Staub family’s company aims to combine strong brand with service delivery focused on residential market
03/07/2024
Marcelo Ribeiro and Eugênio Staub — Foto: Gabriel Reis/Valor
Gradiente, a company owned by the Staub family, is investing R$50 million to enter the solar power industry through distributed generation. The new venture, called Gradiente Solar, aims to become a systems integrator for power generation, focusing on residential and small business markets.
The company seeks to capitalize on a market with low professional standards in equipment installation by offering post-sale services to customers. Eugênio Staub, CEO of Gradiente, noted that the company concluded its court-supervised reorganization in 2023, which had been ongoing since 2018. Gradiente also made a public offer to delist its shares and is engaged in a legal dispute with Apple over the use of the iPhone trademark in Brazil, currently under review by the Supreme Federal Court (STF). Now, the company plans to return to the market with a focus on service delivery.
“It’s a new beginning for us, and we decided to restart activities in the solar sector because it’s very promising,” said Mr. Staub. “We will focus on rooftop installations for homes and small businesses, as this market needs more professionalism and organization.”
The investment will be made with the group’s own capital over the course of 2024. Initially, the company will operate in the State of São Paulo, within the concession areas of CPFL and Enel, and then expand to other regions.
Solar is the fastest-growing source in Brazil, driven by distributed generation systems on rooftops, facades, and small plots of land. Brazil has over 30 GW of installed capacity distributed across 3.9 million consumer units. Each consumer unit represents a household, commercial establishment, or property.
This shift towards solar power is largely driven by consumers exchanging their electricity bills for financing payments, typically attracting middle-class customers with electricity bills over R$300 per month. The urgency was amplified by the 2022 enactment of the legal framework for self-generation of energy, which created a sense of urgency to secure exemption from the distribution network usage fee. These state subsidies are embedded in the Energy Development Account (CDE), funded by other consumers through tariffs.
Gradiente is in talks with two Chinese manufacturers to supply the equipment, aiming to profit from resales. Marcelo Ribeiro, CEO of Gradiente Solar, stated that the goal is to offer a comprehensive range of products and services, including accident insurance, project design, equipment selection, installation, certification, monitoring, and maintenance, all supported by a well-known brand
“We see major players investing in large-scale solar farms, and generally, small consumers participate in the energy transition indirectly. With the Gradiente brand, which resonates with Brazilians, we saw an opportunity to enter this market,” Mr. Ribeiro said. “Our focus is on microgeneration, prioritizing residences,” he added.
Signatures were forged in fictitious agreements with industrial companies; Unilever, P&G, and Philips were targeted
07/03/2024
Under the fraud scheme at Americanas, signatures of executives of manufacturing companies were digitally copied from real contracts, according to ongoing investigation — Foto: Bruno Peres/Agência Brasil
On March 9, 2019, Maria Christina Nascimento, working in Americanas for 35 years, since 1984, told Paula Faria, from commercial support, that she urgently needed to fix a problem involving fictitious authorizations for cooperative advertising fund allocation with suppliers.
“Colgate and Multilaser each have 2 signatures and they are identical. They are [placed] in the exact same position on the line and in the same fit,” said Ms. Nascimento, who was Ms. Faria’s boss in the department, in a Whatsapp message. The same thing happened with the L’Oréal invoice.
Ms. Faria countered by saying that the signature was repeated because it was always the same person who signed the contracts with Lojas Americanas suppliers. Ms. Nascimento, however, demanded a quick solution.
“Although it is the same person, they would not sign exactly alike on the same signature line. Help me! I need to fix this today,” the boss urged.
Under the fraud scheme, the signatures of executives of manufacturing companies were digitally copied from real contracts, filed within Americanas, and then pasted into forged contracts.
The problem is that the repeated signatures were identical on the forged agreements. And that could raise suspicion among auditors, who checked contracts on a sample basis.
The text messages are part of a Federal Police request for provisional remedy submitted to the Court last week and reviewed by Valor. On the 27th, the Federal Police launched “Operation Disclosure” with 15 warrants targeting former Americanas executives.
According to investigations by the Federal Prosecution Service (MPF) and the Federal Police, a scheme was in place for writing a series of forged contracts in the online operation of B2W (Submarino, Shoptime, Americanas.com), and Lojas Americanas, which happened with the endorsement of the top management.
