Brazilian assets slide amid investor flight to safer bets

Post-election turmoil drives losses across stocks and bonds, prompting portfolio managers to favor CDI-linked investments and overseas equities

 

 

 

 

 

Gilberto Kfouri — Foto: Foto: Gabriel Reis/Valor
Gilberto Kfouri — Photo: Foto: Gabriel Reis/Valor

October is ending with heavy losses across Brazilian assets, from equities to fixed-rate and inflation-linked bonds. Amid the market turmoil following the presidential election, investments tracking the Selic benchmark interest rate and the CDI interbank rate have emerged as the year’s top performers, delivering a steady 11.7% return so far.

President Luiz Inácio Lula da Silva’s reelection upended market expectations that had taken hold after Senator Flávio Bolsonaro of the Liberal Party (PL) led the first round. Investors unwound positions that had been built around expectations of interest rate cuts, including domestic cyclical stocks and bets on a stronger real. Those trades reflected a belief that a change in government would bring aggressive fiscal adjustments, paving the way for lower interest rates and inflation, and potentially a stock market rally.

The Ibovespa, Brazil’s benchmark stock index, had fallen 9.2% through Oct. 29. The damage was even greater among smaller companies listed on the B3 stock exchange, with the small-cap index plunging 16.7%. Year to date, the two indexes were up 5% and down 18%, respectively. The Imob real estate index had lost 22.4% for the month and 20.2% for the year.

Fixed income has offered little shelter outside floating-rate securities. The IRF-M, an index compiled by the Brazilian Financial and Capital Markets Association (Anbima) that tracks a basket of fixed-rate government bonds, declined 1.3%. The IMA-B 5+, which tracks inflation-linked securities with maturities exceeding five years, fell 1.4%.

As a result, fixed-rate Treasury bonds maturing in 2029 and 2032 now offer yields above 15% annually, compared with the current Selic rate of 13.75%. Inflation-linked Treasury bonds maturing in 2032 are yielding 7.8% above inflation. Are these levels a warning sign or a buying opportunity?

Investment executives say they have scaled back exposure to Brazilian assets while increasing international allocations, particularly in equities. Within domestic portfolios, they favor more liquid CDI-linked investments and shorter-term government bonds.

Defensive positioning

Brazil faces a combination of structurally higher capital costs, fiscal vulnerabilities, and a likely economic slowdown accompanied by persistent inflation pressures next year. That environment is reducing the expected returns of several asset classes relative to the CDI, said Sylvio Castro, head of global investment solutions and funds of funds at Itaú Unibanco.

With less room for interest rate cuts and some economic deceleration already expected in 2027, Castro said portfolios have shifted toward less volatile Brazilian assets.

“The decision was to reduce portfolio risk.”

Itaú’s investment division has broadly reduced its exposure to Brazilian equities, exiting domestic cyclical stocks. It had already been favoring foreign equities with currency hedges to neutralize fluctuations in the real. The U.S. S&P 500 index is its main tactical exposure, supplemented by individual shares of companies at the forefront of innovation.

In fixed income, the adjustments have involved shortening the average maturities of fixed-rate and inflation-linked positions while increasing allocations to floating-rate securities.

Castro noted that global demand for capital has risen in recent years, driven by defense spending and the restructuring of supply chains. He pointed out that the historical average yield differential between Brazilian and U.S. 10-year inflation-linked bonds is close to 500 basis points.

With U.S. real interest rates now higher, the relationship implies Brazilian real yields of around 7%. Bringing them back to the 5% to 6% range would require the spread to narrow to approximately 300 to 350 basis points. That, he said, depends on fiscal policy.

“In a world with a higher cost of capital, unless the country is willing to make a much greater fiscal effort, it will have to live with permanently higher interest rates.”

The consequence would be higher risk premiums across all asset classes.

Castro added that inflation expectations for 2027 have risen, while market pricing now points to stable interest rates or even an increase. The Central Bank’s Monetary Policy Committee (Copom) meets next week to decide the direction of the Selic rate.

Although market pricing incorporates risk premiums and does not directly forecast monetary policy decisions, it influences expected investment returns across most asset classes, with short-term floating-rate securities a notable exception.

Fiscal credibility

Investors had expected a Bolsonaro victory to make fiscal adjustment both more likely and faster, said Gilberto Kfouri, chief investment officer at BNP Paribas Asset Management. Lula’s rhetoric, by contrast, had suggested greater reluctance to pursue such measures.

If the government fails to act with urgency and postpones announcing its economic team and measures to restore some balance to public finances until next year, Brazilian assets will remain under pressure.

“It needs to announce credible measures to bring interest rates down,” Kfouri said.

For now, BNP Paribas Asset Management has shortened the average maturities of its interest-rate-sensitive positions. Kfouri noted that the futures market no longer prices in a Selic cut in November, while December contracts already reflect expectations of an increase.

In equities, the firm has sought to make portfolios more defensive by favoring exporters, whose dollar-denominated revenues benefit from a weaker real.

Potential upside

Rodrigo Bresser-Pereira, CEO and CIO of Bresser Asset Management, estimates that a decline in Brazilian real interest rates to around 5% could lift the Ibovespa by at least 60% from current levels.

“That’s considering only the lower discount rate. If you factor in lower interest rates, the economy’s average growth rate increases, and the multiple also changes,” he said. “If you assume Brazil will grow an additional 3% in a year, that would justify a valuation twice as high as today’s.”

Still, Pereira cautioned that investors cannot yet build portfolios around such a scenario. In his view, the government has failed to recognize that its policy of accelerating spending and generating excess demand in the economy ultimately produces extremely high interest rates.

“About 80% of the debt is linked to the Selic, including NTN-B bonds,” he said. “At least R$300 billion is being transferred to rentiers because of these interest rates.”

In managing the firm’s equity fund, Pereira has favored infrastructure and financial companies. He estimates that public utility concession operators offer prospective total returns of around 12%, compared with approximately 7.5% for NTN-B inflation-linked government bonds. Oil giant Petrobras is also among the fund’s holdings.

Overseas, he prefers financially solid technology companies. He does not believe their valuations reflect a bubble, arguing that “there are no signs that these companies themselves will become victims of disruption.”

Uncertainty and opportunity

Fiscal uncertainty and the future direction of economic policy are making it difficult to determine how much risk to take in Brazilian portfolios, said Guilherme Loureiro, CIO at Monte Bravo Corretora.

“When patience runs out, structural issues become embedded in asset prices, and that matters for portfolio construction.”

Loureiro sees the possibility of a market turnaround and substantial asset appreciation, but only if the government adopts a credible fiscal agenda.

“Without that, structurally high interest rates will weigh on prices and growth,” he said. “The incentive to act is strong. The world wants Brazil. The country is insulated from conflicts, has commodities, rare earths, clean energy…”

He nevertheless worries that a rapid stabilization in financial markets could weaken the government’s incentive to pursue fiscal adjustments.

As Brazil’s economy continues to operate under high interest rates, Monte Bravo is avoiding excessive domestic risk. Loureiro likened the current investment environment to navigating through dense fog, “when you pick up binoculars and all you can see is white for miles ahead.”

That uncertainty calls for a more defensive approach, with larger cash positions held in highly liquid CDI-linked assets. Loureiro said he has also been avoiding credit investments as economic activity slows and financial conditions tighten.

In this environment, international diversification makes sense, he argued.

“Interest rates are also higher overseas, and stocks aren’t expensive,” Loureiro said.

He added that this type of diversification currently offers potential returns of around 8% to 9% in U.S. dollars.

