Brazil reacts against agricultural subsidies at WTO

Brazil gave a clear warning to India and several other developing countries this Wednesday at the World Trade Organization (WTO): there will be no blank check for granting agricultural subsidies at the expense of Brazilian exports.

With this position, Brazil reacts to a double attempt to close agricultural markets in negotiations at the conference that will bring together ministers of Agriculture from the 164 member countries of the organization — and which will probably be in the week that begins on June 13, in Geneva.

The first is the demand from a group of developing countries led by India for a permanent solution that allows the formation of public stockholding for food security purposes (PSH).

New Delhi wants the creation of a definitive rule for the adoption of new programs with administered prices and with the granting of unlimited and unrestricted subsidies for a wide variety of commodities — including sugar — that cannot be challenged in the Dispute Settlement Body of the WTO.

The second attempt by this group of developing countries, which includes several Asian and African nations, contemplates the application of special safeguard measures – which is reflected in tariff increases on agricultural products when there are abrupt price declines or sudden increases in imports.

On both fronts, agricultural discussions at the WTO, instead of gradually moving in the direction of liberalization, could go in the opposite direction, with more obstacles for exports to India, Indonesia and several other major markets.

Not only Brazil and other Latin American countries would be affected. The U.S. would also be hit at some point, according to an observer on the trade scene.

For exporters, India wants to give additional subsidies without showing any transparency — that is, without saying how much it gives to farmers, how much it has in stock and what is being diverted to the international market or not.

The Indians allege difficulties in this, which leads some partners to ask how it is possible for New Delhi to have a nuclear program if it cannot say how much it spends in support of its sugar producers, for example.

On the other hand, special safeguard measures are a mechanism normally used in balance with an opening of the market, and not as the proponents intend to do now, just to keep the doors closed.

India has become the largest rice exporting country in the world, and the third largest for sugar, boosted by an agreement made at the 2013 WTO conference in Bali (Indonesia), when it obtained a temporary solution to be able to grant more subsidies to build up public stockholding.

On Wednesday, however, Brazil sought to stop the attempt to establish permanent rules for even more unlimited subsidies. The country warned that the mandates on public stockholding could be reviewed, as the consensus that created them no longer exists.

The Brazilian position is that PSH, as it is currently presented, actually causes food insecurity. For Brazil, food security requires a reduction in the volume of hundreds of billions of dollars in agricultural subsidies, not the other way around.

Moreover, the country argues that malnutrition is not a problem of lack of food, but of access to food. Open trade ensures that food can arrive faster and at cheaper prices, even to poorer countries with an agricultural sector that cannot compete with those that heavily subsidize their producers.

In other words, the $60 billion in subsidies offered by India affect farmers in Bangladesh, Vietnam, Vanuatu, among many others.

The message was that Brazil is not against anyone, and that preserving Brazilian exports is part of the solution, not the problem. The country is willing to negotiate a more modern understanding of food security, in order to react to the real causes of the problem. But what Brazil will not accept is giving a blank check to India and other countries for granting subsidies.

Source: Valor International

https://valorinternational.globo.com

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Ban on deforestation products will protect Cerrado, EU says

Soy crop in Mato Grosso: the Cerrado is the second largest biome in the country — Foto: Ruy Baron/Valor
Soy crop in Mato Grosso: the Cerrado is the second largest biome in the country — Foto: Ruy Baron/Valor

The European Union believes its proposal to ban the import of beef, soy, coffee and other products from deforestation and forest degradation will protect much of the Brazilian savanna, the biome called Cerrado, where 75% of the country’s agribusiness is located.

In a meeting this week with agriculture ministers from the 27 EU member countries, the Environment Commissioner, Virginijus Sinkevicius, highlighted the importance of implementing “zero deforestation” in imports and signaled that more ecosystems could be covered by the initiative in the future.

“As an example, we estimate that the proposal should contribute to the protection of about two-thirds of the area of native vegetation remaining in the Cerrado biome, a vast tropical savanna ecoregion in Brazil,” he told ministers.

To Valor, Mr. Sinkevicius’ team said that “area remaining of native Cerrado vegetation” means the area of this biome that has not yet been transformed into pasture, agriculture, infrastructure, etc., before 2020.

The European official said that the EU does not yet have the same kind of detailed data for the Amazon. “We studied the precise case of the Cerrado because it is mostly a savanna,”, he explained. “In any case, since the Amazon is essentially a tropical forest, it is clear that the (European) Regulation will protect most of its surface.”

