Brazil’s standard tax rate may rise despite changes, experts warn

Government spending pressures and revenue assurance efforts could still prompt rate adjustments

12/18/2024

Brazilian Lower House’s rejection of 34 amendments made by the Senate to the tax reform regulation—which had contributed to raising the standard rate of the Value Added Tax (IVA)—is unlikely to ensure that the rate remains at 26.5%, experts interviewed by Valor suggest. Government spending pressures across various levels and the pursuit of revenue guarantees may also lead to future rate adjustments.

The changes to the tax reform bill made in the House, after its approval in the Senate, are in line with the executive branch’s proposal, said political scientist Rafael Cortez of Tendências Consultoria.

“Now we wait for the Presidency of the Republic to review the text, which may veto certain sections, and for the Finance Ministry to calculate the reference rate,” explained tax attorney Thais Shingai, partner at Mannrich and Vasconcelos Advogados. “Rapporteur Reginaldo Lopes [Workers’ Party, Minas Gerais] mentioned wanting to return to the 26.5% ceiling, but it’s important to remember that even in the House, the exceptions implied a higher rate.”

When the bill reached the Senate, the IVA projection was already at 27.97%, according to government calculations. With the Senate’s amendments, the rate was estimated to increase to 28.55%. Rapporteur Lopes removed 34 of the Senate’s proposals—a reduction sufficient to lower the IVA by 0.7 percentage points.

Among the key factors that elevated the IVA, Ms. Shingai pointed out the removal of the provision that equated basic sanitation services with healthcare services, which allowed the sector to benefit from a 60% IVA discount. Other expansions to the list of exceptions, such as the inclusion of cookies and mineral water, and the reduction of the tax rate for leasing medical equipment, were also vetoed, which she considers positive.

The elimination of the proposal that mandated tax substitution for transactions involving alcoholic beverages, soft drinks, and tobacco products was also seen as a positive move, she adds. “It would have created unnecessary complexity, which would have been very problematic, especially since there is already a ‘split payment’ system and destination-based taxation.”

Regarding changes to the Selective Tax, Ms. Shingai highlighted the exclusion of weapons from the list and the reinstatement of sugary beverages, which she views negatively. “This is a controversial issue. Some countries have implemented similar taxes without achieving the desired health outcomes. For example, Mexico saw a decrease in soft drink consumption but an increase in other beverages,” she explained.

Ana Cláudia Utumi, a tax attorney and partner at Utumi Advogados, noted that defining negative health externalities for the Selective Tax is complex. “The difference between medicine and poison is the quantity, and sugary beverages also include juices that are part of children’s lunchboxes.”

However, not all Senate changes to the Selective Tax were removed, Ms. Utumi pointed out. The Lower House retained the section stating that the tax should only apply to the extraction of mineral goods and no longer to their export. The original government proposal had mandated the tax regardless of the destination of the mineral goods, including exports.

With fewer benefits, Ms. Utumi said the standard rate should be lower, but questions whether the changes are sufficient.

“There’s another factor impacting the standard rate, which is government spending that continues to rise. The final rate will be determined in 2032. So, even with the changes made now and attempts to lock the rate in law, it’s impossible to guarantee a fixed rate with growing public expenditures and the notion that revenue won’t decrease. It’s not just the rising expenses themselves, but the fact that some states aren’t paying all their bills,” she explained.

Adjusting this, according to Ms. Utumi, should come from a review of expenditures. “But such reviews are usually modest, and we’re already seeing the chaos caused by the recent surge in the dollar.” She also suggested that adjustments could come from revising tax benefits. “However, over the years, we’ve seen how difficult it is to alter tax benefits. Revoking them involves a very complicated power struggle.” Therefore, the most likely path, she said, would be altering the tax rate.

Ms. Utumi explained that the maximum rates for the CBS (federal Contribution on Goods and Services) and the IBS (Tax on Goods and Services) will be set by Senate resolution. States and municipalities may implement IBS rates below the maximum but must apply the same tax level across all activities. She expects this rule to discourage state and municipal governments from reducing their IBS rates.