*By Adriana Cotias — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Brazil’s inflation outlook darkens after Lula’s reelection

Market forecasts point to higher inflation through 2028, raising doubts about further Selic cuts

 

 

 

 

Carlos Thadeu, of BGC Liquidez
Carlos Thadeu, of BGC Liquidez — Photo: Divulgação/BGC Liquidez

Markets are already bracing for a sharp deterioration in inflation expectations, which is likely to create additional challenges for Brazil’s Central Bank in setting monetary policy. That is the picture emerging from a survey of about 30 market participants conducted by BGC Liquidez and shared in advance with Valor. The findings show a significant worsening in economists’ outlook following President Luiz Inácio Lula da Silva’s reelection.

The median of the estimates collected by BGC points to inflation, as measured by the Extended Consumer Price Index (IPCA), of 5.30% this year and in 2027, and 4.30% at the end of 2028. This represents a sharp deterioration compared with Focus, the Central Bank’s weekly survey with economists, released earlier this week, when the median forecast stood at 5.19% for December, 4.34% for the end of next year and 3.75% for 2028.

“We regularly speak with a large number of asset managers, who tend to revise their short-term forecasts more quickly. That allows us to anticipate Focus survey movements by one to two weeks. Based on the figures we have, the market is pricing in a 0.96-percentage-point increase in its 2027 IPCA forecast and a 0.55-point increase for 2028. I don’t think that is a particularly large move,” said Carlos Thadeu, an economist covering inflation and commodities at BGC Liquidez.

He also noted that 11% of the firms surveyed now project inflation above 6%, pointing to a substantial deterioration in inflation expectations over the coming years.

Looking at the components of the 2027 forecasts, Thadeu estimates that food prices account for about 0.25 percentage points of the increase, regulated prices for 0.40 points, services for 0.31 points, and industrial goods for 0.11 points. “The biggest impact comes from fuel prices, particularly because the market understands that the government will not subsidize them indefinitely. In services, there is also considerable concern about the effects of changing the 6×1 work schedule,” he said.

In the BGC economist’s view, the market had previously been willing to give the opposition the benefit of the doubt regarding the possibility of introducing a new fiscal anchor. “Without that, the market has been left without a clear sense of direction,” he said. Economists are also deeply concerned about the effects of changes to working hours at a time when some sectors of the economy are facing labor shortages and some companies are already “being squeezed on margins as wholesale prices rise, along with financing costs and the tax burden.”

“Economic policy is what lies behind this inflation forecast revision,” Thadeu noted. He believes that, had the opposition won the presidential election, the market would have given it the benefit of the doubt regarding the possibility of a change in economic policy that could have paved the way for lower interest rates. “But now, no one expects a significant reduction in rates anymore. Interest rates will remain high over the next four years. I don’t know how this will be brought into balance without a recession to ease some of the pressures,” he said.

Thadeu believes that one way to mitigate the inflationary pressures now taking shape would be to put someone in charge of economic policy whom markets view as having enough independence to pursue the fiscal agenda. “The problem is that the market is skeptical at this point,” he said. In his view, the next finance minister will have a hard time earning investors’ confidence. “The problem is not just the fiscal deficit, but a spending policy in which spending exceeds revenue, pushing interest rates higher and creating a feedback loop that fuels the public debt.”

Some firms have already announced substantial changes to their inflation forecasts. On Wednesday (28), Buysidebrazil, led by economist Andrea Damico, said it had raised its 2027 IPCA forecast to 4.7% from 3.9%, while setting its 2028 inflation estimate at 4.0%.

Data collected by Valor in recent days also show notable upward revisions. Panamby Capital, led by former Central Bank director Reinaldo Le Grazie, raised its forecast for next year’s IPCA to 5.1% from 4.0%. Banco ABC Brasil increased its estimate to 5.0% from 4.3%, while Tag Investimentos lifted its projection to 5.5% from 4.6%.

“The reversal in expectations about fiscal policy happened very quickly, and this is not some abstract issue for monetary policy. It affects the basic inputs everyone uses to forecast inflation, including the Central Bank. When we went from Friday to Monday and pressed a button to update our forecasts, the Central Bank’s job became more difficult,” said Tiago Berriel, head of economic research at BTG Pactual, during a morning call.

Tiago Berriel, of BTG Pactual — Foto: Rogerio Vieira/Valor
Tiago Berriel, of BTG Pactual — Photo: Rogerio Vieira/Valor

“We have seen exchange-rate forecasts revised, and we will probably see inflation expectations worsen over the relevant policy horizon in the next Focus survey. When those inputs are fed into the Central Bank’s models, it will find that the room for rate cuts is uncertain,” the economist stresses. He no longer sees room for another cut in the Selic policy interest rate next week. “This is an environment of considerable uncertainty. If we factor in inflation inputs, which are still deteriorating, along with the enormous uncertainty about what lies ahead, a more cautious approach seems reasonable: wait and pause the easing cycle.”

*By Victor Rezende , Valor — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Household debt hits record 50.1% of annual income

Delinquency also reaches historic highs as elevated interest rates strain borrowers and raise questions over the Central Bank’s next move

Rubens Sardenberg — Foto: DivulgaçãoRubens Sardenberg — Photo: Divulgação

Brazilian household debt exceeded 50% of annual income for the first time on record, the Central Bank reported. The ratio reached 50.1% in August, its highest level since the data series began in January 2005. Delinquency on non-earmarked loans to individuals also hit a record 8.1% in September. Analysts attribute the deterioration to high interest rates and the growing share of household income devoted to debt payments.

The Central Bank’s Monetary Policy Committee (Copom) will decide on the benchmark interest rate next Wednesday (Nov. 4), amid uncertainty over whether to extend or pause the monetary easing cycle that began in March.

The Central Bank measures household indebtedness as the ratio of outstanding debt to income accumulated over the previous 12 months, using gross household disposable national income as its benchmark. The debt-service ratio, which measures the share of monthly income used to repay loans, also reached a record in August, rising to 29% from 28.8% in July.

Fernando Rocha, the Central Bank’s head of statistics, said household indebtedness remains on an upward trend, despite relatively small fluctuations in recent months. “Although household indebtedness has been fluctuating for several months, particularly throughout this year, between 49.7% and 49.9% of annual household income, it rose further in August, reaching 50.1%,” he said.

Last week, the Central Bank announced measures aimed at curbing the active, personalized marketing of expensive credit products to vulnerable borrowers. The restrictions target people whose income is insufficient to cover basic living expenses, those with limited financial knowledge due to low levels of education, borrowers who repeatedly rely on emergency credit, and those with recurring overdue balances. Central Bank Chair Gabriel Galípolo said additional measures would be announced before the end of the year.

Another warning sign is the delinquency rate on non-earmarked loans to individuals, which rose 0.1 percentage point in September to a record 8.1%. The economy-wide delinquency rate, covering all loans to households and businesses, remained at 5%, matching the highest level in the series.

Structural pressures

Sara Paixão, a macroeconomic analyst at InvestSmart XP, said structural factors, particularly high interest rates, continue to drive delinquency despite debt renegotiation programs such as Desenrola. She warned that expectations of slower economic activity in 2027 could make it even harder for households to manage their finances.

“Weaker [GDP] growth could affect job creation and increase unemployment, undermining households’ ability to repay their debts and making it harder for delinquency rates to decline,” Paixão said.

Rubens Sardenberg, director of economics, prudential regulation and risk at the Brazilian Federation of Banks (Febraban), said the latest figures suggest delinquency has yet to peak.

“It gives the impression that the process is continuing. It’s not acute, and the worst phase seems to have passed, but there’s still some deterioration to come.”

Febraban’s periodic survey of member banks projects that the delinquency rate on non-earmarked loans to individuals and businesses will reach 6.1% at the end of this year before easing to 5.9% by the close of 2027.

Goldman Sachs warned in a report that credit conditions would face headwinds in the coming months as economic growth slows, delinquency increases, and household indebtedness and debt-service burdens remain at record levels.

“However, lending activity by state-owned banks, together with credit lines supported by the federal government and these institutions, should continue to sustain the credit cycle,” the bank said.