Plea bargainer Marcelo Nunes told the MPF that, in 2021, there were R$1.4 billion in cooperative advertising funds, for annual net revenue of R$27 billion. Mr. Nunes did not inform whether the amount was all related to the fraud scheme.
The forgery was internally dubbed as “supplementary collection” and started in 2012, according to preliminary data gathered by the authorities. Former CEO Miguel Gutierrez, now living in Madrid, Spain, mentioned that date in a 2017 email exchanged with Carlos Padilha, then chief financial officer at Lojas Americanas. Both are being investigated by authorities.
The fund forgery was made to boost the group’s results. The fictitious figures were recorded as credits. In the case of Lojas Americanas, they reduced the Cost of Goods Sold (COGS) and, therefore, improved gross profit. At B2W, they also improved COGS and reduced marketing expenses.
In practice, as the funds did not exist, the documents were forged just to meet possible requests for verification by the audit.
In addition to the signature issue, there was another headache for the alleged fraud organizers. There were “good and bad” fictitious contracts.
In a 2019 text message exchange, Ms. Nascimento said that the Multilaser and L’Oréal forged contracts were “good” but there were other “not so good” forged contracts.
“If they get the good ones, I think it will work,” said Ms. Nascimento, commenting on the hypothesis that the documents would receive approval from KPMG auditor Carla Bellangero, in charge of the account at the time.
Ms. Bellangero was at the Americanas Investigative Parliamentary Committee (CPI), in August 2023, and presented indications that she had been deceived by the retailer. KPMG was the retailer’s auditor from 2016 to October 2019, when it was replaced by PwC shortly after meeting the mandatory minimum timing, as ordered by the rule on auditor rotation for public companies.
In another conversation, on February 23, 2018, Ms. Nascimento asked Ms. Faria to correct the fictitious funds. She claimed that the chocolate manufacturer Garoto’s contract had three signed fund authorizations, while the “cover” of the letter displayed a different date compared to the document. Ms. Faria said she would fix the problem.
Just two days earlier, on February 21, 2018, KPMG’s Ms. Bellangero met with Flávia Carneiro, then controller superintendent at Lojas Americanas, according to a Whatsapp message.
“Carla is still here,” Ms. Carneiro told Ms. Nascimento in the text message. “It’s tough. Better send it today,” she asked, regarding the 2018 forged letters.
In January 2024, Flávia Carneiro entered an agreement with the MPF to become a plea bargainer and handed over to the authorities documents and text messages that formed the basis for the investigation.
In the forgery process, dates and amounts were changed, but not industry registration data.
Christina Nascimento is being investigated for racketeering, use of insider information, and market manipulation. She is included on the list of 14 former executives targeted for search and seizure by the Federal Police on the 27th. Paula Faria’s name is not on the list. Some former employees have not yet been targeted by the Federal Police and could join a group of people who probably have been coerced into participating, according to MPF suspicions. The investigation is still ongoing.
There are 27 companies targeted for the alleged fraud scheme in the retailer in different years, according to authorities and plea bargainers in the provisional remedy. The list includes all types of companies, but there are a greater number of large groups.
“That helps to generate many contracts, as it is natural for a multinational company to have a large advertising budget. And the more contracts, the harder it is for an auditor to identify an error,” says a superintendent who negotiated contracts with Americanas.
Among the 27 companies are Unilever, Colgate, L’Oréal, J&J, Mondelez, Coty, Hasbro, BIC, Oi, Tramontina, and 18 more, in just a few weeks of 2016, 2017 and 2019, according to emails and text messages.
In 2016, seven companies, including Philips, Sony, and Black & Decker, were mentioned in text messages involving the forgery of funds.
Cooperative funds are widely used in retail, and they include a variation that can facilitate fraud.
At Americanas, there were three types: linked to the store’s purchasing targets with industries, linked to some loans negotiated with suppliers, and linked to price cuts in promotions. Industrial companies backed part of the promotion. “Each cooperative advertising fund agreement is one agreement, they are never the same. Perhaps that’s why it was so easy to forge it as the company wanted,” says another supplier.
Also according to the Federal Police, plea bargainer Marcelo Nunes said KPMG carried out processes for checking information with suppliers through a sample basis. The Americanas’s commercial department would contact manufacturers so that they could confirm the fund information.
Mr. Nunes did not provide further details of how that was done but affirmed that suppliers were unaware of the scheme and were deceived. Americanas’s commercial support area took statements from manufacturers confirming the total amounts, including real and fictitious, and sent them to auditors.