As for the Selective Tax rates, they will be defined by ordinary law. Federally, Ms. Utumi noted that Selective Tax and CBS revenues should be equivalent to the current collections of PIS (Social Integration Program), Cofins (Contribution for the Financing of Social Security), and IPI (Tax on Industrialized Products). These three taxes will be abolished under the new consumption tax reform.

*By Marcelo Osakabe, Marsílea Gombata e Marta Watanabe

Source: Valor International

https://valorinternational.globo.com/
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Auctions expected to draw R$16bn this week

Paraná’s highway Lot 6 draws bid from EPR; three port terminals up for auction

12/17/2024

The federal government is set to conduct auctions this week for three port terminals—in Maceió, Rio de Janeiro, and Amapá—in addition to a major highway concession in Paraná. These projects are expected to attract a combined investment of R$16.3 billion, with R$12.7 billion allocated to highways and R$3.6 billion to ports.

Paraná’s Lot 6 marks the conclusion of a series of road auctions. The contract received a bid from EPR, a roadway platform by Equipav and Perfin, as representatives of the group submitted a proposal on Monday (16). This year’s final auction is scheduled for Thursday (19).

The project was considered the most challenging among those auctioned in December due to the size of the contract. The lot includes 662 kilometers of roads connecting Guarapuava to the Brazil-Paraguay Friendship Bridge and a stretch between Cascavel and Pato Branco in the southwest of the state. Planned projects include the dualling of 462.5 kilometers.

Additionally, operational costs are anticipated to reach approximately R$7.4 billion over the 30-year concession contract period.

EPR previously secured Paraná’s Lot 2 last year. Formed in 2022 after winning state concessions in Minas Gerais, the group has become a regular participant in road auctions. Besides the projects in Minas and Lot 2, the company also won the concession of the BR-040 between Belo Horizonte and Juiz de Fora.

Last week, the group participated in two federal road project bids but failed to win any contracts amid stiff competition. Paraná’s Lot 3 was awarded to CCR, which outbid EPR, Pátria, and the 4UM Opportunity consortium; while the Rota Verde in Goiás was claimed by the Aviva consortium, in partnership with Azevedo and Travassos, defeating BTG, EPR, and XP.

The port sector auction, slated for Wednesday (18), will feature the iron ore terminal ITG 02, at the Itaguaí Port, in the state of Rio de Janeiro, as the key asset. This new development will need to be built from scratch and is projected to require investments of around R$3.53 billion. The contract is expected to last 35 years.

Located in the “middle area” between Vale and CSN terminals, the facility is expected to handle 20 million tonnes of ore annually. The selection criterion will be the highest concession fee offered by the future lessee to the government, with a minimum bid set at just R$1, a common practice in port auctions.

In addition to the iron ore terminal, two smaller assets will be auctioned, one in Maceió and another in Santana Port in Amapá. The MCP 03 in Santana is designated for solid bulk cargos, primarily soy and corn.

The 25-year contract anticipates R$89 million in investments. The terminal is already operational, but the new contract aims to more than double the area from the current 4,900 square meters to about 11,700 square meters, and to construct new silos to increase capacity. Currently, the area is operated by Cianport (Companhia Norte de Navegações e Portos) under a transitional contract.

The terminal in Maceió, MAC 16, is intended for the flow of solid mineral bulk, especially copper concentrate. This facility is also operational, managed by Empresa Mineração Vale Verde. The new contract to be auctioned will last five years, with an extension option, and includes R$6.1 million in construction investments. For both projects, the competition criterion will also be the concession fee, with a minimum of R$1.

Both the port and highway auctions will take place at the B3 headquarters in São Paulo.

*By Taís Hirata  — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Trump defends tariffs, criticizes countries like Brazil

President-elect says tariffs “will make the U.S. rich” and signals trade will be based on reciprocity

12/17/2024

In his first press conference since the election, U.S. President-elect Donald Trump defended his plans to impose tariffs on imports from several countries. Speaking at his Mar-a-Lago resort in Florida, Mr. Trump publicly included Brazil for the first time among nations that excessively tax American products, threatening to respond with tariffs.

