FGV Ibre’s regional report shows region’s economy is outpacing national average growth, but industrial sector lags behind
09/18/2024
The Northeast region of Brazil is experiencing sustained economic growth, surpassing the national average in 2024, but its industrial sector still lacks dynamism and lags behind the country’s average performance. This assessment comes from Flávio Ataliba, coordinator of the Center for Northeast Development Studies at the Brazilian Institute of Economics of Fundação Getulio Vargas (FGV Ibre), who is also responsible for the Northeast Macro Regional Bulletin, released on Tuesday (17).
Mr. Ataliba states that the industrial sector’s issues in the Northeast are structural, and production levels have not yet returned to pre-pandemic figures. “The key takeaway is that the Northeast’s industry needs to become more dynamic. It still faces structural problems and is below the national level,” he said.
The newly released document compiles a series of economic data from the nine states in the Northeast, showing, based on the Central Bank’s IBC-Br index, that the region’s economy fell by 1% in June compared to the previous month, while Brazil as a whole saw a 1.4% increase. However, for the year to date, the Northeast’s economy has grown by 3.1%, compared to the national average of 2.1%. In contrast, the industrial sector’s performance is different, with the Northeast decreasing by 0.4% for the year, while Brazil as a whole increased by 2.6%.
Mr. Ataliba suggests a deeper analysis is needed to identify the main bottlenecks in the Northeast’s industrial sector. “Is it financing? Access to markets?”
The bulletin also cites data from the National Confederation of Industry (CNI) to highlight that industrial business confidence in the Northeast remains low. In July, it dropped by 2.2 points to 48.7 points. “According to the indicator, there is some resistance among entrepreneurs to invest and increase production in the short term,” the document notes.
In stark contrast, the performance of the services sector has been more positive. The Northeast Macro Regional Bulletin, using data from IBGE, shows that seven out of the nine states in the Northeast recorded an increase in the volume of services in June compared to May. Only Rio Grande do Norte and Alagoas saw a decline, the same two states that reported a decrease for the year to date.
The study also analyzed data from IBGE’s continuous PNAD survey and found that in the second quarter of 2024, the unemployment rate in the Northeast was 9.4%, a decrease of 1.7 percentage points from the first quarter of the year, which stood at 11.1%.
Arthur Lira advocates agreement with government to define leadership of new body
09/18/2024
Arthur Lira — Foto: Brenno Carvalho/Agência O Globo
Brazil’s Lower House Speaker Arthur Lira has indicated to his allies that the creation of the Climate Authority, announced by the government last week, will only move forward if its leader is chosen through a consensus between the Executive and Legislative branches. The continuation of the body would depend on the approval of the National Congress, which is responsible for passing or rejecting provisional presidential decrees.
During the transition period in 2022, the government attempted to establish the body, one of President Lula’s campaign promises, but backed down in the face of resistance from the Legislature.
In private conversations, Mr. Lira has argued that attempting to impose a leader could increase the likelihood of resistance in Congress, even though recent episodes of wildfires across the country have bolstered the case for the need for such a climate authority.
The rural caucus has already signaled that it may mobilize against the appointment if not consulted in advance. The group aims to prevent the body from falling under the Ministry of Environment, led by Marina Silva.
Congressman Pedro Lupion, the head of the caucus, said, “Marina and her team have already shown their ability to manage a crisis like this.” He added, “Their incompetence has been proven. Congress will have to approve [the Climate Authority] and, in the meantime, find the best government area and the best candidates.”
“The climate authority is not a single person but a committee that evaluates both prevention and correction measures. If it operates like in Rio Grande do Sul, appointing someone like Paulo Pimenta as the authority, it won’t work because it politicizes the debate without solving anything,” said Congressman Alceu Moreira, a member of the Agricultural Parliamentary Front (FPA).
Mr. Moreira believes that if Minister Marina Silva were chosen to also head the Climate Authority, her appointment would be rejected by Congress.
“The Climate Authority should be appointed by the National Congress and established as an institution with a clear mandate. It should be a state entity, not a government one. If it merely reflects the government’s ideology, it serves no purpose and only causes harm. It needs to be a technical expert,” emphasized the congressman from Rio Grande do Sul.
“I think it’s a positive initiative, as long as it’s not an ideological appointee. This position requires a nonpartisan approach and strong coordination within and outside the government. If not, we already have the Ministry of Environment. I support constructing a name with the three branches of government,” said Congressman Zé Vitor, a member of the rural caucus and the Lower House’s Environment Committee.