Citi analysts also pointed to further deterioration in household credit quality, even as the overall delinquency rate held steady at 5%.

“In consumer lending, delinquency on private-sector payroll-deductible loans increased 20 basis points month over month to 10.8%, while credit card delinquency rose 10 basis points to 10%, and personal loan delinquency remained stable at 11.1%.”

Pressure on banks

During Bradesco’s third-quarter earnings presentation, held before the presidential runoff, CEO Marcelo Noronha said the macroeconomic outlook had deteriorated regardless of electoral developments. He described widespread pressure on credit quality, affecting not only Bradesco but the banking industry as a whole.

“I see a period of greater pressure ahead, but I’m confident that our loan portfolio is much more tightly controlled than the market’s,” Noronha said.

Bradesco’s delinquency rate rose to 4.6% in September, from 4.3% in June and 4.1% a year earlier.

At Santander, the rate climbed to 3.4%, compared with 3.3% in June and 2.8% in the earlier comparison period. The bank said the deterioration was driven primarily by lower-income borrowers and the agribusiness sector.

Chief Financial Officer Carlos Muñiz said credit card deterioration had previously been confined to lower-income customers but was now beginning to spread to middle-income borrowers.

“Among high-income individual customers and businesses, performance has been reasonably good,” Muñiz said.

Interest rate uncertainty

Leandro Padulla, an economist at ASA, expects the Central Bank to cut the Selic benchmark interest rate by 25 basis points to 13.5% next Wednesday. However, he said the recent selloff in Brazilian assets following President Luiz Inácio Lula da Silva’s reelection had “significantly increased the likelihood of a hold.”

“If the committee goes ahead with the cut, we expect it to adopt a more cautious tone, acknowledging that the deterioration in financial conditions has reduced the room for further monetary easing. Under that scenario, the most likely signal would be a pause in December,” Padulla said.

Febraban’s Sardenberg said the trajectory of delinquency in 2027 would depend heavily on the macroeconomic environment, which in turn would be shaped by the new Lula administration’s policies, particularly its fiscal stance.

“We’re in an environment where the economy is slowing down, there’s no doubt about that, and this could affect employment, while household debt-service burdens are already quite high. On the other hand, banks are cautious, and riskier lending segments are slowing. So if the government addresses the fiscal issue, we could see delinquency deteriorate but at a gradually diminishing pace. However, if the market continues to price in a very high interest rate curve, there could be a significant additional deterioration [in delinquency],” he said.

Tighter lending rules

On Thursday (Oct. 29), Itaú BBA lowered its 2027 earnings forecasts for Nubank, citing continued deterioration in consumer credit conditions. Analysts warned that lower-income borrowers and unsecured lending products — two areas where the fintech has a particularly strong presence — were likely to face the greatest pressure.

They also highlighted risks from new macroprudential measures expected to be announced soon by the Central Bank.

“The measures under consideration include stricter prudential requirements for certain credit products, closer monitoring of borrowers’ repayment capacity, and greater emphasis on suitability and financial affordability — the ability to meet repayment obligations — when credit is granted,” the analysts said.

An industry executive said implementing the new measures would be operationally challenging but expected the Central Bank to introduce tighter restrictions. One possibility is an increase in the risk-weighting factor applied to credit card lending.

“The risk-weighting factor is definitely on the table, but I have doubts about its effectiveness. If you raise the cost, that could reduce credit supply on one hand, but it could also lead to higher prices for consumers on the other. It’s not a simple equation,” the executive said.

*By Hamilton Ferrari and Álvaro Campos — Brasília and São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Lula should propose fiscal adjustment this year, UBS director says

Goal is to address deterioration in public finances caused by the election and take advantage of a more favorable Congress, argues Solange Srour

Solange Srour, director of macroeconomics for Brazil at UBS GWM — Foto: Anna Carolina Negri/Valor

Solange Srour, director of macroeconomics for Brazil at UBS GWM — Photo: Anna Carolina Negri/Valor

Brazil’s 2026 election campaign worsened the country’s fiscal problems and made it more urgent for the reelected president to address the issue, says Solange Srour, director of macroeconomics for Brazil at UBS GWM. In her view, Lula should announce the measures this year to take advantage of a Congress that is less opposed to his government and the good relations he has cultivated with the presidents of both chambers—advantages he may no longer have, or that could be called into question, starting next year.

Although the new legislature is more aligned with the right, it could hinder fiscal adjustment more than help it because it will require greater negotiating skills, she says. “It is easier for Congress to embrace a populist measure because, when it goes wrong, the consequences will fall into the executive branch’s lap. Spending control, by contrast, is more difficult because the government will have to negotiate with lawmakers who already wield considerable power over discretionary budget amendments,” she says.

In her view, although the campaign was marked by categorical rejections of changes to the minimum wage’s real gains, the indexation of pensions and benefits, and constitutionally mandated minimum spending on health and education, avoiding these options would be a mistake. Alternatives such as tightening the rule governing real expenditure growth—which is currently capped at 2.5%—as members of the economic team have already suggested, might avert an imminent crisis but would not deliver the credibility shock needed to bring real interest rates down more decisively.

“This middle-ground scenario would allow real interest rates to settle closer to 6.5% or 7%. That would only work under a very favorable global scenario that allowed the economy to grow considerably. Otherwise, the debt-to-GDP ratio would continue to rise very rapidly. In other words, with a middle-ground adjustment, you burn political capital to avoid a crisis but fail to escape mediocrity and remain vulnerable to new crises,” she warns.

 

She adds that the external environment is now fraught with considerably greater risks, including tighter monetary policy in the U.S. and an escalation of the conflict with Iran, which could put renewed upward pressure on oil prices.

Asked what profile she would like to see in the next finance minister, Srour says the key is to have someone with “an understanding that the fiscal issue is not merely a demand from the market but a macroeconomic imbalance, and who has the president’s confidence,” since the minister will need to persuade him to take tough action. “There will be some degree of electoral fraud in the political sense of breaking campaign promises. It may be greater or smaller, but without it, the crisis will approach more quickly,” she says. The following are excerpts from the interview:

Valor: The election ended with a surprising victory for President Lula. From an economic standpoint, what needs to be done now?

Solange Srour: There are several other economic issues and important reforms that need to be addressed, but fiscal reform is the priority today. This is not only because the situation we face is completely unsustainable. If nothing changes in the structural framework for mandatory spending, the debt-to-GDP ratio is very likely to grow faster than the 10-percentage-point increase recorded over the past four years, because the economy is expected to slow. But it is also because we have just gone through an election in which spending and subsidies expanded. The way the election unfolded, with Lula’s turnaround backed by popular support in the streets, makes things more difficult because, ultimately, we are saying that some degree of breaking campaign promises will be necessary. It may be greater or smaller, but without it, the crisis will approach more quickly. The situation has become even more serious.

We also have to consider that the global environment is much more challenging. Interest rates are higher worldwide, it is unclear whether the weak dollar that has greatly benefited domestic inflation will persist, and oil prices may not return to previous levels. So there is an enormous sense of urgency, but also considerable distrust, and that is what is driving markets in the aftermath of the election.

Valor: Can this package wait until 2027?

Srour: Given the makeup of Congress in 2027, I think it would be smarter for the government to try to get these measures approved now, because it has a larger support base today and very good working relationships with the presidents of the Chamber of Deputies and the Senate. In the next legislative term, much will depend on who leads the two chambers. There will be a more organized center-right bloc. If that is not the strategy, then at least there should be greater clarity about what can be done. The current climate of speculation about possible finance ministers, with no plan announced, will continue to worsen market conditions over time, with significant consequences for the economy. The worse economic conditions become, the harder it will be to announce this agenda.

Valor: Several names are already being mentioned as possible candidates for the next finance minister. Most are politicians. Do you think appointing someone from outside politics would be important to restore credibility?

