Executive says the currency’s surge reflects “fearful money” held by conservative investors
12/19/2024
Brazilians are increasingly transferring money abroad, even as the foreign exchange rate reaches record highs—a departure from historical patterns.
Roberto Lee, CEO of Avenue, a brokerage focused on facilitating international investments for Brazilians, notes that traditionally, a rising dollar dampens outflows. However, he observes a unique shift: the currency’s surge is mobilizing “fearful money” held by conservative investors seeking to protect their assets. These investors are favoring U.S. government bonds with short- and medium-term maturities.
“We’ve been attracting a different type of money that accelerates during heightened risk and carries greater value. The pervasive sense of risk has prompted conservative investors to realize, often reluctantly, the need for a structural portion of their investments abroad,” Mr. Lee explained.
Avenue reports unprecedented inflows compared to its seven-year history, with volumes in its international accounts already surpassing November’s total by mid-December. “We expect at least 20% more this month than last,” Mr. Lee added.
Similarly, XP has seen a 25% increase in international account remittances at the start of December compared to the prior month, while foreign investment expert fintech Nomad reports “consistent record-breaking growth, averaging a 7% rise in new investors,” says Investment Director Caio Fasanella.
According to Rodolfo Buim, head of product distribution at XP’s international division, the dollar’s peak and fiscal uncertainties in Brazil have driven clients to accelerate the dollarization of their portfolios as a hedge against volatility. “Diversification into the American market is also a key draw, offering more maturity and historically greater long-term profitability,” Mr. Buim explained.
Mr. Fasanella, from Nomad, attributes the surge to Brazilians seeking stability and recognizing opportunities in U.S. markets.
The current wave of international investment resembles a similar spike during President Lula’s election in November 2022. However, Mr. Lee points out that last year’s surge was fleeting. “This year, we’ve more than doubled assets under custody, with the increase heavily concentrated in the second half of the year,” he said.
Driven by local and external pressures, exchange rate against the U.S. dollar surged to R$6.26, while the Ibovespa stock index experienced its steepest daily drop since November 2022
12/19/2024
A storm driven by local and external factors sparked another round of turmoil in Brazil’s markets during Wednesday’s session. No asset was spared. The exchange rate per U.S. dollar surged 2.82%, reaching R$6.26, setting a new nominal record and marking the largest daily increase since November 10, 2022, when President Lula, newly elected at the time, criticized pressures for fiscal responsibility. Futures interest rates hit a high of 16% before closing near 15%, while the Ibovespa stock index plummeted 3.15%, ending at 120,772 points—the steepest daily drop also since November 10, 2022, according to Valor Data.
The turbulence began locally early in the morning, as the National Treasury conducted its first public bond buyback auction since 2020, repurchasing 400,000 Series F notes (NTN-F)—well below the 1 million limit set for the transaction. Market participants deemed the repurchase insufficient to contain rising interest rates, given the stronger demand for inflation-linked bonds (NTN-B) or shorter-term securities.
Despite the Treasury’s cautious approach, the reduction in the liquidity cushion hinders a sustained easing of risk premiums, said Denis Ferrari, a fixed income manager at Kinea Investimentos. He argues that “it’s a mistake for the Central Bank not to accept the theory of fiscal dominance.”
Concerns deepened with news that Otavio Ladeira, the public debt undersecretary, had stepped down to take a position at the United Nations, as reported by Valor. The decision, made prior to the recent deterioration of domestic assets, drew attention because of Mr. Ladeira’s effective rapport with the market.
The local situation grew even more precarious as investors fretted over the progress and potential dilution of the fiscal package in Congress. Party leaders in the Lower House reached an agreement to reject stricter rules for the Continuous Cash Benefit (BPC).
The peak of the market’s turmoil came Wednesday afternoon with the release of U.S. economic projections that tempered expectations for interest rate cuts. Federal Reserve Chair Jerome Powell reinforced this outlook by saying that inflationary pressures warrant greater caution in reducing rates.