There are countries that tax us a lot, like Brazil, Mr. Trump said. “They tax us, we tax them. Tariffs will make our country rich,” he said, reinforcing his intention to implement trade barriers on imports from many nations after taking office.

This marks the first time since his election victory on November 5 that Mr. Trump has explicitly named Brazil as a target for potential tariff increases.

The president-elect reiterated his broader trade strategy, which includes increasing tariffs on Chinese products by 60% and imposing import duties of 10% to 25% on goods from other nations. These measures aim to boost U.S. business profits and job creation but have sparked controversy.

Recent studies, such as one by Japan’s Institute of Developing Economies, suggest that such tariffs could cause the U.S. economy to lose 1.1% of its GDP by 2027, given the country’s reliance on imports ranging from mining supplies to food products.

The press conference, which lasted over an hour, also covered foreign relations and other topics.

Howard Lutnick, Mr. Trump’s pick to lead the Department of Commerce, emphasized the administration’s focus on reciprocal trade policies. “Reciprocity is something that is going to be a key topic for us. How you treat us is how you should expect to be treated,” Mr. Lutnick said when asked about the possibility of a trade agreement with China.

During the press event, Mr. Trump announced a $100 billion investment from Japanese technology company SoftBank in U.S. projects over the next four years. The investment, following a meeting with SoftBank CEO Masayoshi Son, is expected to create 100,000 jobs in artificial intelligence and emerging technologies, with plans to complete the initiative before Mr. Trump’s second term ends in 2029.

Addressing the war between Russia and Ukraine, Mr. Trump said he is working to end the conflict but did not provide details. He urged Ukrainian President Volodymyr Zelensky to be prepared to negotiate with Russia to stop the war. Mr. Trump said additional U.S. aid to Kyiv should only be provided after peace talks begin.

“He [Zelensky] should be prepared to make a deal, that’s all,” Mr. Trump said. “Got to be a deal. Too many people being killed.”

Mr. Trump also spoke briefly about his meeting with Mr. Zelensky earlier this month in Paris. Responding to a reporter’s question, he clarified that he had not invited Mr. Zelensky to his inauguration, although invitations were sent to other world leaders. “If he’d like to come, I’d like to have him. I didn’t invite him, no,” Mr. Trump said.

Regarding the war in Gaza, Mr. Trump demanded that Hamas release all hostages by his inauguration on January 20 or face severe consequences.

“As you know, I gave a warning that if these hostages aren’t back home by that date, all hell is going to break out,” Mr. Trump said.

He mentioned recent conversations with Israeli Prime Minister Benjamin Netanyahu about the conflict but did not provide specifics. He also credited Turkey for aiding Syrian rebels in toppling the regime of former President Bashar al-Assad.

The press conference was notably less combative than some of Mr. Trump’s heated exchanges with journalists during the campaign. Appearing relaxed, he joked with reporters he recognized and commented on how smooth the transition has been compared to his first term. “The first term, everybody was fighting me,” Mr. Trump said. “In this term, everybody wants to be my friend.”

(With reporting from international agencies.)

*By Valor — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Tax reform group rejects tax breaks for sanitation

Additional tax on sugary drinks reinstated as Congress debates changes

12/17/2024

The tax reform working group in Brazil’s Lower House has proposed rejecting tax breaks approved by the Senate for sectors such as veterinary services, pet health plans, basic sanitation, funeral homes, commercial representatives, biscuits, mineral water, and soccer corporations (SAFs). The group also opted to reinstate the additional excise tax on sugary drinks, such as soft drinks.

The move, anticipated by Valor, aims to lower the standard rate of the upcoming Goods and Services Tax (IBS) and Contribution on Goods and Services (CBS), central pillars of Brazil’s new tax system. The Senate’s version of the bill pushed the rate above 28%, exceeding the 26.5% limit agreed upon by both houses: the more approved exceptions, the higher the standard rate applied to other goods and services.

“Our revised version reduces the standard rate by 0.7 percentage points,” said the bill’s rapporteur, Congressman Reginaldo Lopes. He did not specify the base for this calculation but maintained that improved tax compliance would keep the rate at 25%.