Srour: I do not think that is important. What matters is having someone who understands that the fiscal issue is not merely a demand from the market but a macroeconomic imbalance, and who has the president’s confidence, because the minister will need to persuade him to take tough action, especially after so many campaign promises. It is important that the person chosen be able to attract technical experts. There are many possible fiscal adjustment proposals, not only in terms of what should be done but also how it should be done. The key is for the minister to be able to attract qualified people who can put these measures into practice. The chief of staff will also play a very important role in ensuring that the economic team has an effective political coordination arm.

Valor: Adjusting the minimum wage’s real gains, changing the indexation of pensions and benefits, and revising constitutionally mandated minimum spending on education and health are always cited as the most important fiscal adjustment measures, but both Lula and his opponent rejected them during the campaign. Is there a middle-ground measure that could satisfy the market?

Srour: I think the most likely option is that they will tighten the rule governing real spending growth, perhaps to 1.5%. That would be a middle ground between allowing spending to grow only in line with inflation and the current rule, but it would still mean breaking a campaign promise. Former minister [Fernando] Haddad himself spoke in these terms before the campaign. The big question is whether the president will accept these proposals.

Would that be enough? I believe that if it were accompanied by measures to reduce subsidies and tax expenditures, as well as higher taxation on LCI and LCA real estate and agribusiness credit instruments, it might provide some relief. But relief would mean reversing the deterioration seen in the post-election period, not achieving the lower real interest rates investors had envisioned as possible under Flávio [Bolsonaro]—if everything had gone right—at around 5.5%. This middle-ground scenario would allow real interest rates to settle closer to 6.5% or 7%.

Valor: That is still very high.

Srour: That would only work under a very favorable global scenario that allowed GDP to grow considerably. Otherwise, the debt-to-GDP ratio would continue to rise very rapidly. In other words, with a middle-ground adjustment, you burn political capital to avoid a crisis but fail to escape mediocrity and remain vulnerable to new crises. What if the Federal Reserve raises interest rates more than expected? What if oil reaches $150 a barrel?

Valor: Beyond targeting the pace of spending growth, are immediate cuts necessary?

Srour: To genuinely eliminate the risk of insolvency, the fiscal adjustment currently required is equivalent to around 4% of GDP, given prevailing market real interest rates and the level of debt. That is politically unfeasible, regardless of which candidate won the election. So what we need to do is put measures on the table that will deliver the equivalent of that adjustment over five to 10 years.

That would include redesigning Bolsa Família alongside other social programs to better target benefits, ending the indexation of the minimum wage to benefits and pensions, and reforming the social security system to raise the minimum retirement age and bring in additional sectors. When the Temer administration approved the spending cap, we saw a significant decline in interest rates. But nobody believed the spending cap alone would solve the problem. Rates fell because investors bought into the idea that a series of other reforms would make the spending cap sustainable for a considerable period. Some reforms were implemented, particularly the elimination of subsidies from the Brazilian Development Bank (BNDES), but changes were also approved to the minimum wage rule and the minimum spending requirements for education and health.

The market needs an agenda capable of stopping the rapid growth in spending. A halfway adjustment does not deliver the credibility shock; it simply avoids the worst-case scenario.

Valor: So this agenda would not worsen the already weak outlook for growth in 2027?

Srour: An economic slowdown is already locked in. This halfway agenda would simply help avert a recession, which is possible if interest rates remain at current levels and could even extend beyond 2027. On the other hand, a more robust agenda could bring real interest rates down sharply and help the economy as early as 2027.

Valor: Would a more right-wing Congress not help deliver fiscal adjustment?

Srour: I do not think so. It could be a more limiting factor because negotiations will be harder. It is easier for Congress to embrace a populist measure because, when it goes wrong, the consequences will fall into the executive branch’s lap. Spending control, by contrast, is more difficult because the government will have to negotiate with lawmakers who already wield considerable power over discretionary budget amendments.

Valor: Judicial reform was another issue that emerged during the election.

Srour: It is certainly a demand from society and influenced the first round of voting. But from an economic standpoint, institutions also need to be reformed. We talk a lot about fiscal policy, but this level of legal uncertainty and the clashes between branches of government all affect the equilibrium interest rate and investment decisions in Brazil. So this agenda may need to move forward alongside fiscal reforms, especially since many of those reforms could face legal challenges.

Valor: Could Monday’s asset price correction continue for much longer?

Srour: Markets are waiting for news, so I think it could continue, yes. If nothing is done or announced in the coming weeks, the trend is for conditions to deteriorate further. And the external environment comes into play again; it could accelerate that deterioration. There is a possibility that, after the U.S. midterm elections, [President Donald] Trump could escalate the conflict with Iran. Israel will hold elections in a week. The global environment is becoming more inflationary. And the currency appreciation that would have benefited Brazil in the event of a Flávio victory will not materialize.

Valor: How low could the Brazilian real fall, in your assessment?

Srour: If nothing happens on the fiscal front, I would not rule out the foreign exchange rate exceeding R$6 per dollar. We also need to watch what the Central Bank does at its next meeting, because high interest rates are another factor supporting the real. If the Central Bank maintains its focus on slowing economic activity, that could put some pressure on the Brazilian currency.

In the interest rate market, it is also possible that the deterioration will not stabilize. If it becomes clear that the government will offer more of the same—adjustments limited to anti-fraud measures, spending freezes, and taxation of LCI and LCA instruments—I would not rule out interest rates rising by as much as they did yesterday [Monday, 26]. If all of this happens, we could enter a fiscal dominance dynamic in which the market loses its benchmark.

*By  Marcelo Osakabe — São Paulo

Source: Valor International

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Business groups calls for fiscal adjustment and policy continuity

Industry associations back lower interest rates and preservation of sectoral policies, including concession auctions and special regime for critical minerals

 

 

Venilton Tadini, chief executive of Abdib (the Brazilian Association of Infrastructure and Basic Industries), believes the tension in financial markets should settle quickly — Foto: Rogerio Vieira/Valor
Venilton Tadini, chief executive of Abdib (the Brazilian Association of Infrastructure and Basic Industries), believes the tension in financial markets should settle quickly — Photo: Rogerio Vieira/Valor

Brazilian businesses wants the new government of Luiz Inácio Lula da Silva (Workers’ Party, PT), reelected on Sunday (25), to present a fiscal adjustment plan that allows for lower interest rates for businesses. At the same time, trade associations backed the continuation of sectoral policies they consider important, such as the national critical minerals policy, the infrastructure concessions agenda, the zero tax rate on the basic food basket, and the end of online betting.

“The investment rate is between 18% and 20% today. That is very high. We need an investment rate that is practically half of that, in the single digits. And the working capital rate would need to be cut by 40% to 50%,” said José Velloso, president of Abimaq, which represents machinery and equipment manufacturers in Brazil.

To get there, he argues that Lula must urgently address the fiscal issue by putting public accounts in order, with measures such as administrative reform and an overhaul of Social Security, as well as a rework of the public budget that tackles lawmakers’ earmarked amendments.

The path the government will take on fiscal policy is in question. Decoupling health spending from tax revenue, for example, which many economists see as one of the alternatives, is not expected to be implemented in Lula’s fourth term.

“During his campaign, President Lula always defended the public health system, SUS, emphatically. But at the same time, fiscal adjustment is necessary. So raising or cutting the health budget is very complicated. I believe it will be maintained, but the challenge is finding other means,” said Antonio Britto, executive director of the hospital association Anahp, a former governor of Rio Grande do Sul, and a former Social Security minister.

Velloso said the negative market reaction on Monday (26) after the election was expected, since polls had indicated a win by Flávio Bolsonaro (Liberal Party, PL), who was backed by the financial sector, as more likely.