The Cerrado is the second largest biome in the country in terms of area, only surpassed by the Amazon rainforest. It is responsible for 24% of the country’s greenhouse gas emissions. Between 1985 and 2019, the area of agriculture grew more than tree times in the biome, today reduced to half of the original vegetation: there are 25 million hectares of crops and 61 million hectares of pastures, according to MapBiomas.

When the European proposal for “zero deforestation” in the import of six commodities – beef, soy, coffee, cocoa, wood and palm oil – was presented in November 2021, the Environment Commissioner told the European Parliament that, in the text, “deforestation” means the conversion of the forest into agricultural use, whether or not induced by man; and “forest’” means land of more than 0.5 hectares with trees of more than 5 meters and canopy cover of more than 10%, or trees capable of reaching these limits, excluding agricultural plantations and lands predominantly under agricultural or urban use.

The interpretation of certain experts is that the Pantanal has not yet entered this definition. But in the case of the Cerrado, one part fits and another one does not, depending on the 10% level, and this has an impact on exporters. Thus, for products from Cerrado areas which may be included in the definition of forest, it will be necessary to segregate products from other areas according to the geolocation of production. Companies will need to show that these commodities are not linked to deforestation for the bloc of 450 million consumers.

In an impact assessment document released in November, the EU underlined that stricter rules aimed at protecting the Amazon rainforest have already been shown to accelerate the conversion of Cerrado savannas and wetlands to agricultural production.

Brussels warned that it planned to work in partnership and give support to producer countries on aspects related to “root causes of deforestation”, such as governance, law enforcement and fighting corruption. It also wants to strengthen international cooperation with the main consuming countries to promote the adoption of similar measures to prevent products from supply chains linked to deforestation and forest degradation from being placed on the market.

In the EU’s assessment, the main drivers of deforestation vary geographically. The expansion of agricultural land dedicated to palm oil plantations is one of the main causes of deforestation in Southeast Asia, for example, while the clearing of forests for cattle pasture and for soy plantations and land speculation (land grabbing, often associated with the forced displacement of local communities) are the main drivers in South America. The expansion of cocoa plantations has had a significant impact on deforestation in Central and West Africa.

Source: Valor International

https://valorinternational.globo.com

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German ambassador appeals to Brazil to condemn Russia

Heiko Thoms — Foto: Wenderson Araujo/Valor

The German ambassador to Brazil, Heiko Thoms, made an appeal to the Brazilian government to condemn Russia’s attacks against Ukraine. According to him, as a member of the UN Security Council, Brazil has signed a commitment to act against violations of international law.

“Brazil is one of the largest countries in the world, it is a country that has great weight in the international arena and whose voice is heard. And as it has a seat on the UN Security Council, it is important that it raises its voice in defense of the basic principles of international law,” he told Valor on Wednesday.

According to the German ambassador’s evaluation, Russia’s gesture of recognizing the independence of the self-proclaimed separatist republics in eastern Ukraine is “clearly” an affront to the established peace treaties. The announcement regarding Donetsk and Lugansk was made by Russian President Vladimir Putin himself on Monday.

“We are extremely concerned about Russia’s behavior. Ukraine’s sovereignty cannot be violated, and this is what has happened. In fact, it is a heavy blow against all the diplomatic efforts of the last days, weeks and years,” he said.

He argued that the international community needs to come together now to prevent the conflict in Eastern Europe from escalating. “I believe that great established democracies have to stand together, side by side, they have to support each other.”

The Brazilian government has avoided criticizing Russia. Last week, President Jair Bolsonaro paid a visit to Moscow and said that Brazil was “in solidarity” with that country, a gesture that was harshly criticized by the United States. In a statement on Tuesday, the Ministry of Foreign Affairs defended “a negotiated solution”, based on the Minsk Agreements and respecting the principles of the United Nations Charter”.

When asked about the agenda of the head of the Brazilian government, Mr. Thoms said he would not comment on the “chartered course” of the President.

The ambassador, however, praised the sanctions imposed on Russia by the European Union and Germany itself, which decided to suspend the certification of the Nord Stream 2 gas pipeline. According to him, the adoption of further measures is not ruled out.

“It is very important to give a warning for Russia to stop. That, apparently, has not worked in the last few days. So, of course, there will be other steps if Russia does not back down,” he said.