“As there are so many amounts involved, it is not easy to realize that you are being deceived,” says one factory superintendent. “Also, because industrial companies made a lot of money with Americanas, which always paid full price for products, their commercial relationship was good, and no one would want to create a problem,” the superintendent says.
The fraud step-by-step process involved a few people. The forged amounts were recorded in an Excel file, one by one, manually, by the commercial support area. The file would be named version 1, 2, or 3 depending on how many versions there were. The real list was called “version 0.”
Then, that was forwarded to the shared services center (SSC), which entered the data into the system, without checking it. The information technology area granted access to the system to a select group of people, who were part of the fraud scheme.
Based on Whatsapp text messages, executives said CEO Gutierrez received all file versions. The former CEO claims he was unaware of the fraud.
According to a third manufacturer, there is no expectation in the market of any legal action against Americanas as, in the reorganization plan, collaborating creditors committed not to litigate against the company.
As agreed, there is also no possible litigation against primary shareholders Beto Sicupira, Marcel Telles, and Jorge Paulo Lemann. Their names were not mentioned in the Federal Police’s provisional remedy and the MPF claims that the board of directors (which includes the partners or those appointed by them) were deceived.
When contacted, the mentioned companies Oi, Candide, Philips, and Colgate did not respond. Nadir Figueiredo says it is unaware of the facts and documents. The company claims that, if there were forgery of data, it occurred without its approval. Nestlé, the owner of Garoto, says it has no base to comment on.
Allied claims it is unaware of the facts and added that bonuses are common and that the amount mentioned in the list of funds has been released. Unilever responded that it does not comment on ongoing investigations. The other companies did not immediately respond to Valor’s inquiries. Paula Faria and Christina Nascimento could not be reached to comment.
Economic team has been working on expenditure review agenda for 60 days
07/03/2024
Fernando Haddad — Foto: Cristiano Mariz/Agência O Globo
Finance Minister Fernando Haddad will meet this Wednesday with President Lula to present proposals to ensure compliance with the fiscal framework until 2026. He avoided mentioning a date for the announcement of the measures and emphasized that the final decision on which paths will be taken lies with the president.
His statement comes amid demands from the financial market for spending cuts, as the fiscal adjustment has been carried out solely on the revenue side for a year and a half. From the expenditure perspective, the government has increased spending since the so-called Transition proposal to amend the Constitution and has only made registration revisions of social benefits.
According to Mr. Haddad, the economic team has been working on the expenditure review for 60 days, despite not having presented anything concrete yet. “The president has summoned the ministries of Planning and Management, the chief of staff and the Ministry of Finance not only for the preparation of the 2025 budget but also for the budget execution of 2024.”
Another concern of market agents is what the government will do in the May-June report on the evaluation of revenues and expenditures for this year’s budget, which will be released on July 22. Valor has learned that the economic team estimates that a potential freeze plus a cost-cutting plan could reach, at most, R$10 billion. The figures are still being reviewed by government experts and may change.
These experts see it as possible to implement a freeze (due to the risk of exceeding the spending limit) and a cost-cutting plan (due to the risk of not meeting the target range) simultaneously—which, if confirmed, would be unprecedented for this government. The practical effect for the affected ministries would be the same: the freezing of funds until the budget situation improves and the freeze can be lifted.
However, the preliminarily estimated amount is much smaller than expected by the market, which points to the need for a total spending freeze of up to R$40 billion.
On Monday, Mr. Haddad said that the spending freeze “will be as large as necessary for our goals to be achieved, both from the expense perspective, which has a cap, and from the revenue perspective, so that we approach, within the range, the 2024 target.”
The target for this year is a zero deficit, but the government has a buffer of up to R$28.8 billion. This is the figure the team is working with to determine the need for a spending freeze. The freeze occurs when there is a risk of exceeding the annual spending limit, according to the new fiscal framework rules.
Valor has also learned that the Ministry of Finance does not consider it essential for the public spending watchdog TCU to respond at this moment to a public inquiry about the maximum allowable cost reduction for the year, as the amount to be announced in the May-June report will be well below projections.
There is a disagreement between the ministries of Finance and Planning on whether a provision included in the 2024 Budget Guidelines Act is enough to provide legal security to the interpretation that the maximum allowable cost reduction this year is R$25.9 billion, ensuring a minimum real growth of 0.6% in spending.