By the end of the session, the Brazilian real was the worst performer among the 33 most liquid currencies tracked by Valor. The Hungarian forint followed, while the U.S. dollar gained 2.30% against the euro.
The real’s depreciation prompted currency traders to anticipate intervention from Brazil’s Central Bank, as heightened volatility suggested a potential shortage of currency in the market. However, it wasn’t until the day’s end that the Central Bank announced a spot-market dollar auction scheduled for this Thursday morning, with an offering of up to $3 billion.
Caio Megale, chief economist at XP, said interventions by the Central Bank and Treasury buyback auctions are likely to have “limited impact” due to deeper “economic fundamentals” issues. “There’s no indication that fiscal responsibility is a short-term priority,” he said. Mr. Megale argued that Brazil had “missed the chance” to stabilize the exchange rate at R$5.60 and the Selic rate at 12%. “The new equilibrium might settle at an exchange rate between R$6.10 and R$6.20 and the Selic at 15%,” he added.
Mr. Megale further argued that the sharp deterioration in domestic assets is not due to “market irrationality” but rather a “loss of reference.” “We’re asking ourselves where interest rates, exchange rates, and inflation will stabilize. When there’s no reference point, any number becomes possible.”
Chris Turner, head of global markets at ING, attributed the ongoing sell-off of the real to fiscal concerns. “The suspicion is that the Lula administration will maintain loose fiscal policy heading into the 2026 elections, resisting pressure from Brazilian assets,” he noted in a statement.
Adding to the fiscal deterioration, the Fed released its interest rate projections for 2025 and beyond, showing rates higher than those expected in September. This indicated a more cautious approach to rate cuts, favoring the dollar’s global appreciation.
Felipe Sichel, chief economist at Porto Asset, noted the difficulty of attributing weight to individual factors amid simultaneous market movements. “When everything moves at once, it’s hard to gauge the relative importance of each factor. What’s clear is that the real is among the worst-performing currencies this year. Until recently, it was the second worst, only behind the Russian ruble, since the U.S. elections,” he said.
“There’s a global phenomenon at play, with currencies depreciating against the dollar across the board. However, there’s also a domestic factor tied to worsening fiscal expectations in the short, medium, and long term,” Mr. Sichel added.
The economist also suggested that seasonal pressures could be affecting the currency market but emphasized that other local assets are also underperforming. “There’s a broader environment of asset deterioration, reflecting weaker fundamentals, such as worsening inflation expectations in the Focus report,” Mr. Sichel explained.
In the stock market, the Ibovespa posted a trading volume of R$26.4 billion for the session and R$34 billion on the B3. Only three stocks posted gains: Marfrig (1.81%), MRV (1.54%), and Santos Brasil (0.54%).
Conversely, Automob shares experienced a correction, falling 30% after two consecutive sessions of sharp gains. Domestic stocks such as CVC (-17.11%) and Magazine Luiza (-10.04%) also posted significant losses, driven by soaring future interest rates.
Despite the Ibovespa’s 3.9% decline so far this month, Welliam Wang, equity manager at AZ Quest, highlighted the index’s relative resilience compared to other markets, such as foreign exchange and interest rates. He attributed this to the significant weighting of commodity companies in the index. “When we look at the small-cap index, we see a steeper decline because it’s tied to more domestically focused stocks. The Ibovespa’s composition helps mitigate volatility,” Mr. Wang concluded.
The domestic environment has also drawn the attention of global investors. On social media, Mohamed El-Erian, chief economic advisor at Allianz, described Brazilian markets as undergoing a classic emerging-market depreciation. He noted that a fundamental trigger, combined with a weak technical backdrop, has led to a sell-off. “The current race is between ‘circuit breakers’ on one side and a poor technical environment dragging down fundamentals on the other,” he said.