Mr. Thoms also said that although diplomatic efforts in recent days have not had the desired effect, the international community will continue to act to prevent a war.

“We will not be intimidated, and we will continue our diplomatic efforts. Regardless of how this conflict unfolds, in the end there will always be a diplomatic solution,” he said.

Source: Valor International

https://valorinternational.globo.com

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Petrobras reports record net income

Oil company proposed another dividend distribution, amounting to R$37.3 billion — Foto: Geraldo Falcão/Agência Petrobras
Oil company proposed another dividend distribution, amounting to R$37.3 billion — Foto: Geraldo Falcão/Agência Petrobras

Petrobras reported record annual net income of R$106.7 billion relative to 2021. The result, 15 times higher than the 2020 earnings, came above the R$100 billion projected by analysts.

After a new solid earnings report, that of the fourth quarter, the company proposed another dividend distribution, amounting to R$37.3 billion, to be paid in May. In the end, the remuneration to shareholders for the results achieved last year will total R$101.4 billion, the oil company’s highest ever. The federal government, which controls the company, will receive about a third of this.

Benefiting from the appreciation of oil, the company earned R$31.5 billion in profits in the fourth quarter, down 47.4% year over year. At the time, the state-owned company’s results were strongly inflated by the reversal of impairments. When compared to the third quarter of 2021, there was an increase of 1.2% in the result.

In the year of 2021, the record profit was linked to the 77% increase in the price of Brent oil, in reais, in the period. Two other factors boosted the result: the higher sales volumes in the domestic market and better diesel and gasoline margins – which offset the drop in oil exports, the increase in liquefied natural gas (LNG) acquisition costs due to the water crisis and a revision in health insurance plans.

Petrobras’s net revenues totaled R$134.19 billion in the fourth quarter, up 79% year over year. In 2021, revenues totaled R$452.7 billion, 66.4% more than the previous year. The EBITDA, on the other hand, grew 33.8% in the fourth quarter, to R$62.9 billion, in comparison with the months from October to December 2020; and 64.1% in the year, to R$234.6 billion.

Source: Valor International

https://valorinternational.globo.com

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Rede D’Or buys SulAmérica Seguros in share swap deal

Rede D'Or - YouTube

Rede D’Or closed an association agreement with SulAmérica, an insurance company with 4.4 million users of health and dental plans. The transaction exclusively involves shares swaps.

With the transaction, Rede D’Or, the largest hospital group in the country, enters the health insurance segment. Until then, D’Or’s role in this market was to be the largest shareholder of Qualicorp, administrator of health insurance plans by membership.

According to the statement, SulAmérica assumed an obligation of exclusivity in trading with Rede D’Or, valid for 12 months, subject to the payment of a fine of R$5 billion in the event of non-compliance. SulAmérica, on the other hand, established an exclusivity obligation for 18 months, subject to a non-compensatory fine of R$2 billion.

SulAmérica shareholders will receive common shares from Rede D’Or after the transition. The hospital network will continue as a publicly traded company listed on B3’s Novo Mercado.

The share exchange ratio is 0.2561 new common share of Rede D’Or for each common share of SulAmérica, or 0.7630 common share for each unit of SulAmérica.

The reference values will be the closing prices on February 18, and the SulAmérica units will have an increase of 49.3% as a premium.

SulAmérica shareholders exercising the appraisal right will receive R$6.77 per share or R$20.31 per unit.

The transaction will be submitted to the shareholders at the general meetings of both companies.

In 2019, D’Or bought Hospital Santa Cruz, in the state of Paraná, which also had a health plan operator. In 2020, the hospital group sold this operator to SulAmérica.

This transaction comes against the backdrop of recent moves in the sector. First, Bradesco Saúde created a hospital arm and will start operating on both sides of the market. More recently, there was market information that UnitedHealth Group (UHG) was studying the sale of its Brazilian operation, formed by Amil and the Américas hospitals network.

Today, the main trend in the sector is the presence of players throughout the health chain to better control medical costs, whose readjustments are generally three times above inflation. These groups have realized that if the medical cost continues to follow this pace, private health care will be unaffordable. In addition, they have seen the exponential growth of the verticalized operators Hapvida and NotreDame Intermédica, which recently merged to create a mega company.