Conversely, the working group accepted all tax benefits for the Manaus Free Trade Zone, which was approved by Senate rapporteur Eduardo Braga, a prominent advocate for the region. However, some lawmakers hope to challenge these benefits when the bill goes to a floor vote, where parties can request individual votes on specific provisions.

These decisions were made during meetings with party leaders and House Speaker Arthur Lira, who unexpectedly scheduled the reform for a floor vote on Monday night. The abrupt move caught many by surprise, including members of the working group, some of whom were not in Brasília. The session was postponed to Tuesday to ensure broader attendance.

Among the Senate’s changes supported by the working group are tax rebates for telecommunications services used by low-income households, reduced rates for diapers (60% discount), bars, restaurants, hotels, and amusement parks (40% discount), and a tax exemption for gratuities up to 15%.

The group also upheld Senate amendments for financial services, including tax breaks for credit recovery and loan guarantees. Additionally, credit-receivable funds (FIDCs) will be taxed under financial sector rules when early liquidation occurs, provided the fund is not classified as an investment entity.

However, the Lower House’s working group rejected Senate proposals for tax cuts on SAFs, veterinary services, funeral homes, extracurricular schooling, and basic sanitation, along with the Senate’s list of discounted medications. Veterinary services and pet health plans will see a 30% rate reduction instead of the Senate-approved 60%, while other sectors will pay the full tax rate. Biscuits, cookies, and mineral water, which received a 60% discount in the Senate, will also be taxed at the standard rate.

The most contentious issue remains the Manaus Free Trade Zone. In the Senate, Mr. Braga pushed for a zero CBS rate on goods and services exclusively for businesses located in the region’s industrial hub. He also extended the deadline for utilizing tax credits from six months to five years and removed caps limiting credit use for non-tech goods. For example, while capital goods previously faced a 75% cap, the Senate allowed full credit utilization for any benefit approved by state law by December 31, 2023.

Amid growing opposition, Mr. Lira and party leaders supported these proposals, but a specific tax benefit for fuel refining in the Manaus Free Trade Zone remains up for debate. If approved, it would benefit Atem Group, which purchased Petrobras’s Ream refinery last year.

The oil and gas sector has voiced strong objections, calling the provision anti-competitive. The Brazilian Institute of Oil and Gas (IBP) warned that exempting certain refineries from taxes would distort the market. “In a sector with high tax burdens and narrow profit margins, this would create a competitive imbalance, as refineries in the Manaus Free Trade Zone would enjoy exemptions while others bear the full fiscal burden,” the IBP said.

Meanwhile, the oil workers’ federation (FUP) and the Amazonas oil workers’ union (SINDIPETRO) condemned the proposal as “blatant opportunism” designed to “favor business allies.”

In response to the debate, Mr. Braga criticized industry federations from São Paulo and Rio de Janeiro on social media. “It is unacceptable for entities like FIESP [Federation of Industries of the State of São Paulo] and FIRJAN [Rio de Janeiro Federation of Industries] to act once again against Amazonas while our development model remains an example of environmental preservation and job creation,” he wrote.

The Lower House also decided to reinstate the excise tax on sugary drinks, reversing the Senate’s rejection. The tax aims to discourage the consumption of goods harmful to health and the environment.

For automobiles, the Lower House proposed linking the excise tax to such as engine power, performance, technological density, local production, and vehicle category. The tax will now apply only to mineral extraction, not exports. The Lower House also prohibited tax substitution mechanisms for soft drinks and cigarettes.

*By Raphael Di Cunto e Marcelo Ribeiro

Source: Valor International

https://valorinternational.globo.com/
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Vale’s sustainability VP resigns amid leadership changes, sources say

Maria Luiza Paiva had been with Vale since February 2021 after holding a similar position at Suzano; projects team led by Alexandre Pereira could be disbanded as well

12/11/2024

Under new leadership, Vale continues to overhaul its management structure. On Tuesday (10), the mining giant informed employees of further changes in its executive ranks, sources told Valor.

The most notable development was the resignation of Maria Luiza Paiva, the company’s executive vice president of sustainability. Ms. Paiva, widely known as “Malu,” joined Vale in February 2021 after holding a similar position at Suzano.