Venilton Tadini, chief executive of Abdib (the Brazilian Association of Infrastructure and Basic Industries), believes the tension in financial markets should settle quickly. “This first symptom is normal, because the banks’ structures are built for this. They set up bets and futures market operations, but it adjusts very quickly, and that doesn’t worry us,” he said, adding that he expects the president-elect’s government to signal adjustments and that maintaining this level of friction with industry and financial markets is untenable.

He said this turbulence should not, for example, affect the various infrastructure auctions scheduled for the end of this year. “Those who will take part are already settled, unless the projects don’t have a well-structured risk-return profile,” he said.

Tadini expects the infrastructure auction agenda to proceed as normal. “We believe in the continuity of the program, which is what has happened since 2017. The ideological baggage about transferring operations to the private sector is gone.”

The Brazilian Photovoltaic Solar Energy Association (Absolar) said in a statement that the main short-term test of the new cycle will be the first two capacity reserve auctions for contracting battery systems, scheduled for Dec. 2 and 4. “The association stresses the importance of defining the funding conditions for the auctions and argues that they should launch a recurring, annual agenda for contracting storage,” it said. Absolar said institutional dialogue and consensus-building will be needed in the coming years.

In the critical minerals sector, Lula’s reelection also points to the maintenance of the National Critical and Strategic Minerals Policy (PNMCE), along the lines in which it had already been under discussion.

The policy, which created a council linked to the Presidency to review corporate transactions considered sensitive to national sovereignty, has until December to be fully regulated, a tight deadline for tying up all the loose ends currently pending.

“Government-linked officials are already trying to speed up some decrees [under the new law], and some will directly affect the critical minerals council, such as which projects will go through the council and which won’t,” said Marisa Cesar, chair of the board of the Critical Minerals Association (AMC), which brings together companies in the supply chain for minerals such as lithium, nickel, graphite, rare earths, and copper.

The detail on which projects would be subject to that scrutiny remains one of the sector’s concerns, and should be clarified as the council is regulated.

A change of government at this moment, she said, could have altered the way the policy had been shaped so far. “Even though Lula had already defined some criteria, Flávio could have changed the design of this policy and this council,” she said.

On the challenges ahead for the PT administration, the association cited lowering interest rates and putting together a multiparty government that can deal with the National Congress, where the PL won the largest caucus in both the Chamber of Deputies and the Federal Senate.

The Brazilian Supermarket Association (Abras) also argued for maintaining policies adopted by the PT administration. Among them, it cited the zero tax rate on the basic food basket under the tax reform, the end of online betting, which increases household debt and cuts into income earmarked for buying food, and the preservation of the new rules for food and meal vouchers under the Workers’ Food Program (PAT).

*By Beth Koike ,  Ludmylla Rocha, Michael Esquer, Taís Hirata and  Vitória Nascimento — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Bolsonaro clan shifts focus to Congress

Without the presidency, political family’s four lawmakers face challenge of maintaining its leadership of the right

 

 

 

Jair Bolsonaro and Michelle bolsonaro: While her partner serves a 27-year sentence, former first lady takes up Federal District Senate seat — Foto: Brenno Carvalho/Agência O Globo
Jair Bolsonaro and Michelle bolsonaro: While her partner serves a 27-year sentence, former first lady takes up Federal District Senate seat — Photo: Brenno Carvalho/Agência O Globo

Despite Flávio Bolsonaro’s defeat in the presidential race, the family of former president Jair Bolsonaro emerged from the election stronger in Congress, with four members of the political clan elected to office. While the results should secure the Bolsonaros a foothold in the legislative arena, they also pose a challenge: maintaining their dominance on the right after losing two consecutive presidential elections to Luiz Inácio Lula da Silva. On Monday (26), the day after the election, Flávio said he intended to “organize the opposition” to the government in the coming period. He will leave the Senate in January, ending a 24-year run in elected office.

Analysts say Bolsonarism is undergoing a leadership reshuffle amid uncertainty over the former president’s situation. Jair Bolsonaro is under house arrest following his conviction for attempting a coup. The relationships among elected family members and rivalries within the broader right-wing camp will also be decisive for the movement’s future, experts told Valor.

Flávio received 48.21% of valid votes in the runoff, trailing reelected President Lula by 3.58 percentage points. On the eve of the vote, a poll released by Quaest found that 45% of voters said they feared the Bolsonaro family’s return to power more than Lula remaining in office. Meanwhile, 42% said they were more concerned about the PT leader’s reelection than a return of Bolsonarism. Another 4% feared both scenarios, 4% feared neither, and 5% did not know how to answer.

In the first round, the family secured two Senate seats, with terms running through 2034, and two seats in the Chamber of Deputies. The lawmakers represent the Federal District, Santa Catarina, and São Paulo, and all belong to the Liberal Party (PL).

Flávio Bolsonaro — Foto: Eduardo Anizelli/Folhapress
Flávio Bolsonaro — Photo: Eduardo Anizelli/Folhapress

Jair Bolsonaro’s wife, Michelle Bolsonaro, won a Senate seat in the Federal District, becoming the most-voted senator in the capital’s history, with nearly 940,000 votes (29%), in her first-ever run for elected office. She also became the first former first lady in Brazil to win an elected mandate.

The other Senate seat secured under Jair’s plan to expand right-wing representation in the chamber—and advance initiatives such as impeachment petitions against Federal Supreme Court justices—went to Carlos, the former president’s second son, who was elected senator for Santa Catarina. Following Jair’s instructions, Carlos transferred his electoral domicile from Rio de Janeiro, where he had served as a city councilor since 2001, to the southern state, one of the region’s strongholds of Bolsonarism.

The strategy had previously been used with the youngest son, Jair Renan, who left the Federal District, where he lived, to make his electoral debut in 2024. That year, he was elected to the city council in Balneário Camboriú, Santa Catarina. Running under the ballot name “Jair Bolsonaro,” he was elected to the Chamber of Deputies with the fourth-highest vote total in Santa Catarina, receiving 131,000 votes.

One of his colleagues in the lower house will be his uncle Renato, who was elected in São Paulo. Jair’s younger brother first won a seat on the Praia Grande city council in 1996 but subsequently suffered a series of defeats. His most recent loss came in 2024, when he ran for mayor of Registro, São Paulo state. This year, running with an easily remembered ballot number consisting of four consecutive twos and promoted by his party as a potential vote-getter for other candidates, he received the sixth-highest number of votes for a federal deputy among São Paulo voters, with 379,000.

Carlos Bolsonaro — Foto: Cristiano Mariz/Agência O Globo
Carlos Bolsonaro — Photo: Cristiano Mariz/Agência O Globo

Renato took over the ballot number previously used by his nephew Eduardo, who helped pioneer Jair’s political expansion beyond his electoral stronghold of Rio de Janeiro. Eduardo first ran for the Chamber of Deputies in São Paulo in 2014 and was reelected in 2018, when he received 1.8 million votes, the highest total ever recorded by a federal representative in Brazil at the time, a record that was later surpassed. He won reelection again in 2022. Eduardo now lives in the U.S. and lost his seat after being removed from office for excessive absenteeism.

“We were all elected on the strength of Jair Bolsonaro’s name and legacy,” Renato told Valor last week while campaigning for Flávio in cities across the interior of São Paulo state. The incoming representative said he expected Jair to act as “a senior adviser” to the family’s congressional bloc. He also spoke of “alignment” and “unity” but did not explain how they would work together.

“Carlos has his own way of thinking, Michelle has another, and Renan is very young. I will be available to support my brother, but I also have my own opinions and my own way of seeing the world,” Renato said. The transfer of Jair’s political capital to his relatives can be seen as evidence of the former president’s continued influence, even while under arrest and without access to social media.