Rede D’Or does not want to become a verticalized group like Hapvida and Intermédica because its current source of income comes from insurance companies and operators such as Bradesco Saúde, which will not give up D’Or hospitals even though it also has hospitals. Rede D’Or has about 300 operators that have their hospitals in the accredited network. There is a demand from users of insurance companies and operators that demand high-ranked hospitals.

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EU wants to demand sustainability in whole supply chain

Andre Hoffmann — Foto: Reprodução/Youtube
Andre Hoffmann — Foto: Reprodução/Youtube

The European Commission, the EU’s executive arm, will present on Wednesday a proposal to hold companies accountable for environmental damage and human rights violations in their supply chains globally. It will also crack down on activities in third countries, including Brazil.

Europe has been aligning measures to increase vigilance in the relationship between trade and environmental and social sustainability. And it will be able to impact other countries in terms of ESG if they want to trade with the European market, one of the largest in the world.

Last year, the EU outlined the carbon tax on the border and the proposal to ban the entry of several commodities if produced in deforested areas. Now it will launch a “Directive on Corporate Sustainable Due Diligence,” setting out environmental and human rights obligations for companies. France wants to go further with the introduction of reciprocal standards in EU trade agreements.

In the proposal to be released on Wednesday, the trade impact part is not yet clear, unlike the proposal on deforestation, which establishes a ban on importing products that are not “deforestation-free.” As for the investments of European companies in other markets, the assessment is that the new proposal will tend to have an impact because of the precautions that companies will have to take to avoid breaking the rules in some markets that may be considered risky, for example, due to local environmental policies.

Overall, the due diligence proposal by companies to be released on Wednesday may raise less concern in Brazil than the one on zero deforestation. There was pressure for the mechanism to be modeled on the U.S. legislation, which bases itself on a list of countries that Washington considers as violators. In the European case, responsibility will be placed on European companies or companies operating in Europe.

According to the draft, which was leaked in Brussels, the 27 member states will need to adopt or adapt their own due diligence legislation and, this way, compel companies to identify, prevent and mitigate human rights abuses and violations of environmental standards in their value chains. But the estimate is that this measure will only reach 13,000 companies. Small and medium-sized firms, which represent 99% of all companies in the European common market, will be excluded from due diligence, according to leaked information.

Therefore, only companies with more than 500 employees and global net sales of €150 million or more will be subject to the new rules. It will also include companies with more than 250 employees and net sales of more than €40 million, if at least half of those sales come from sectors considered high-risk, such as agriculture, mining, and textiles.

The proposal will also target companies from third countries if they have net sales of at least €150 million or €40 million in the EU market, depending on the sector in which they operate.

Today, multinationals operate with few obstacles, some experts say. Complex corporate and supplier structures make it difficult to hold the parent company accountable for human rights violations and negative environmental and social impacts in its global operations.

The European proposal would provide for sanctions and civil liability. In other words, it will make companies liable for damage caused by their subsidiaries and their value chains. It means that people whose rights are violated by companies will be able to sue the parent company in the justice system of their home country for compensation or reparation. A community in Brazil’s Northeast region that considers that a multinational has caused environmental damage locally can therefore with less difficulty take legal action against the company in its home country.

The expectation is that climate obligations will lead companies to adopt greenhouse gas emission reduction plans, in accordance with the Paris Agreement, with concrete short, medium and long-term goals.

Much of the European proposal draws inspiration from France’s duty of care legislation, adopted in 2017. The French acted in the wake of the April 24, 2013 disaster at a textile mill in Bangladesh, which collapsed killing more than 1,100 employees. Labels of major European or French brands were found on what remained of the mill. After that, the French law started requiring companies to establish a prevention plan with surveillance measures to identify risks and prevent damage to human rights, health, environment and people’s safety.

Due diligence obligations on human rights and the environment can create a sustainable future, wrote Andre Hoffman, vice-chairman of the Swiss Roche Group, on the website of the World Economic Forum.

The proposal to be presented by the European Commission will then be debated in the European Parliament and by member states in the European Council. And several proposals of amendments will be inevitable. The expectation is that the legislation will be adopted in 2024.

Source: Valor International

https://valorinternational.globo.com

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Shareholders approve privatization of Eletrobras

Acionistas aprovam privatização da Eletrobras em assembleia - 22/02/2022 - Mercado - Folha

Eletrobras’s shareholders approved Tuesday, in an online extraordinary general meeting, the terms of the privatization of Brazil’s main power utility, sources say. With the approval, the company overcomes one more step in the obstacle course to make possible its capitalization process within the expected term, in the second quarter.