A succession process will begin to appoint a new executive to lead sustainability, which will remain a key area within Vale’s executive committee. The committee comprises the company’s CEO Gustavo Pimenta and VPs.

While no official reasons were given for her departure, insiders suggest it reflects the broader transformation underway at Vale since Pimenta took over as CEO on October 1.

Project team to be dissolved

The company also plans to dissolve the executive vice presidency of projects, currently led by Alexandre Pereira. Responsibilities from this division will be divided between the operations vice presidency, headed by Carlos Medeiros, and the technical vice presidency, led by Rafael Bittar.

Ms. Paiva’s tenure at Vale coincided with the aftermath of the Brumadinho disaster in January 2019. The tragedy forced Vale to adopt more ambitious ESG (environmental, social, and governance) commitments, according to company insiders.

Ms. Paiva had the ideal profile, experience, and a respectable resume. During the 2021 Vale Day investor event, the company unveiled long-term social and environmental targets, including lifting 500,000 people out of extreme poverty by 2030 in the countries where it operates. This goal focuses on individuals earning less than $1.90 per day, as defined by the World Bank, and involves a $200 million investment.

Vale also pledged to increase diversity, targeting 40% of leadership roles held by Black individuals by 2026. On the environmental front, it committed to decarbonization targets across its value chain, addressing scope 1, 2, and 3 emissions.

Despite these initiatives, some executives have criticized the alignment of Ms. Paiva’s ESG agenda with Vale’s business challenges. “It was a beautiful agenda for a government. The idea was to make social investments in exchange for projects of interest to Vale, for licenses. The company also needs to deliver [financial] results,” one source said, arguing that while the ESG goals are sensible, their implementation pace must account for Vale’s short-term realities.

Financial pressures

Vale faces growing financial demands, including R$170 billion in commitments related to the 2015 Mariana disaster settlement, shared with BHP Billiton and Samarco. While the payments are spread over 20 years, the heaviest outflows occur in the early years.

Additionally, the company is under increasing pressure from federal and state governments for more financial contributions. In response, Vale has created regional institutional departments, appointing Kennedy Alencar, a journalist aligned with President Lula’s Workers’ Party, to head the Brasília office. Directors for the North-Northeast and Southeast regions are expected to follow.

Strategic priorities

“Vale’s priority now is the ‘Brazil agenda,’ including the Bamin [Bahia Mineração] project, railway concession renewals, the Mariana settlement payments, and regional royalties. There isn’t enough money for everything,” an industry executive said.

Despite these challenges, sources close to Vale maintain that there is “zero” chance of backtracking on ESG commitments, arguing that they are closely tied to the company’s business strategy.

*By Francisco Góes

Source: Valor International

https://valorinternational.globo.com/
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Brazil’s Central Bank speeds up tightening, raising rates by 100bp

Citing an adverse scenario, the Monetary Policy Committee unanimously raised the Selic policy rate to 12.25%

12/12/2024

The Monetary Policy Committee (COPOM) accelerated its tightening pace, raising the benchmark Selic rate from 11.25% to 12.25%. Citing a more adverse and less uncertain scenario, the committee also signaled two additional hikes of 100 basis points each for the upcoming meetings, “contingent on the expected scenario being confirmed.”

With this guidance, the newly configured COPOM in 2025, chaired by Gabriel Galípolo and with seven of its nine seats occupied by appointees of the current government, could raise the Selic rate to 14.25% by March. This level would be the highest since August 2016. Wednesday’s decision was unanimous.

The COPOM said the total magnitude of the tightening cycle will depend on its “firm commitment” to anchoring inflation to the target and “will depend on the evolution of inflation dynamics.” The continuous inflation target from 2025 onwards is 3% per year, with a tolerance band of 150 basis points in either direction.

The committee cited factors influencing the cycle’s magnitude, including the evolution of inflation components most sensitive to economic activity and monetary policy. Additionally, the statement highlighted inflation projections, inflation expectations, economic slack (the output gap), and the balance of risks—factors that could lead inflation to deviate from the Central Bank’s forecasts.

