and the Skoll World Forum.

*Por Rafael Vazquez — Oxford

https://valorinternational.globo.com/
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