“Today, the movement’s identity and the family’s unity depend on its leader, Jair Bolsonaro. [However,] based on everything we know so far, there is a strong chance the family will split. They barely managed to campaign together,” said political scientist Maria Hermínia Tavares de Almeida, professor emerita at the University of São Paulo (USP).

Jair Renan was elected to the Chamber of Deputies — Foto: Arthur Menescal/Bloomberg
Jair Renan was elected to the Chamber of Deputies — Photo: Arthur Menescal/Bloomberg

One sign of internal tensions within the clan was Michelle’s limited involvement in Flávio’s campaign. Four months before the election, the stepmother and stepson had a falling-out that damaged the senator’s candidacy. Weeks later, they publicly announced a reconciliation, but the former first lady remained largely absent from campaign events alongside the presidential candidate.

Robson Carvalho, who holds a doctorate in political science from the University of Brasília (UnB) and researches political dynasties in Brazil, said Michelle has an opportunity to establish herself through her Senate office, particularly by engaging with evangelical voters and women. However, he noted that her stepsons are also seeking to carve out political space.

“Michelle could emerge as a bulwark. Some say she could even distance herself from the family, but I still see power as closely tied to the family’s political core, despite the leadership she has among evangelicals, which represents a different form of political capital,” he said.

 

Despite the family’s presence in Congress, Carvalho noted that losing the presidency represents a setback for the Bolsonarist project. “The group’s family-based political power is diminished because it will once again lack the power of the presidency. The group will turn its attention to Parliament, but it will not control the heart of the Executive branch,” he said.

One distinctive feature of this election for the Bolsonaro family is that it will encourage its members to operate across different parts of the country, according to the political scientist. “The Bolsonaro family goes beyond the conventional pattern of political dynasties because we see kinship operating upward, downward and horizontally,” Carvalho said.

Eduardo Bolsonaro — Foto: Jose Luis Magana/AP
Eduardo Bolsonaro — Photo: Jose Luis Magana/AP

He authored a study on “the dimensions of family-based political capital in the Senate and the harm it causes to democratic representation.” According to him, the combination of family ties and positions of decision-making power in Brazil is associated with obstacles to political renewal and risks stemming from the concentration of power.

In Almeida’s view, Bolsonarism—which she describes as the local expression of “far-right populism”—“is much bigger than the family. It is a political and social movement with considerable electoral appeal.”

That strength has enabled the election of a number of “young male and female representatives” who secured substantial vote totals by campaigning on Bolsonarist platforms, said the political scientist. “These are emerging leaders who do not have the Bolsonaro surname,” the professor said, commenting on the rise of Bolsonarist figures outside the family.

*By Joelmir Tavares— São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Supreme Court to face more hostile Senate

Justices Kassio Nunes Marques and André Mendonça may be more isolated than ever

 

 

 

Situation of Justice Alexandre Moraes is the biggest question following revelations of suspicious ties to Daniel Vorcaro — Foto: Antonio Augusto/STF
Situation of Justice Alexandre Moraes is the biggest question following revelations of suspicious ties to Daniel Vorcaro — Photo: Antonio Augusto/STF

Luiz Inácio Lula da Silva’s (Workers’ Party, PT) reelection gives the majority wing of the Supreme Court some breathing room, according to justices interviewed by Valor. The assessment is that, even though the court will have to deal with a more hostile Senate starting next year, there is room to hold back impeachment proceedings. The question is what will happen to Justice Alexandre de Moraes. The scourge of Bolsonarism for his role in the “fake news” and coup plot investigations, he lost credibility after his alleged involvement in the Banco Master case came to light.

The assessment is that justices Kassio Nunes Marques and André Mendonça may be more isolated than ever. The pair of Jair Bolsonaro appointees presided over the Superior Electoral Court (TSE) in this year’s elections and, according to justices, burned through all their chips betting on a Flávio Bolsonaro (Liberal Party, PL) victory. The latest instance came on Sunday, over Nunes Marques’s stance on the request to extend voting hours.

With no position from the Electoral Court, Supreme Court Justice Cristiano Zanin decided to extend voting from 5:00 pm to 7:00 pm, which could give the defeated group an opening, once again, to turn against the court and challenge the election result. A justice consulted by Valor considers it unlikely that the vote will be annulled, given Lula’s margin of more than 4 million votes.

In addition, the assessment is that Nunes Marques and Mendonça acted to expose their Supreme Court colleagues by deepening the internal crisis caused by Master, and issued rulings to hurt Lula in the final stretch of the campaign. Contacted, both declined to comment.

Examples, they say, include Mendonça’s release of the Federal Police (PF) report mentioning messages from former banker Daniel Vorcaro, owner of Master, sent to a phone said to belong to Moraes. The issue was heavily exploited in the first round, and the damage fell on Lula. In the final phase, there were moves against the “Lula’s Army” channel, created by Federal Deputy André Janones (Sustainability Network, REDE, Minas Gerais), and the removal from the docket of trials that could have hurt Flávio at the TSE.

“They picked a fight with a lot of people because they wanted to become the owners of the Supreme Court. Obviously there will be consequences,” said a Supreme Court member on condition of anonymity. In his view, it is still hard to make many predictions about the next chapters given the divided country that emerged from the ballot boxes. There are, however, two forecasts: that the court does not intend, at this time, to abandon Moraes, and that if impeachment moves forward, there will be efforts to see that Nunes Marques, who is also under strong suspicion of involvement in the Master case, becomes the target of a similar proceeding.

Justices and insiders also believe the court may close ranks, as it has at other times when it felt under attack: in the 2022 elections, after January 8, 2023, in the coup plot trial, and amid U.S. threats against Supreme Court members. Chief Justice Edson Fachin, who does not want his tenure marked by the impeachment of colleagues, may also adopt a more defensive posture toward the court.

With the outcome of the presidential race, Lula should finally be able to move forward on filling the vacancy open since October 2025, when Luís Roberto Barroso retired early. Justices Luiz Fux, Cármen Lúcia, and Gilmar Mendes will also retire during the PT leader’s term. That means the government will have at least four appointments in the coming years, a number that could grow if impeachment proceedings advance in the Senate, which would be unprecedented.

If he stays on the court, Moraes will take over as chief justice in September next year. Impeachment could bring forward the tenure of Nunes Marques, Moraes’s successor, with Mendonça as vice president. Justices do not yet speak very openly about the matter, but there is chatter that if Moraes leaves and Nunes Marques stays, they could pick a different chief justice in a secret vote. Normally the choice is symbolic and follows a preset order, which has never been broken to date.

The Supreme Court also has an ace against impeachment. At the end of last year, Mendes issued an injunction raising the quorum needed to remove justices and giving the prosecutor general exclusive authority to file removal requests against members of the court. The justice later revised the latter requirement, but it could be reinstated if the court feels threatened.

On another front, Nunes Marques is the rapporteur at the Supreme Court on a request to annul the conviction of former president Jair Bolsonaro, sentenced to 27 years and three months for leading a coup attempt. Justices believe the outcome weakens a possible favorable preliminary ruling for Bolsonaro.

The justice has said he would take the case to the full court after the runoff. Lula’s reelection could undercut that intention, given how hard it would be for the request to prosper at the Supreme Court. Besides Moraes, justices Zanin, Flávio Dino, and Lúcia, who voted to convict Bolsonaro, while Fachin and Mendes oppose reviewing the conviction, according to justices and aides consulted.

There are no clear indications of what will become of Mendonça’s situation. The justice is the rapporteur of two of the court’s most high-profile cases: the Banco Master investigation and the inquiry into fraud involving association fees deducted from retirees’ and pensioners’ benefits at the National Social Security Institute (INSS). He is therefore expected to retain power on the court, despite the circumstances and possible isolation.