Government experts argue that the 0.6% is budgetary and does not apply to financial execution itself. Thus, the maximum reduction of expenses could reach up to R$56 billion.
TCU experts, when analyzing the request, understood that the limitation sought by the Ministry of Finance could constitute a violation of the Fiscal Responsibility Act and the public finance law, potentially leading to punishment for public officials. The TCU members may or may not follow the auditors’ conclusions.
The inquiry was scheduled for judgment in the TCU’s plenary session on June 19 but was removed from the agenda. The evaluation among TCU members is that the topic is politically sensitive.
Mass participation in the agreement could generate up to $250bn a year to combat hunger and the effects of climate change
07/02/2024
Mauricio Lyrio — Foto: Wenderson Araujo/Valor
The success of implementing a wealth tax, a proposal spearheaded by Brazil during its G20 presidency this year, hinges on global adoption, according to Ambassador Maurício Lyrio, secretary of Economic and Financial Affairs at the Ministry of Foreign Affairs and Brazil’s G20 Sherpa, the personal envoy leading negotiations. Speaking on Monday at the Science 20 (S20) discussions in Rio, Mr. Lyrio also addressed energy transition, climate change, debt swaps, and combating hunger.
Mr. Lyrio emphasized that the government aims to continue the debate initiated in 2021 when the G20, in a binding agreement with the Organization for Economic Cooperation and Development (OECD), developed the “Two-Pillar Solution” to better direct the taxation of multinational corporations across their various markets.
Pillar 1 ensures that part of the profits of multinationals remain in the market jurisdictions where the profits are generated, while Pillar 2 establishes a 15% minimum tax on their global operations. Finance Minister Fernando Haddad, leading the G20 Financial Track, commissioned a study by French economist and University of California Professor Gabriel Zucman. The study proposes a 2% tax on large fortunes. According to the study, there are about 2,000 to 3,000 ultra-wealthy individuals worldwide, and a global agreement among all countries could generate $200 billion to $250 billion annually.
“It’s crucial to ensure effective international coordination. A global taxation effort won’t be effective if not universally accepted. We must work collectively to prevent tax evasion by defining headquarters,” said Mr. Lyrio. “It’s not simple, but Minister Haddad has managed to bring the issue to various governments, and there’s already a lot of positive reaction.” He noted that there is no consensus yet on how the revenue would be allocated.
Mr. Lyrio also mentioned that the G20 Summit will coincide with the COP29 in Baku, Azerbaijan, leading to potential cross-influence between the summits. He believes that achieving the goals of the Paris Agreement and future agreements requires multilateral negotiation. Mr. Lyrio pointed out that the G20 comprises diverse countries, with some rich in fossil fuels and others, like Brazil, in renewable resources. He argued that Brazil is one of the few countries where new oil and gas exploration frontiers like the Equatorial Margin are unlikely to cause a substantial impact.
“Brazil is a unique case; we completed the energy transition before the environmental crisis. About 93% of Brazil’s electricity is renewable, mostly hydropower, along with solar and wind,” he said. “Exploring more oil doesn’t change this mix; our emissions [from power generation] are already much lower than other countries.”
As Brazil’s main initiative in the G20, Mr. Lyrio highlighted the “Global Alliance Against Hunger,” which has three pillars: the Autonomous Pillar, where participating countries choose a social program to implement from a range of options; the Financial Pillar, which discusses the possibility of debt swaps for poor and indebted countries implementing social programs; and the Knowledge and Cooperation Pillar.
On July 4, Mr. Lyrio will receive proposals from the 13 engagement groups forming the social axis of the economic forum at the G20 Sherpas’ track meeting. For the first time, these contributions will be delivered in time to be incorporated into the declaration to be submitted to member states, which will be reviewed at the Leaders’ Summit in November in Rio.
Before that, a forum will gather all representatives from the engagement groups. “Previously, it was an informal relationship, now we’ve institutionalized it. This isn’t a pro-forma contribution, not something received at the last minute when the declaration is already negotiated. We want a real contribution.”
Group working on tax reform report expected to conclude it this Tuesday
07/02/2024
Arthur Lira — Foto: Bruno Spada/Câmara dos Deputados
Members of the working group responsible for discussing the main text of the regulation of the tax reform have made progress in ensuring that the exemption of animal protein in the basic food basket is included in the proposal.
The group responsible for drafting the report on the institution of the Tax on Goods and Services (IBS), Contribution over Goods and Services (CBS), and the Selective Tax (IS) conducted a new review of the report on Monday and will meet again on Tuesday to try and finalize the draft.