Valor found out that there were questions from minority shareholders, in the figure of the former board member of the state-owned company, João Antônio Lian, and from the Association of Employees of Eletrobras (AEEL), through a legal representative.

The digital voting was interrupted a few times, so that the company’s management could prepare explanations for each questioning. In the end, the items were all voted on with a wide margin of acceptance by the minority shareholders. The federal government abstained.

After more than five hours of voting, the shareholders greenlighted the privatization of Eletrobras. The item, the last one on the meeting’s long agenda, was approved by holders of 202 million of the company’s common shares, while shareholders representing 9,749 shares were opposed. The abstentions in this discussion totaled 884 million votes.

The capitalization of Eletrobras will take place via capital increase. The company will issue new shares through a primary offering and the federal government will waive its subscription rights. The objective is that the government’s stake (direct and indirect) in the state-owned company be diluted from the current 72.33% of the voting capital to 45% or less. If the primary offering is not enough to reach the desired limit, a secondary offering of the common shares held by the government will be made.

The last major pending issue to be overcome before launching the offering of Eletrobras shares will be the final approval from public spending watchdog TCU, whose members greenlighted, last week, the technical studies for the company’s privatization, but will still be working on the last details of the operation, such as the price of the shares. The expectation in the government is that this process will be concluded by the beginning of April.

From then on, it will be up to the board of the state-run company to define the best moment for the operation. One item on the agenda approved at Tuesday’s meeting was precisely the authorization for the board to establish details of the capitalization as the schedule, structure and prices of the issuance of new shares for the company’s capital increase.

Before the meeting, the Furnas Employees Association (Asef) tried to obtain an injunction in court to suspend the meeting. The request was presented at 7:40 am and before the start of the meeting, around 2 pm, the Court decision that denied the request circulated behind the scenes.

At least four other fronts, headed by, among other actors, Workers’ Party (PT) deputies and the Association of Eletrobras Employees (Aeel), tried to suspend the meeting, through challenges in Court and the Securities and Exchange Commission of Brazil (CVM), but none went ahead.

In all, the shareholders decided, on 12 items contained in the agenda. All of them had to be approved, without exception, for the others to be effective.

The meeting began with the approval of the transfer of control of Eletronuclear and Eletrobras’s stake in Itaipu to Empresa Brasileira de Participações em Energia Nuclear e Binacional (ENBPar).

This new state-owned company was created to keep the federal government’s control over these two assets, which will no longer be controlled by Eletrobras after it is privatized. Under the Constitution, the federal government has monopoly on the operation of nuclear plants in the country. The Itaipu Treaty, signed between Brazil and Paraguay for the construction of the binational plant, also provides for state participation in the hydroelectric plant.

Source: Valor International

https://valorinternational.globo.com

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Real gains ground driven by foreign capital inflow

Dinheiro — Foto: Daniel Dan-Pexels
Dinheiro — Foto: Daniel Dan-Pexels

Although geopolitical tensions have increased in recent days, given the escalation of the conflict between Russia and Ukraine, the positive dynamics of the real have been striking. With the high spread interest rate between Brazil and the foreign market and the expressive inflow of foreign capital into the domestic stock market, the foreign exchange rate left the level of R$5.71 to the dollar seen at the beginning of January and ended Tuesday being at R$5.0511, the lowest since July 1, 2021.

The move has surprised market analysts and, even after the recent appreciation of the real against the dollar, managers maintain a constructive view and see potential for further appreciation of the Brazilian currency.

Year-to-date, the dollar has dropped 9.39% against the real, in a much more intense movement than that observed in other emerging markets. Also this year, the greenback is down 0.95% in relation to the Mexican peso; dropped 5.45% in comparison with the South African rand; is down 3.34% against the Colombian peso; and shows a decline of 6.96% against the Chilean peso.

Analysts have maintained a constructive bias towards the real in the short term, although they point to a more adverse environment when looking at the coming months. This is the case of the French bank Natixis, which on Tuesday, in a report to clients, started to recommend long positions in reais, that is, those that gain from the appreciation of the Brazilian currency in relation to the Colombian peso.

In the view of Natixis’s chief economist for Latin America, Benito Berber, the more aggressive action by the Central Bank, a decrease in the political risk premium in the prices of domestic assets and the inflow of foreign capital to the Brazilian stock market is likely to support a further appreciation of the real.