*By Tiago Angelo and Giullia Colombo — Brasília

Source: Valor International

https://valorinternational.globo.com/

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Bolsonaro allies lead in Brazil’s state elections

Sixteen elected governors backed Bolsonaro’s movement, but experts expect shifting alliances to preserve governability

 

 

 

 

 

Celina Leão, backed by Flávio Bolsonaro and former first lady Michelle Bolsonaro, won reelection in the Federal District — Foto: Cristiano Mariz/O Globo
Celina Leão, backed by Flávio Bolsonaro and former first lady Michelle Bolsonaro, won reelection in the Federal District — Photo: Cristiano Mariz/O Globo

Governors were elected in runoff races in five states—Acre, Amazonas, Tocantins, Espírito Santo, and Rio Grande do Norte—as well as the Federal District on Sunday (Oct. 25). Two are aligned with President Luiz Inácio Lula da Silva (Workers’ Party, PT), who won reelection with 51.78% of the vote, while four were allies of Sen. Flávio Bolsonaro (Liberal Party, PL). Including the first round, 16 of the governors elected nationwide had declared support for Bolsonaro’s political movement, seven backed Lula, and four remained neutral during the campaign.

The PL elected the largest number of governors, with six, followed by the Social Democratic Party (PSD), with five. The PT, Republicans, and Progressive Party (PP) each won four governorships. These five parties will control the state governments of 23 of Brazil’s 26 states and the Federal District. Overall, Sunday’s results largely confirmed the forecasts in election polls published on the eve of the vote.

Two candidates overturned their first-round deficits. In Tocantins, federal deputy Vicentinho Júnior (Brazilian Social Democracy Party, PSDB) defeated Professora Dorinha (Brazil Union, União Brasil), who had Flávio Bolsonaro’s backing. Vicentinho finished second in the first round with 43.94% of valid votes, compared with Dorinha’s 45.52%. Vicentinho is the son of former Sen. Vicentinho Alves.

In Rio Grande do Norte, governor-elect Cadu de Lula (PT) also overcame his initial disadvantage, winning 50.77% of valid votes to defeat Alysson (Brazil Union), who had remained neutral in the presidential race. Cadu Xavier, who used the name Cadu de Lula on the ballot, served as finance secretary under Gov. Fátima Bezerra (PT), whom he will succeed.

In Espírito Santo, former Vitória Mayor Lorenzo Pazolini (Republicans) was elected governor, defeating Ricardo Ferraço (Brazilian Democratic Movement, MDB) with 52.01% of the vote. Pazolini, who received Flávio Bolsonaro’s endorsement, stepped down as mayor of the state capital this year to run for governor.

In the Federal District, Gov. Celina Leão (PP), backed by Flávio Bolsonaro and former first lady Michelle Bolsonaro, won reelection by defeating Leandro Grass (PT). With 98% of ballots counted, she had 57.21% of valid votes, compared with 42.79% for her opponent. She narrowly missed winning outright in the first round, falling short by just 1,089 votes.

In Amazonas, Sen. Omar Aziz (PSD), who had Lula’s backing, defeated Maria do Carmo (PL). With all polling stations reporting, Aziz received 61.42% of the vote, against 38.58% for his opponent. At 68, Aziz returns to lead the Amazonas state government after serving as governor from 2010 to 2014.

According to political scientists, despite many governors not being aligned with Lula, neither side is expected to face major governability problems, nor is the balance of power in Congress likely to be affected. One example is Republicans, who elected governors in two of Brazil’s largest electoral districts: Cleitinho Azevedo in Minas Gerais and Tarcísio de Freitas in São Paulo. Yet in the Chamber of Deputies, Speaker Hugo Motta continues to support the governing coalition, and the Republicans also holds cabinet posts.

Experts expect new political coalitions and alliances to emerge, as is typical of Brazil’s federal system. André Borges, a professor at the University of Brasília (UnB), said that although the PL elected the most governors and has a sizable presence in both the Chamber of Deputies and the Senate, this does not give the party a free hand at either the state or federal level.

“The PL was the big winner in the state elections, but other right-wing parties also performed well, such as Republicans. Power is not concentrated in a single party,” Borges said. Politicians will still need to negotiate and build alliances, he added. He cited the PL’s attempt, after the first round, to negotiate for the speakership of the Chamber of Deputies. “Hugo Motta has put together a coalition backed by 10 parties. Everything points to his reelection. That shows a tactical mistake on their part [the PL’s], because the election was barely over when they were already telling allies they wanted the leadership of both the Chamber and the Senate. That’s not how it works,” he said.

Experts expect Lula to maintain an institutional relationship with political opponents, as he did with São Paulo Gov. Tarcísio de Freitas during his current term. Despite their political differences, the two worked together on the Santos-Guarujá Tunnel, Brazil’s first immersed-tube tunnel, through a public-private partnership (PPP). “There was no boycott or anything of the sort; the money was transferred,” said Claudio Couto, a professor at Fundação Getulio Vargas (FGV).

Couto expects that pattern to continue. “If we look at Lula’s third term, with the far right already in power in some states, he has sought to maintain institutional relations. We saw that in his dealings with Tarcísio de Freitas and even [Ronaldo] Caiado, who took a very hard line on public security. There were disagreements, but no major clashes. I believe we will see the same pattern again,” he said.

Political scientists note that campaign endorsements can be fragile and may shift after an election. During former President Jair Bolsonaro’s administration, for example, Bolsonaro—who is in prison after being convicted in a coup plot—broke with then-São Paulo Gov. João Doria (PSDB) and then-Rio de Janeiro Gov. Wilson Witzel (Social Christian Party, PSC). In addition, governors, particularly those of Brazil’s largest states, are “natural potential presidential candidates,” Borges noted, creating another incentive for political rifts.

Experts acknowledge, however, that political alignment can help during campaigns and may influence the ability to attract investment once a governor takes office. “Alignment does have an effect, but less so today than in the past because social policies have become much more decentralized. Thirty years ago, before the creation of Fundef and Fundeb, the states played an intermediary role. Today, many programs transfer funds directly to municipalities based on more universal criteria, reducing the room for political bargaining,” Borges said.

Borges said two state-level candidates stood out: Pernambuco Gov. Raquel Lyra, who won reelection despite remaining neutral in the national campaign and defeating João Campos (Brazilian Socialist Party, PSB), the former mayor of Recife who had Lula’s support; and Cleitinho Azevedo (Republicans), who won the Minas Gerais governorship in the first round with 55.40% of the vote.

*By Marcela Villar and Guilherme Carvalho — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Globoplay revamps subscription plans, expands content access

Changes bring more live channels and sports coverage to ad-supported subscribers

 

 

 

 

Júlia Rueff — Foto: Divulgação
Júlia Rueff — Photo: Divulgação

Globoplay, Brazil’s leading streaming platform, owned by Globo, is rolling out a revamped subscription offering on Monday (Oct. 26), aimed at improving the user experience while creating new opportunities for advertisers.

“We’re giving more people access to a broader range of content that was previously restricted to premium subscribers,” said Júlia Rueff, Globo’s executive director of digital platforms.

Globoplay offers three subscription tiers: an ad-supported standard plan, premium and premium+premiere.

Before the changes, the standard plan included Globoplay original productions, such as exclusive series and movies; live and on-demand TV Globo programming; current and classic Brazilian soap operas; short-form Brazilian, Turkish and Mexican dramas; international movies and series; the free channels ge.tv and Futura; and selected Globo FAST channels, which cater to niche audiences, such as Receitas TV and Malhação TV.

Starting Monday, the ad-supported tier will expand to include the content catalog available to premium subscribers, while retaining all its existing programming.

More than 20 live channels will be added to the standard plan, including sportv, Combate, Multishow, GNT, Globoplay Novelas and GloboNews. Subscribers will also gain access to more than 2,500 live sporting events and games each year broadcast on sportv channels.

New plan features

With the expanded catalog, the main distinction between the ad-supported and premium plans will shift from content availability to the viewing experience.