“There is an understanding among us that we should include animal protein,” Congressman Joaquim Passarinho told Valor.
One of the compensations under consideration for the inclusion without increasing the rate is that sports betting be taxed by the selective tax. The scope of the excise tax could also extend to electric cars, but a decision on this point has not yet been made.
More advanced, the working group of the Lower House on the bill that creates the management committee for the new IBS, created by the tax reform, finalized a draft report on Monday and sent it to the Extraordinary Secretariat for Tax Reform at the Ministry of Finance for evaluation.
According to Congressman Vitor Lippi, the report will reinforce a “friendlier tax authority” and fiscal citizenship. “There is no reason for the tax authority to be harsh on good taxpayers. It should be tough on bad taxpayers, evaders, and chronic debtors,” he said.
The lawmakers want to ensure harmony in the decisions of the management committee, which will manage the IBS, and the federal government, which will run the CBS.
The two taxes should follow the same rules and function, in practice, as a single tax, but there is fear among taxpayers of an increase in tax litigations due to divergent opinions between states and the federal government. Therefore, according to Mr. Lippi, the opinion will reinforce the requirement for harmonization in decisions on the two taxes and introduce measures to avoid litigation, with more possibilities for resolving disputes through administrative means.
The meeting included representatives from the federal government, states, and municipalities. Two of the seven members of the working group, Congressmen Vitor Lippi and Luiz Carlos Hauly, were at the meeting.
The working group members will meet with Finance Minister Fernando Haddad this Tuesday to discuss the text with the federal government. Later, there will be a public hearing with governors and state finance secretaries to discuss the proposal.
The lawmakers denied rumors that Speaker Arthur Lira had reached an agreement with the main parties in the Lower House to prohibit the presentation of amendments during the plenary discussion of the topic.
Although one of the texts is not yet finalized, there is an expectation that both groups will present their reports to the speaker and party leaders on Wednesday. The round of consultations with the party caucuses is expected to begin shortly thereafter.
This schedule was designed by Mr. Lira to facilitate the approval of the measures before the parliamentary recess.
R$14bn transferred to judicial accounts in the first half to settle creditor claims
07/02/2024
Judge Keity Saboya — Foto: Divulgação
The judicial system has markedly improved its efficiency in freezing funds in debtors’ bank and investment accounts. In the first six months of the year, the Judiciary’s Asset Search System (Sisbajud) saw a record surge in successful orders, with 4.9 million requests positively impacting creditors—the highest in the system’s semiannual history. A staggering R$40.8 billion was frozen during this period.
Additionally, the volume of transferred funds to judicial accounts reached record levels, with 3.8 million deposits totaling R$14.4 billion made in the first half of the year. This marks the second-highest amount recorded since the National Council of Justice (CNJ) began its tracking, only surpassed by the first half of 2018’s R$19.8 billion.
Experts note a discrepancy between the amounts frozen by the courts and those deposited in judicial accounts, as the system tends to block more funds than necessary. The process of transferring these funds is not automatic, allowing room for the debtor to contest the action.
“Once financial resources are blocked, the judge must notify the defendant, who has five days to demonstrate that the blocked amounts are either exempt from seizure or excessively high. In such instances, the judge will order the cancellation of the freeze, thereby returning the funds to the defendant,” explains Judge Keity Saboya of the 6th Tax Enforcement Court in Natal and assistant to the Chief Office of the CNJ.
The effectiveness of asset freezes in Brazil has significantly improved thanks to an overhaul of the court’s asset search system initiated in 2021. This enhancement stemmed from a 2019 technical cooperation agreement between the CNJ, the Central Bank of Brazil, and the Attorney General’s Office of the National Treasury (PGFN). The aim was to enhance the technological capabilities of the platform, which was subsequently transferred from the Central Bank to the CNJ.
This transformation has yielded notable results, culminating in the latest phase of implementation in April. This phase extended the duration from 30 to 60 days for the use of “teimosinha” (Brazilian Portuguese for “stubborn”), an automated tool developed with Sisbajud that persistently searches for a debtor’s financial assets. This tool scans all bank accounts and investments, whether in fixed or variable income assets like stocks, linked to the debtor’s tax ID or business taxpayer number daily. It continues until it locates sufficient funds to satisfy the debt.