*By Arthur Cagliari, Bruna Furlani, Gabriel Caldeira, Gabriel Roca, Maria Fernanda Salinet e Victor Rezende — São Paulo
Estimates suggest the dry season will impose R$1.3 billion in additional costs on the Manaus Free Trade Zone
12/19/2024
The Negro River in Amazonas has reached 12.1 meters this year, its lowest level in over a century. In some tributaries, what used to be waterways has turned into fields dominated by wild rice and mud. A local saying encapsulates the situation: “During the floods, you lose everything, but the drought kills you.”
For the second consecutive year, the state of Amazonas is enduring a severe dry season. In 2023, the Negro River in Manaus measured 12.7 meters, the lowest level since official records began, in 1902. Still, that was more than half a meter higher than the level recorded in 2024. By comparison, the previous record low occurred in 2010, when the river reached 13.63 meters.
Last year, images of dead river dolphins and stranded cargo vessels were common due to the low water levels. This year, with conditions even worse, the scenes have repeated. In a region where rivers serve as the main transportation routes both within the state and beyond, the impacts range from daily life to the balance sheets of companies based in the Manaus Industrial Hub (PIM). The most severe effects are felt socially, as low water levels lead to forced isolation, supply shortages, and challenges in registering for social programs.
The Amazonas State Industry Center (CIEAM) estimates the drought has added over R$1.3 billion in costs for Manaus Free Trade Zone companies. This amount is slightly lower than the extra expenses reported in 2023. To mitigate the worsening effects of the drought, companies have extended their stockpiles and even relocated floating ports. Despite these measures, a survey of PIM sectors revealed that 87% of companies were affected by the so-called drought surcharge, which includes increased freight costs, storage fees for products in third-party warehouses, and additional charges from container transport ships.
The survey, conducted by researchers from the Federal University of Amazonas (UFAM), found that 78% of companies faced navigation restrictions in the Amazon, and transportation costs rose for 87% of them. Most companies absorbed these expenses, but 4% reported passing them on fully through higher product prices, while 35% said they did so partially. “Consumers won’t accept a TV or air conditioner price that fluctuates wildly. What do companies do? They say, ‘This is the new normal.’ In this new normal, they average out annual costs and increase the product price slightly. It’s as if the company takes the annual cost average and adds 30% to determine the product’s price,” said Augusto César Barreto Rocha, a UFAM professor and deputy director of the Amazonas State Industry Federation (FIEAM).
“We’ve found that a dry river is worse than a flooded one,” said Raimundo Kambeba, a teacher at the Kanata T-Ykua Indigenous Municipal School in the Três Unidos community along the Cuieiras River, about an hour and a half by boat from Manaus. Mr. Kambeba, who also owns a community-based lodge in Três Unidos, explained that during floods, rivers often submerge fields, destroy crops, and invade homes, causing damage to riverside residents.
“In the past, droughts were normal. There was still water in the streams and lakes, and fishing was possible. I thought it was a time of abundance with plenty of fish and game. But these past two years, the drought has been too severe, leading to food shortages. It’s wiping everything out, including us,” Mr. Kambeba said.
The Cuieiras River flows into the Negro River on the left bank of Anavilhanas, one of the largest archipelagos in Amazonas. Two years ago, it was possible to reach Três Unidos by boat. Now, due to the drought, disembarkation occurs over a kilometer away on a beach between the two rivers.
Floods and droughts in the Amazon are annual cyclical phenomena. However, by early December, when rivers should already be rising, Brazil’s Geological Service (SGB) indicated that the Amazon River basin was still experiencing extreme drought conditions.
“We’re facing a new reality in the Amazon, a new normal,” said Virgílio Viana, superintendent of the Sustainable Amazon Foundation (FAS). “That will have many serious implications. Everything related to commercial and social interactions will be impacted.”
“The drought shouldn’t be seen solely as an environmental issue. It has economic, social, and public health dimensions,” Mr. Viana emphasized.
“When the river dries up, everything in the communities stops. Students living at the river’s headwaters, for example, can’t travel to school. All our meetings and events are canceled. It’s complete isolation,” Mr. Kambeba said. “The impact is profound—physically, mentally, and spiritually. Communication ceases.”