The tiers will differ in features such as advertising on on-demand videos, the number of simultaneous streams, picture quality and the ability to download content for offline viewing.

The ad-supported plan allows two simultaneous streams, compared with five for premium and premium+premiere subscribers. The two higher-priced tiers also allow users to download up to 25 titles to their libraries and offer 4K video quality.

“This is a subscriber-focused reorganization that improves the overall value proposition for users while creating opportunities for advertisers,” Rueff said.

Advertisers will gain access to new ad formats, including “welcome ads,” which allow advertisements to appear on Globoplay’s profile selection screen.

“Everything we do to improve the user experience also benefits advertisers because it means more people watching, greater engagement and more impact for brands,” Rueff said.

Profitability and growth

Rueff said Globoplay, which reached breakeven in 2025, is expected to turn a profit this year.

“We’ve improved Globoplay’s profitability while also growing our subscriber base and content consumption.”

From January through August 2026, Globoplay’s subscriber base grew 31% compared with the same period last year.

Globo does not disclose the platform’s total number of subscribers but says 30 million people access Globoplay every month.

*By Francisco Góes— Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/

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Conflicting filings raise questions over ownership of Brazilian lender

Central Bank approved Francine Kallas as Pincred’s controlling shareholder, while antitrust regulator had cleared a deal identifying her brother Lucas as the buyer
Lucas Kallas — Foto: Gabriel Reis/Valor
Lucas Kallas — Photo: Gabriel Reis/Valor

Brazil’s Central Bank authorized in August businesswoman Francine Kallas to take control of Pintos S.A. (Pincred), a finance company based in the northeastern state of Piauí. But a year and a half earlier, the country’s antitrust regulator had cleared the acquisition of the same lender by her brother, Lucas Kallas.

A review by Valor of filings submitted to the Central Bank and the Administrative Council for Economic Defense (Cade)–along with corporate records from the network of companies involved in the transaction–raises questions about who actually controls Pintos.

The case has drawn attention because Lucas Kallas, a businessman associated with Cedro Mineração, has maintained business ties with former banker Daniel Vorcaro, of Banco Master, and has been the subject of criminal investigations and proceedings, although he has not been convicted of any crime.

Conflicting ownership filings

On November 16, 2024, lawyers representing the Kallas family filed a merger notification with Cade stating that Lucas indirectly controlled Forest Holding Financeira, the company that acquired Pintos S.A. Crédito, Financiamento e Investimentos.

“The buyer is a non-operating holding company wholly owned by Lucas Kallas through Monte Líbano Participações S.A.,” states both the petition signed by the family’s lawyers and the accompanying merger notification form.

Ten days later, however, a separate application was filed with the Central Bank seeking approval to transfer ultimate control of Pintos to Francine Prado Kallas, Lucas’s sister, according to a notice published by the monetary authority.

The Central Bank reviews acquisitions, mergers and the establishment of financial institutions primarily from a financial stability perspective. Its assessments include whether prospective owners meet integrity and reputation requirements, have the financial resources to sustain the business and can demonstrate the lawful origin of their funds.

Changes to the companies’ ownership structures came only after the application was submitted to the Central Bank.

On December 31, 2024, Francine injected R$85 million into Monte Líbano Participações, which owns Forest Holding Financeira. Forest was the company that actually acquired an 80% stake in Pintos. The remaining 20% of Forest was held by businessman Pedro Mesquita, of Exa Capital.

Despite the corporate restructuring, Cade approved the acquisition without restrictions on January 6, 2025. The transaction was cleared as a purchase by the Kallas Group, which the documents submitted by the family’s lawyers identified as being controlled by Lucas.

Regulatory scrutiny

From a practical standpoint, whether Cade approved the acquisition by a group led by Lucas or by his sister makes little difference. Pintos is a small company, and the transaction has virtually no impact on competition.

For the Central Bank, however, establishing who actually owns Pincred is essential to determining whether the buyer meets regulatory requirements, including those concerning integrity and reputation.

What remains unclear is whether the monetary authority’s review covered only Francine or also her brother.

Valor has been seeking comment from the Central Bank since August 26 but did not receive a response.

On August 18, Valor reported the Central Bank’s approval of the acquisition, noting that Lucas was among those indicted by Brazil’s Federal Police in Operation Parcours, an investigation into a suspected illegal iron ore extraction scheme in Serra do Curral, in the Belo Horizonte metropolitan a

Francine’s name also appears in the Parcours investigation.

Federal Police documents describe an email exchange in which a Cedro executive asked an asset manager to register her email address with a fund managed by Reag. The documents reportedly listed Francine’s declared assets at R$204 million.

Business ties to Banco Master

As previously reported by Valor, Lucas announced last month that he was stepping down as chairman of Cedro Participações, a holding company he founded with operations in mining, agribusiness, construction and transportation.

Kallas and Vorcaro have been involved in several business ventures together.

WhatsApp conversations involving the former banker show that the two traveled to Venezuela in October 2023 to explore opportunities in the oil industry.

Both were also investors in biotechnology company Biomm. In addition, the Kallas group was hired to build hospitals for Oncoclínicas, in which Vorcaro held a stake.

Lucas also obtained a R$254.8 million loan from Banco Master in April 2024, which was subsequently assigned to Banco Voiter.

The transaction appears on a list of loans submitted by Banco Master’s liquidator in court proceedings seeking to recover outstanding lending. The documents do not establish whether the debt was repaid.

WhatsApp exchanges between Vorcaro and Paulo Henrique Costa, the former CEO of state-controlled lender BRB, show that Master’s owner attempted to transfer the loans to BRB.

In one message, Costa said the proposal had been blocked by BRB’s compliance department because of the criminal investigations involving Lucas.

Even if the acquisition of Pintos had been submitted to the Central Bank under Lucas’s name, however, it is uncertain whether the regulator would have had the authority to block the transaction.

Guidance from the Central Bank’s Office of the General Counsel states that a person can be deemed unfit on integrity grounds only after a judicial conviction. Neither Lucas nor his sister has been convicted.

The press office representing Lucas and Francine said both are shareholders and members of the controlling shareholder group of Cedro Participações.

“The acquisition of control of Pintos S.A. Crédito, Financiamento e Investimento (Pincred) was conducted entirely with the advice of Pinheiro Neto Advogados, which prepared the applications and supporting explanations based on the same documents submitted to the Central Bank and Cade, both of which approved the transaction without reservations,” the statement said.

The representatives said the Central Bank received more complete and detailed information about the Cedro Group’s control structure, as the authority responsible for reviewing and approving transfers of control involving financial institutions.

“As for the merger notification submitted to Cade, specific terminology relevant to competition matters was used to describe the acquiring economic group, with all supporting documentation correctly setting out the corporate structure,” the statement said.

Regarding Operation Parcours, Lucas’s defense team said it “trusts that his innocence will be recognized.”

“The indictment is based on old facts that were already examined in a previous investigation and dismissed by the courts,” the lawyers said.

“The operation was based on events that occurred approximately six years after the end of any relationship between Lucas and the companies investigated in that case.”

The press office also said the Federal Police report “mentions funds managed by Reag only as a hypothesis that might eventually warrant further investigation.”

“After being formally consulted by the defense, the Federal Police stated that there is no ongoing investigation into the matter, indicating that the hypotheses were not supported by factual evidence,” the statement said.

Regarding the Banco Master loan, the representatives said it was obtained through a regular transaction “with an institution whose securities were, at the time, distributed by participants throughout the financial system.”

They also maintained that the loan had been repaid, that the funds were available and that the bank’s liquidator had been notified.

Cade said through its press office that the parties had not formally notified the regulator of any corporate restructuring.

“The competitive effects of the transaction would not change if the acquiring economic group remained the same,” the agency said.

Cade added that it does not comment on proceedings classified as confidential.

* By Alex Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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