“We feel that more market participants are feeling more and more comfortable with holding long positions in real,” says Mr. Berber. For him, the movement takes place despite a slowdown in economic activity in Brazil and latent concerns on the fiscal front. In addition, the economist assesses that there is a drop in the political risk premium, which would support the chance of the real to appreciate further.

At AZ Quest, the bias is also constructive with the future performance of the Brazilian currency. “The movement was large and quite relevant, but we believe it is likely to persist,” said Gustavo Menezes, the company’s macro manager, who highlights, in particular, the evolution of the real interest rate, which started from very negative levels in 2021 to a real rate ex -ante between 6% and 7%.

“The interest rate spread has always been a very relevant determinant in the projection of currencies,” he says. Mr. Menezes also notes that, with the change in the inflationary scenario in Brazil and in the world, the real interest rate expected in the future has become more difficult to project. “Last year, we had a very negative real interest rate, even with the Central Bank raising interest rates, and the return of the currency began to be very harmed,” Mr. Menezes notes.

He reveals that, in the second half of 2021, AZ Quest began to adopt more favorable positions to the real due to the expectation that the real interest rate scenario would undergo important changes. “We still have a debate about what the terminal level of the Selic will be, but inflation has become more palpable and, in the projections, varies between 5% and 6%, that is, we will have, 12 months ahead, a projected real interest rate of about 6%. It’s a pretty big change.”

In addition, Mr. Menezes notes that, in the U.S., the Fed has adopted a tougher speech, but has not yet started to tighten its policy, at a time when inflation has been persistent. “The real interest rate spread is what has made the market take this good stride, in addition to the thesis of reversing the flow, with capital leaving the stock exchanges of the developed markets and returning to emerging markets,” he says.

And it is based on this context that ACE Capital also continues with long positions in real, although they have reduced their size. “We don’t think it’s an appreciation because of the improvement in fundamentals, because the fiscal issue still raises a lot of uncertainty. The fact is that there is a flow of foreigners and there are no signs of interruption or reversal in the very short term,” said Daniel Tatsumi, the firm’s head of currency.

In this sense, Mr. Tatsumi states that ACE has a downbeat view of Brazil, but emphasizes that “it is difficult to bet against the real, especially in the context of portfolio rotation and higher interest rates in Brazil.” The manager draws attention to the fact that the real was heavily punished during the pandemic, both by the flight of capital from risk assets and by the low level of the Selic.

“If we look at the whole year, the real is the best currency and, in 12 months, it is among the best. But if we consider a two-year window, the real just shouldn’t be worse than the Turkish lira. It’s a currency that has been hit a lot and, in this reality, it’s not unreasonable to imagine a dollar below R$5 in the short term,” says Mr. Tatsumi.

In the opinion of the currency manager at Greenbay Investimentos, Marcel Yagui, the exchange rate has benefited from the interest rate spread, as the Central Bank made a major adjustment and made Brazil one of the countries that pays the highest interest rates even in relation to its peers. “This adds to the terms of trade issue, which have been very favorable, and makes our currency attractive from a foreigner’s point of view,” he said.

For Mr. Yagui, the very relevant flow that has entered the local stock market “helps in this very impressive effect of appreciating the real very quickly.” He said that Greenbay maintains an upbeat view of the Brazilian currency due to these factors, but points out that, given the speed of the adjustment, the manager chose to reduce long positions in reais against the dollar.

A less constructive view with the real, however, is defended by the partner and CEO of Armor Capital, Alfredo Menezes, for whom there is an undershooting [exaggeration downwards] of the exchange rate due to the flow of foreign capital. “But this flow is not recurrent. It is one-off, so further on we will see the real weaken [against the dollar] again.”

“Can the exchange rate drop below R$5? It can. It would be very brave to say no, given that the spot dollar is at R$5.05, but I think we are very close to the minimum,” he evaluates. Mr. Menezes says that there is a return of funds from Brazilians who were abroad and that foreigners have entered the Brazilian stock market with funds in the midst of a global rotation of portfolios. “But we cannot forget that it will not be these one-off flows that will finance the current account deficit forever.”

Armor Capital turned the month of January with long position in reais, but zeroed it after recent gains. “With the current level, we are slightly long in dollar,” says Mr. Menezes, that is, with a bet that the dollar will gain ground again against the real.