On economic activity, the COPOM noted the ongoing “dynamism” in the labor market. It pointed out that the 0.9% GDP growth in the third quarter indicated a further narrowing of the output gap. A positive output gap, already a factor in previous meetings, suggests that economic activity is above potential, potentially fueling inflation.

The committee also emphasized that there has been additional de-anchoring of inflation expectations and upward revisions to its projections. The COPOM now forecasts the IPCA inflation index at 4.9% in 2024, 4.5% in 2025, and 4% in the second quarter of 2026. Meanwhile, the Central Bank’s Focus survey, which aggregates market expectations, shows a median inflation forecast of 4.84% for this year, 4.59% for 2025, and 4% for 2026. The second quarter of 2026 is currently the relevant horizon for monetary policy.

The combination of de-anchored expectations, stronger-than-expected activity, and a wider output gap requires “an even more contractionary monetary policy,” according to the COPOM. Regarding the balance of risks, the committee noted that risks have materialized, and the scenario is now “less uncertain and more adverse” than in the previous meeting in November. It also highlighted a persistent upward bias in the balance of risks.

The Central Bank assessed that market reactions to the government’s fiscal measures significantly impacted asset prices and expectations, particularly regarding risk premiums, inflation expectations, and the exchange rate. These factors, the committee argued, contribute to “a more adverse inflationary dynamic.”

In late November, the government announced fiscal adjustment measures expected to have a R$70 billion impact over the next two years. After the measures were disclosed, the exchange rate per U.S. dollar breached the R$6 level. On Monday, however, the U.S. currency closed at R$5.9682.

LCA Consultores noted that the tone of the COPOM statement was the most conservative since 2016, according to an index developed by the firm. “It was the most ‘hawkish’ statement since communications reached a minimum number of sentences for analysis,” said economist Bruno Imaizumi from LCA. “This is consistent with the surprising 300 basis points already in the pipeline. It aims to fully dispel the doubts that the COPOM itself created in May.”

Mr. Imaizumi referred to the May decision, when the committee was split. Four members appointed by the current government voted for a sharper rate cut, while the other five, already on the Central Bank’s board, favored a smaller 25-basis-point cut.

When asked about the COPOM’s decision, Finance Minister Fernando Haddad said it was surprising on one hand but “had already been priced in” on the other. He added that he would review the statement and consult with others after the quiet period.

(Victor Rezende contributed reporting.)

*By Gabriel Sinohara e Alex Ribeiro

Source: Valor International

https://valorinternational.globo.com/
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Brazil’s financial conditions worsen after government package

November saw an accelerated decline, with impacts visible in key indicators, currency shifts, and long-term interest rates, heightening economic concerns

12/10/2024

The government’s fiscal adjustment package and the proposed income tax exemption for individuals earning up to R$5,000 per month have worsened Brazil’s financial conditions, a composite measure of variables such as interest rates and exchange rates. This deterioration is expected to affect economic activity negatively. Economists consulted by Valor noted that the outlook for these conditions and their impact on the economy depends primarily on fiscal expectations for the federal government.

Financial condition indices aim to measure the effect of variables such as exchange rates, interest rates, and risk indicators on economic activity, often with a lag. Long-term interest rates, for instance, influence credit costs but can also serve as a forward-looking indicator of economic confidence, affecting investment decisions. Similarly, exchange rate fluctuations can impact corporate foreign debt, as seen with airline companies.

November, the month when the adjustment measures and tax exemptions were announced, saw a marked worsening in financial conditions. Compared to October, Brazil’s Ibovespa stock index fell by 3.11%, while the exchange rate per U.S. dollar rose 3.79%, surpassing R$6 for the first time. Last week, the FX rate increased again, this time by 1.18%, while the Ibovespa showed a slight rise of 0.22%.

According to the Brazilian Institute of Economics at Getulio Vargas Foundation (FGV Ibre), financial conditions have been in contractionary territory since April, driven by uncertainties about the sustainability of federal accounts. November saw a further deterioration, with the indicator dropping from 0.11 in March to -0.62 in early December. Values below zero indicate contractionary conditions.