Previously, with the Bacenjud system, asset searches were conducted over a single day, allowing debtors sufficient time to withdraw funds upon learning of a court decision. “It often took long enough for the debtor to become aware of the decision and withdraw money from the account,” explains Wagner Roberto Ferreira Pozzer, a partner at Rubens Naves Santos Jr. Advogados. The recent updates not only expedited the process but also introduced confidentiality, catching debtors off guard when their accounts are seized.
The extension of the search duration for “teimosinha” aims to “increase the effectiveness of the tools used in the search and seizure of assets during enforcement proceedings,” states Judge Keity Saboya, who serves on the Sisbajud Steering Committee at the CNJ. This committee, formed in February this year, includes representatives from the PGFN, the Central Bank, and federal, state, and labor courts.
While it is still early to definitively assess the impacts of this extension, Judge Keity notes that concrete results explaining the increased effectiveness of asset freezes are pending. However, further enhancements to the system are already in the pipeline for imminent implementation.
The CNJ is focused on further enhancing the automation within the system, including the implementation of automatic notifications for successful account blocks. Currently, the platform dispatches orders to banks by 7 p.m. on the same day, requiring responses by the following day. The goal is to reduce this response time significantly, potentially achieving real-time responses.
Furthermore, the Steering Committee is considering integrating Sisbajud with the National Asset Investigation and Recovery System (SNIPER), which would streamline and expedite asset searches across various databases. “For 2024, we are aiming to establish a unified portal that will manage the searching, blocking, and seizing of debtor assets,” explains Judge Keity Saboya. This integration would combine Sisbajud with other key systems, such as Renajud, which handles vehicle seizures, and Receitajud, which processes requests to the Federal Revenue Service, alongside other existing databases.
Ricardo Soriano Fay, substitute federal judge of the 1st Federal Court of Passo Fundo and representative of the Federal Justice Council on the Management Committee, attributes this year’s rise in successful blockings to three key factors: the increased application of the “teimosinha” function, a larger number of participants in the financial system, and greater investments in the stock market.
He is optimistic about the potential benefits of extending the search period for “teimosinha.” “The nature of transactions means funds may move in and out of accounts quickly, sometimes eluding Sisbajud’s reach. Extending the blocking attempts to 60 days is designed to give creditors a better opportunity to recover debts and enhance the likelihood of payment,” explains Judge Fay.
Rodolfo Amadeo, a professor of civil procedure at FGV Direito SP, supports the idea of integrating Sisbajud with other systems to enhance the efficiency of collection actions. “Currently, various regionalized systems exist; the board of trade operates one way, the real estate registry another, and the absence of a unified system makes the process both costly and time-consuming for creditors. A unified system would streamline these efforts significantly,” he explains.
Mr. Amadeo points to Portugal’s 2014 centralization as a successful model, noting that it allows for an out-of-court search of a debtor’s assets before initiating a collection action. “If the preliminary search reveals no assets, the creditor may decide not to proceed with the execution,” he said.
The professor attributes the rise in the amounts blocked to the increased adoption of artificial intelligence in the judiciary since 2021. This is reflected in the Sisbajud data, which shows a notable increase in constriction attempts—almost doubling annually for the first six months. In 2024, during this period, over 105,000 blocking orders were issued, a significant rise from 76,800 in 2023 and 49,600 in 2022, underscoring the impact of the “teimosinha” feature. Prior to these developments, in 2021, there were fewer than 17,000 attempts.
Additionally, the professor points to the centralization of judicial demands in registry offices as another catalyst for efficiency gains. In São Paulo, for example, the establishment of the Judicial Processing Unit has consolidated three or more offices of the same jurisdiction to process and execute judicial orders. This reorganization has improved magistrate productivity by nearly 50% and reduced case processing times by about 60%, according to data from the São Paulo State Court.
Currency has been losing ground against the dollar, in its deepest plunge since January 2022; short-term interest rates soar with worsening exchange rate
07/02/2024
Otavio Oliveira da Silva — Foto: Carol Carquejeiro/Valor
The perception that risks to the government accounts’ track have not diminished, coupled with an international scenario of high pressure on emerging markets due to rising yields of U.S. Treasuries, led to continued stress on local assets on Monday. In this context, the foreign exchange rate rose significantly, closing at R$5.65 per dollar, the highest level since January 2022. The depreciation of the Brazilian currency has pushed the market to price in a 125-basis-point hike in the Selic policy rate this year.