Mr. Rocha from UFAM believes that increased investment in structural projects in Amazonas could mitigate the drought’s impacts. He cited completing the BR-319 highway, connecting Manaus to Porto Velho (Rondônia), and expanding the state’s waterways as potential benefits for the region.
“Many people are affected in Amazonas. My research focuses on logistics, but the drought problem extends to everyone. Yet, what we see is no discussion of the root causes. Addressing the Amazon region’s issues with dredging, for instance, tackles the effects, not the causes,” Mr. Rocha said.
Mr. Viana agreed but stressed the need for broader investment in the Amazon to ease the drought’s impacts. The FAS superintendent argued that current efforts fall “far short of what’s needed,” particularly in climate adaptation.
“We need all of Brazil’s roughly 6,000 municipalities to have climate adaptation plans with budgets. It can’t remain an aspirational goal—it must include budgets and timelines to ensure implementation. Otherwise, it becomes vague wishful thinking,” Mr. Viana said. “The Amazon always lags behind the rest of Brazil. Budgets are tighter, and the gap in social infrastructure is larger. There’s greater competition for resources. Additionally, the quality of public spending here is very poor. It’s not just about having money but about how effectively and efficiently spending it.”
The journalist’s travel costs were covered by the Amazonas State Industry Center.
Market pressures reshape Brava’s strategy as it seeks to streamline operations and stabilize finances
12/18/2024
Brava Energia, formed through the merger of oil companies 3R and Enauta, is evaluating its asset base to unlock capital and improve cash flow. The company announced on Tuesday an exclusive agreement to divest assets in Rio Grande do Norte. However, according to Pipeline, Valor’s business news website, this is only a fraction of a broader divestment strategy.
Brava has enlisted investment bank Itaú BBA to seek a buyer for all its onshore assets—a move previously suggested by one of its shareholders, Maha Energy, earlier this year. Sources indicate that shareholders aim to structure the business to generate quicker returns via dividends.
The company’s largest shareholders, Bradesco and Jive, acquired their stakes by converting Enauta’s debt, reflecting a financial rather than a strategic interest in the enterprise. Bradesco holds 12.2%, Jive 7.1%, and Maha Energy 4.7%.
Brava hopes to secure a premium price for the assets based on its investments, though analysts predict challenges. The company invested $2.1 billion in its onshore portfolio, but analysts at BTG Pactual estimate its current value at $1.9 billion. Assuming a buyer absorbs all associated debt, the transaction could yield approximately $700 million in equity for shareholders.
Debt and high capital expenditure requirements are driving the divestment. Rising interest rates have exacerbated leverage pressures, further impacting cash flow. At the end of the third quarter, Brava reported a consolidated net debt of R$9.06 billion and a leverage ratio of 2.7 times EBITDA over the last 12 months.
The company took its first step Tuesday by signing an exclusivity agreement with Azevedo e Travassos and Petro-Victory Energy for oil and gas concessions in Rio Grande do Norte. The 30-day exclusivity period will allow negotiation over 11 concessions in the Potiguar Basin, where the average daily production from January to November was about 250 barrels.
In a statement to the market, Brava Energia described its newly signed contract as “the beginning of the portfolio optimization strategy” without providing further details.
Brava Energia emerged from one of the swiftest mergers in Brazilian stock market history. Initially, 3R Petroleum had been in talks for a merger with PetroReconcavo, exploring a strategy to combine onshore operations while spinning off offshore assets. However, hesitation within PetroReconcavo’s board shifted the trajectory. This opened the door for Enauta’s creditors, who were navigating a financial restructuring, to seize the opportunity.
At the time of the merger’s announcement, the two companies boasted a combined market value of R$13.75 billion. Since then, external pressures—including stock market volatility, fluctuating oil prices, a strong U.S. dollar, and rising interest rates—have weighed heavily on the newly formed entity. Brava’s current market value stands at R$9.8 billion.
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
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.
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.”
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.
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.