“The pricing dynamics in Brazil are almost entirely dependent on fiscal policy, which has disappointed since the beginning of the year,” said Caio Dianin, a researcher in applied economics at FGV Ibre. The institute’s financial conditions index replicates a similar measure calculated by Brazil’s Central Bank.

“We cannot disregard the worsening external scenario, but it’s not the key driver,” Mr. Dianin added. FGV Ibre projects GDP growth of 2% for 2025, below the 3.1% annualized increase reported up to September by the IBGE, the national statistics agency.

The adjustment measures introduced in November are expected to reduce primary spending growth, excluding federal public debt expenses, by R$70 billion over the next two years. Among the proposals is a cap limiting the real increase in the minimum wage to 2.5% per year. The package has drawn criticism from fiscal experts and market participants, who argue that the measures do little to curb the pace of public debt expansion. The gross general government debt (DBGG), the key indicator of federal indebtedness, reached 78.6% of GDP in October, up roughly seven percentage points since December 2022, just before the current administration took office.

The proposed income tax exemption for individuals earning up to R$5,000 per month also faced criticism. Concerns included the lack of necessary fiscal compensation, the measure’s regressive impact favoring the middle class over poorer populations, and its potential to stimulate economic activity at a time when the economy is already operating beyond its potential. Both the fiscal package and tax changes require congressional approval.

According to MCM Consultores, after two years of expansionary conditions, financial conditions shifted to neutral in September this year and have since turned contractionary. Between July last year and November this year, the index fell from 1.2 to -0.3.

Fábio Ramos, an economist at UBS BB, said, “Without a doubt, financial conditions have worsened” since the announcement of the adjustment measures and the tax exemption. He added that they are likely to become “even more contractionary” in the future due to the Central Bank’s expected hike in the Selic policy rate. On Monday (9), the Central Bank’s Focus survey revealed that market projections for the overnight interest rate at the end of 2025 had risen to 13.5% per year from 12.63%. Currently, the Selic rate stands at 11.25% per year. Today, the Monetary Policy Committee (COPOM) begins its final meeting of the year.

With higher interest rate expectations, UBS BB officially projects GDP growth of 1.25% next year, potentially reaching 1.5%—still below 2024 levels.

At an event organized by XP Investimentos early last week, the Central Bank’s monetary policy director and incoming chair, Gabriel Galípolo, also highlighted the new financial conditions. Mr. Galípolo said that current levels of exchange rates, interest rates, and especially long-term rates are starting “to show some impact on financial conditions.” He said this is already sparking “some discussions about how [the shift] will affect investment and other decisions” in the economy.

Three weeks before the fiscal adjustment measures were unveiled, the COPOM noted in the minutes of its most recent meeting that “a reduction in expenditure growth, particularly in a more structural manner, could even boost economic growth in the medium term through its impact on financial conditions, risk premiums, and better resource allocation.”

  • By Estevão Taiar – Brasília
  • Source: Valor International
  • https://valorinternational.globo.com/
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Novo Nordisk to expand enzyme production in Brazil

Expansion aims to boost production of enzymes essential for manufacturing Ozempic and Wegovy, medications used to treat diabetes and obesity

12/10/2024

Novo Nordisk’s plant in Montes Claros: company’s investment in Brazil over two years will reach R$1.3bn — Foto: Divulgação
Novo Nordisk’s plant in Montes Claros: company’s investment in Brazil over two years will reach R$1.3bn — Photo: Divulgação

Danish pharmaceutical company Novo Nordisk announced on Monday (9) an additional investment of R$500 million in Brazil. The funds will be used to construct a new annex at the company’s plant in Montes Claros, Minas Gerais. The expansion aims to boost the production of enzymes essential for manufacturing Ozempic and Wegovy, medications used to treat diabetes and obesity.

With this investment, the total amount to be invested by the company in Brazil over the next two years will reach R$1.3 billion.

In October, Novo Nordisk disclosed an investment of R$864.2 million for insulin production at the same Montes Claros facility. The plant produces approximately 12% of global insulin consumption and is the sole producer of enzymes for the Danish pharmaceutical company.