The opposition has already started criticizing the creation of the Climate Authority. Congresswoman Bia Kicis, in a video posted on social media, claimed the government “only thinks about creating public agencies and spending more money.” She questioned, “Isn’t Marina Silva the minister? Shouldn’t she be the Climate Authority?”
In an interview with Valor, Minister Marina Silva stated last week that she has been discussing for months with Mr. Lira the need for a comprehensive policy to combat extreme weather events, which would include a Climate Authority.
Federal government investments reached their highest level for the first seven months of 2024 since 2016. However, economists consulted by Valor warn that these investments are still insufficient to significantly boost economic growth or ensure adequate infrastructure for the country. This responsibility largely falls to the private sector given Brazil’s fiscal constraints. Despite the recent increase, federal investment remains below the average of developed countries and continues to lack transparency.
From January to July this year, federal investments totaled R$32 billion, the highest level for this period since 2016, when disbursements reached R$36.8 billion. These figures, obtained by Valor from the official records of the National Treasury Secretariat (STN), are adjusted to July 2024 prices and exclude financial investments. Compared to the same period last year, there was a 31.8% increase.
In the early 2010s, annual federal investments hovered around R$50 billion. However, the increasing need for fiscal adjustments—culminating in adopting the spending cap in 2016—and the difficulty in cutting mandatory expenses led to fiscal adjustments primarily targeting discretionary spending, such as investments. Brazil’s budget rigidity, with over 90% of mandatory expenses, also limits the amount the government can invest.
Consequently, there were years when federal investments were insufficient even to cover the depreciation of federal infrastructure—a situation that has improved with increased disbursements in recent years.
Following the approval of the so-called Transition Constitutional Amendment at the end of 2022 and the new fiscal framework for federal accounts last year, these disbursements have started to grow again. The framework sets a minimum of 0.6% of GDP for federal investments.
The Annual Budget Bill (PLOA) for 2025, presented at the end of August, mandates that investments must reach at least R$74.3 billion. For this year, the minimum is R$68.5 billion. These figures include disbursements from the New Growth Acceleration Program (PAC), launched by President Lula in 2023.
“Public investments remain very low,” said Manoel Pires, coordinator of the Center for Fiscal Policy and Public Budget at the Brazilian Institute of Economics at the Getulio Vargas Foundation (FGV Ibre).
He noted that last year these disbursements amounted to 0.5% of GDP. Including investments by state-owned companies, which often serve as an outlet for infrastructure spending in Brazil, the figure rises to 2% of GDP.
In contrast, average federal disbursements by OECD countries are around 3.5% to 4% of GDP—a difference that, accumulated over the years, results in a significant gap in capital stock between Brazil and developed countries.
“Brazil’s case is particularly severe because our infrastructure is very poor. Other countries don’t have as much need for investment,” said José Ronaldo de Souza Jr., chief economist and partner at consultancy Leme Consultores, and a professor at the Brazilian Institute of Capital Markets (IBMEC).
While the economists consulted by Valor advocate for most investments to come from the private sector, they also acknowledge that federal contributions are often necessary to make projects viable. Mr. Souza Jr. cited the highway BR-381 as an example. Auctioned in August by the federal government, the BR-381, known as the “Death Road” for its dangerous conditions, involves technically challenging construction. The auction stipulates that 31 kilometers out of a total of 296 kilometers will be turned into a freeway by the federal government itself.
Despite agreeing on the need to expand investments, analysts emphasize the importance of maintaining the current fiscal framework to avoid greater imbalances in the federal budget. Currently, the gross government debt (DBGG), considered by many economists as the primary indicator of federal indebtedness, stands at 78.5% of GDP, according to the Central Bank. This figure represents an increase of 6.8 percentage points since the beginning of President Lula’s third term.
Moreover, there is near-unanimity among public finance experts that the indicator will continue to rise in the coming years. The Independent Fiscal Institution (IFI), a Senate-affiliated fiscal policy watchdog, projects that the DBGG will reach 100.6% of GDP by 2034.
A third complicating factor is that Brazil’s starting point is higher than most emerging markets. According to the International Monetary Fund (IMF) in March, Brazil’s gross debt exceeds the average for emerging countries by more than 15 percentage points, trailing only Egypt, Ukraine, and China.