(Igor Sodré contributed to this story.)

Source: Valor International

https://valorinternational.globo.com

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Brazil to invest BRL 280 million in science and technology institutes

The World's Top 10 Science And Technology Hotspots | teknoturk.org

Science, Technology, and Innovation Minister Marcos Pontes said on Monday (Feb. 21) during an interview with TV Brasil program Uncensored, the National Institutes of Science and Technology (INCTs) shall receive around BRL 280 million ($ 54,9 million dollars) in funds for research.

According to Pontes, this amount is part of the more than BRL 1 billion ($ 196 million dollars) invested in the sector in 2022. The minister also informed that another BRL 250 million ($ 49 million dollars) shall be made available to finance various lines of study at the Research Productivity (RP) level. Brazil’s Ministry of Science, Technology, and Innovation (MCTI) has a total of 130 INCTs with a gap of 30% in their budget. 

There are more than 70,000 idle vacancies in activities related to information and communication technology (ICT), and the Ministry offers courses and workshops to those interested in joining the sector, the minister said.

During the interview Pontes also talked about the production of vaccines, medicines and medical supplies in Brazil. He stressed the importance of being autonomous regarding their production and promoting scientific research in the country. “We have the strategy of making the country independent in the production of vaccines. If the planet doesn’t sell vaccines to us, we can sell vaccines to the planet. We shall also reduce Brazil’s dependence on medicine imports,” he stated.

Minister Pontes also informed he invited billionaire Richard Branson from Virgin Galactic – a company that offers orbital flights to tourists – to set up a launch center in Brazil.

Source: Agência Brasil

https://agenciabrasil.ebc.com.br/en

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Analysis: Survey suggests neutral interest rate hike above 4%

US Federal Reserve with the third interest rate hike this year

The Focus bulletin of financial market expectations, released on Monday, indicates that neutral interest rate estimates are on the rise, above 4% a year. This trend, if confirmed, means that the Central Bank will have to define a higher Selic, Brazil’s benchmark interest rate, in the coming years to keep inflation in check.

The market increased, for the second week in a row, its estimate for the nominal interest rate in 2024, to 7.38% a year from 7.25% a year. This means a real interest rate of about 4.38%, considering the 3% inflation target set by the government for the long term.

This percentage exceeds the estimate of a neutral interest rate of 4% a year given by the market in a survey answered by private-sector analysts in December, on the eve of the meetings of the Central Bank’s Monetary Policy Committee (Copom).

The Central Bank itself estimates a neutral interest rate of 3.5% a year, as disclosed in the Inflation Report last month. But the monetary authority assigns a relatively high probability that the percentage will be higher than that, since it considers that fiscal fragility increases the risk of a higher neutral rate.

The year 2024 is far enough away to leave the most immediate horizon of monetary policy, so the interest rate estimated by the market for the period is a kind of approximation of the economy’s neutral rate.

Today, the Central Bank’s attention is focused on meeting the inflation target mainly for 2023 and, to a lesser extent, 2022. The real interest rate that will be in effect in 2024 will be focused on guaranteeing the fulfillment of the inflation target in 2025.

The increase in the projection for the interest rate in 2024 may reflect, besides an eventual increase in the neutral interest rate, a market view that the fight against inflation may be longer than expected, amid a greater resistance in the rise of global prices.

A sign of these difficulties is that the inflation projection for 2024 also rose for the second week in a row, to 3.09% from 3.04%. The rise, however, is smaller than the advance in nominal interest rates in the period, which reinforces the view that the rise in neutral interest rates may be behind the revision of the outlook for the Selic in the period.

The median projection for the Selic rate for the following years remains at 7% per year. But there are previous signs that it may be on an upward trajectory. The average of the projections for 2025 rose to 7.17% from 7.1%. In the case of projections for 2026, it rose to 7.07% from 6.9%.

It is difficult to determine exactly what is causing the higher estimates for the neutral interest rate. Judging by the December survey, two factors may be playing a role: the increase in fiscal risk and the more challenging international scenario.

This year, the government has once again considered new measures that weaken the fiscal situation, such as tax cuts for fuels and for the industrial sector, in a period in which the government still faces a fiscal deficit. The prospect of interest rates being raised by developed countries also creates uncertainty about the level of interest rates that will prevail worldwide in the long term.

Source: Valor International

https://valorinternational.globo.com

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