  • While the company did not disclose current production numbers, it expects to triple enzyme production. The investment is funded with the company’s own capital.

Construction is slated to begin in January 2025, with sanitary adjustments expected to start a year later, in January 2026. Novo Nordisk anticipates the new annex will be operational by January 2027.

Reinaldo Costa, corporate vice president of the Novo Nordisk plant, stated that the satisfactory performance indicators of the Montes Claros facility justify the investments in Brazil.

“This investment is crucial as it will allow us to triple our production capacity for enzymes enteropeptidase and ALP. All semaglutide production requires enzymes supplied by the country, and the plant is the sole enzyme supplier to Novo,” he stated.

The chemical input removes disposable parts from semaglutide, the active ingredient in Ozempic, thereby increasing the efficiency of the active pharmaceutical ingredient (API).

In 2026, the patent for Ozempic is set to expire. The company claims it is unaware of how other pharmaceutical firms will produce potential generic medications, and for this reason, there are no expectations of selling the enzymes to competitors.

“The expertise we already have here in enzyme production enabled us to attract this investment, with a very good capacity that meets Novo’s market needs. Efficiency, high productivity, and competitive costs are why this investment is being made in Brazil. We are part of a global production strategy, and the Montes Claros site is highly strategic,” Mr. Costa said.

The Montes Claros complex, inaugurated in 2007, employs 1,800 workers and generates approximately 30,000 indirect jobs throughout the production chain, according to the company. The construction of the annex is expected to create 40 direct jobs and 400 indirect jobs.

*By Matheus Oliveira

Source: Valor International

https://valorinternational.globo.com/
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Lula stable, communicating, with no brain impairment, doctors say

President underwent emergency surgery Monday night; he is in the ICU at Hospital Sírio-Libanês in São Paulo

12/10/2024

President Lula is stable, speaking normally, and has not suffered any brain impairment after an emergency surgery on Monday night, said Roberto Kalil Filho, the head of the medical team that operated on him. This was announced during a press conference on Tuesday morning (10). “Lula will return to normal life,” Mr. Kalil said. “He [Lula] did not suffer brain injury, there is no cerebral compromise. The risk of injury is zero.”

Mr. Kalil mentioned that the president is expected to remain under observation in the ICU at Hospital Sírio-Libanês in São Paulo for 48 hours and will stay hospitalized until next Monday (16). He is accompanied by First Lady Rosângela Silva at the hospital.

The doctor also noted that President Lula will not be allowed to receive visits from politicians for the time being. He is expected to return to Brasília soon and will have no restrictions on air travel.

President Lula was urgently transferred from Brasília to São Paulo after experiencing headaches. Late on Monday night (9), he underwent surgery to drain a hematoma, a condition resulting from a fall in October at the Palácio da Alvorada, where he hit his head.

He had been experiencing headaches on Monday afternoon and left a meeting with Lower House Speaker Artur Lira and Senate President Rodrigo Pacheco early.

Mr. Kalil recounted that President Lula was conscious when he was picked up at the airport. The president’s doctor, Ana Helena Germoglio, who also took part in the press conference, said that throughout the journey from Brasília to São Paulo, “the president was lucid, oriented, and communicating.”

According to Mr. Kalil, the president experienced headaches, malaise, and was advised to undergo routine exams, which had already been scheduled. A CT scan revealed new bleeding. The hematoma, according to the doctor, measured three centimeters. President Lula then underwent a procedure to drain it.

In addition to Roberto Kalil Filho, the press conference included doctors Ana Helena Germoglio, Rogério Tuma, Marcos Stavale, and Mauro Suzuki.

Mr. Tuma explained during the conference that the hematoma was located between the skull and the president’s brain. “The important thing is that Lula did not have a hematoma in the brain. It was external,” he stated. “The brain is free from any compression.”

Also during the conference, Mr. Stavale stated that “the surgery was not very long.” “The brain was decompressed and remains neurologically intact,” he affirmed, reassuring that President Lula will not suffer any lasting effects.

* By Cristiane Agostine e Fabio Murakawa

Source: Valor International

https://valorinternational.globo.com/
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