“Everyone is scrutinizing Brazil’s public debt closely,” said Margarida Gutierrez, a professor at the Federal University of Rio de Janeiro who likens the federal government to “constantly using an overdraft line of credit.”
Economists say the main way to create fiscal space for increased investments would be to change the rules for mandatory federal spending. Among the suggested options are unlinking social security and welfare benefits from minimum wage hikes, indexing the minimum wage only to inflation without real increases, and modifying constitutional spending floors for health and education, currently tied to revenue. From January to July, the total federal expenditure was R$1.325 trillion, but only R$32 billion was allocated to investment.
As reported by Valor in recent weeks, the economic team is discussing changes to the rules governing several sources of mandatory spending pressures, such as unemployment insurance, the Workers’ Severance Fund (FGTS), wage bonuses, the Simples Nacional a simplified tax regime for small businesses), and the FUNDEB (Fund for Maintenance and Development of Elementary Education). These suggestions are expected to be formally presented only after the municipal elections to be held in early October.
“A country with such high public expenses cannot have such low spending on investments that create positive externalities for the economy and well-being,” said Mr. Souza Jr.
“Every time Brazil sees a bit of growth, we start running out of ports, airports, sanitation, highways, railways,” added Mr. Gutierrez.
Another issue highlighted is the lack of transparency in federal investments. The investments reported monthly by the Treasury include parliamentary budget allocations, which have been a subject of discussion among the Executive, Legislative, and Judiciary branches due to their lack of transparency.
“In accounting terms, the expenses are recorded as investments, but many items end up under this category,” said Bruno Lavieri, chief economist and partner at intelligence.
The economic team is weighing reduced payments for workers with larger severance packages and higher contributions from sectors with higher turnover
09/16/2024
Alexandre Manoel — Foto: Rogerio Vieira/Valor
With a strong job market and low unemployment, the government’s economic team is exploring ways to address what some experts view as double protection for workers dismissed without just cause: unemployment insurance and the 40% severance fine on deposits in the Workers’ Severance Fund (FGTS).
One proposal is to adjust the number of unemployment insurance payments based on the size of the severance fine. Under this plan, the higher the fine, the fewer unemployment insurance installments a worker would receive, creating a balance between the two forms of compensation. Notably, the proposal does not involve altering the FGTS fine itself.
Another idea under consideration is improving the funding of unemployment insurance. This benefit is financed through the Workers’ Support Fund (FAT), funded by a portion of the PIS and Cofins social taxes. The government is exploring the possibility of increasing contributions from industries with higher worker turnover, as these sectors rely more heavily on unemployment insurance. While the Constitution allows for differentiated rates, this provision has not yet been implemented.
These preliminary ideas have not yet been formally presented to the Ministry of Labor and Employment and will need to be refined through discussions with other government sectors, as well as reviewed by key ministers and President Lula. Whether they will become concrete proposals remains uncertain.
These discussions are part of a broader spending review aimed at curbing the rise in mandatory expenditures to ensure the fiscal framework’s sustainability.
The spending review focuses on three key areas: revising social benefits, modernizing automatic rules for budget allocations to specific sectors, and reformulating public policies.
The aim of adjusting government programs is to save resources, address inefficiencies, and improve productivity.
While experts agree that the government’s efforts to strengthen the spending review are moving in the right direction, concerns remain about the implementation of potentially unpopular measures.
“Reforming mandatory spending, such as adjustments to the Continuous Cash Benefit, wage subsidies, or unemployment insurance, is essential to restore fiscal credibility, which has been eroding since the start of the year,” says Alexandre Manoel, chief economist at AZ Quest. He believes the government has fallen short in managing the expectations of economic stakeholders since taking office.
Rafaela Vitória, chief economist at Banco Inter, adds that a reform and consolidation of benefits could positively impact the fiscal outlook in the medium and long term, potentially accelerating fiscal adjustments. “The current structure shows that stronger economic growth has led to faster spending, complicating the adjustment process,” she explains.
Manoel Pires, coordinator of the Fundação Getulio Vargas Center for Fiscal Policy and Public Budget, notes that many of the ideas being discussed are not new. “The issue is not formulating the ideas but getting them on the government’s agenda,” he says. “That has yet to happen.”
Echoing Mr. Pires’ observation, the government is internally resistant to the spending review. One official acknowledged that the economic team’s main challenge is “selling” the concept to the various ministries.