Recent days have seen a continuous deterioration in assets. Amid concerns over the government’s economic policy and the sense that politicians lack urgency in addressing fiscal issues, risk premiums on assets have been increasing rapidly.
Finance Minister Fernando Haddad attributed the weakening of the real to “communication noise” and said the government needs to better communicate the results achieved in the economy. Asked if it was time for the Central Bank to intervene in the exchange rate, he said that it is a matter for the monetary authority, “and they know when and how to do it.”
After the foreign exchange rate ended the first half of the year with an appreciation of more than 15%, there was an expectation that Friday’s stress was linked to the end of the semester, due to position adjustments and the formation of the end-of-month Ptax (an exchange rate calculated during the day by the Central Bank of Brazil). Monday’s session challenged that view.
According to Otávio Oliveira da Silva, treasury manager at Daycoval, the question to be answered is where the real crash will end. “Now we will be testing levels. If this speculative scenario testing continues, the Central Bank might eventually step in to calm the market. It’s hard to pinpoint when this will happen, though.”
In his view, the market struggles to find a feasible level that aligns with expectations. “For now, there is caution, and caution in a local uncertainty environment often translates into buying dollars.”
The pressure from the exchange rate spread to the futures interest rate market. Thus, the initial part of the yield curve, more sensitive to monetary policy prospects, faced strong upward pressure.
By the end of the day, the rate on the Interbank Deposit (DI) contract for January 2025 rose to 10.835% from 10.735% in the previous adjustment, while the rate for January 2026 DI increased to 11.77% from 11.55%.
In this context of accelerated depreciation of local assets, the market is now working with a Selic rate above 11.75% per year by the end of 2024—which would mean the Central Bank raising the Selic rate by 125 basis points by December. In the COPOM digital options market, agents increased their bets on an interest rate hike at the July meeting. On Monday, the probability of a 25-basis-points increase rose to 10% from 3%. The probability of a 50-basis-point rise jumped to 15% from 8%, and the likelihood of maintaining the rate fell to 71% from 85%.
“It was a day to stop and revisit the Central Bank’s recent communications. This is not our baseline scenario yet, but the questions need to be asked. We still have almost 20 working days until the next COPOM meeting, which is almost long-term in Brazil, but if the meeting were tomorrow, I believe the Central Bank would have to open up to the possibility of raising interest rates. Initially, I think the authority would communicate that the risk balance has become asymmetrical, which would be the first step towards a rate hike,” said Daniel Cunha, chief strategist at BGC Liquidez.
In his view, July 22, when the National Treasury announces the May-June Evaluation Report, will be crucial to understand the government’s commitment to the spending track and the fiscal framework. “The expectation is that there will be a spending freeze of around R$20 billion. It remains to be seen whether the political reality will allow this to happen, but there is growing pressure for this. This market discomfort is likely to persist until there is some trend reversal in the fiscal component,” said Mr. Cunha.
Decoupled from other local assets, the Ibovespa, Brazil’s benchmark stock index, closed the day higher, primarily supported by exporting companies that benefit from the weakened real. However, the local currency also exerted negative pressure as it affected the yield curve and, consequently, interest rate-sensitive companies. By the end of the day, the index rose by 0.65% to 124,718 points.
According to BTG Pactual analysts, the deterioration of local assets can be attributed to what they believe is a crisis of fiscal and monetary confidence. “The unanimous COPOM decision may have restored some confidence, but a full recovery is likely only after the new Central Bank president is appointed. On the fiscal side, we expect the government to announce a spending freeze in July, but structural changes are only expected after the municipal elections.”
Given the pressure from the weakened real, operators have been debating whether the Central Bank should intervene in the exchange market to ease the buying pressure on the U.S. dollar.
Mr. Cunha, from BGC Liquidez, believes that this discussion is secondary at the moment. “Using foreign exchange intervention as an economic policy tool is something we have moved past. It could happen in the event of transactional market dysfunction, and no one maps this better than the Central Bank’s exchange desk. The COPOM members themselves have denied this possibility. This is not the central problem facing local assets.”
B3 data once again showed an increase in the level of foreign bets against the real. The long position in the dollar is close to $82 billion, although some end-of-month adjustments may correct this value. On the other hand, local investors increased their short position in the dollar to $7.5 billion, which may also be adjusted due to the turn of the month.
*Por Arthur Cagliari, Gabriel Roca, Matheus Prado, Victor Rezende — São Paulo
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