Professor Alberto Handfas from the Federal University of São Paulo (UNIFESP) views the government’s push to cut social program spending as excessive. “I don’t believe this will solve the fiscal tightening issue,” he remarked, suggesting that other expenses, such as the salaries of judiciary officials, high-ranking military personnel, and interest payments, should be addressed first.
In inflation-adjusted terms, the government spent R$52.3 billion on unemployment insurance in the 12 months leading up to July this year. Data from the Ministry of Labor indicates that despite a booming job market, the number of people claiming the benefit has not decreased.
“Unemployment insurance spending has grown by 7.5% above inflation this year, which starkly contrasts the more favorable labor market, characterized by record employment and formal job creation,” says Ms. Vitória. “This discrepancy reveals that the program’s design is not well-suited to the cyclical conditions of the economy, and it imposes a significant fiscal burden, complicating the necessary adjustment of government accounts.”
Ms. Vitória also highlights the overlap between support mechanisms for workers, such as the FGTS fine and unemployment insurance. “This duplication incentivizes turnover rather than fostering job stability.” A government technician echoed this sentiment, explaining that internationally, it’s typical to use one form of support or the other—but not both, as is the case in Brazil.
To qualify for unemployment insurance, beneficiaries must have worked under a formal contract for at least 12 of the 18 months preceding their dismissal when applying for the benefit for the first time. The requirement drops to nine months for a second application, and for subsequent applications, it falls to six months.
The number of installments a worker can receive ranges from three to five months, depending on how many months they were employed. The FGTS severance fine is paid to workers dismissed without just cause.
In cases of dismissal without agreement, the fine amounts to 40% of the total balance in the FGTS account, while it drops to 20% if the dismissal is part of an agreement between employer and employee.
In a booming economy, government experts suggest that many workers strategically seek the FGTS fine and unemployment insurance, confident they can quickly find new employment once their savings are depleted.
“If I’m fired, I can claim unemployment insurance, receive the FGTS fine, withdraw from my FGTS account, collect severance pay, and take accrued vacation plus an additional third. In other words, I leave with a compensation package and a guaranteed income through unemployment insurance. Evidence suggests this creates a tendency among workers to seek redundancy, which in turn encourages turnover,” explained a source.
This dynamic led to the proposal to adjust the number of unemployment insurance installments based on the FGTS fine. According to economic team technicians, this change could result in tax savings while also helping to reduce turnover.
José Luis Datena assaulted Pablo Marçal with a metal chair, who was rushed to hospital
09/16/2024
José Luiz Datena hit his Pablo Marçal with a metal chair amidst a fierce argument broadcast by TV Cultura — Foto: Reprodução TV
Physical violence marked a political debate live on television among two runners for mayor of Brazil’s largest city on Sunday evening. TV star José Luiz Datena hit his challenger, digital influencer Pablo Marçal, with a metal chair amidst a fierce argument broadcast by São Paulo state-run TV Cultura. Mr. Datena was immediately expelled from the debate, and Mr. Marçal was rushed to the hospital, where he stayed overnight.
The aggression occurred after Mr. Marçal mentioned that Mr. Datena had allegedly been involved in a past sexual harassment case, which was eventually dismissed. Off-camera, Mr. Marçal repeatedly provoked Mr. Datena, implying that he was a rapist.
Both candidates are newbies in politics. Mr. Datena is a famous journalist and hosts a popular afternoon TV show, considered by many as sensationalist. Mr. Marçal is a far-right digital influencer with millions of followers. Mr. Marçal has been surging in the opinion polls, and is currently in a statistical tie to win with incumbent Ricardo Nunes, and leftist Guilherme Boulos. Mr. Datena has been declining in the polls and rumors have it that he may leave the race.
Tensions between both candidates were high from the start of the debate, and even from previous debates. Mr. Marçal has used the strategy of making serious accusations against all his opponents during the campaign.
On Sunday’s debate, when chosen to ask the first question, Mr. Datena refused to direct it at Mr. Marçal as requested, arguing that his opponent only used the debates to stage a performance for his social media channels. In response, Mr. Marçal brought up the alleged sexual harassment case.
Mr. Datena claimed the case was dismissed due to lack of evidence and retaliated by calling Mr. Marçal a “petty bank thief.” In 2010, Mr. Marçal was sentenced to two years and six months in prison for participating in a group that committed bank fraud, involving the acquisition of victims’ account details for online banking access—he appealed, and the sentence eventually expired.
Off-camera, Mr. Marçal continued to provoke and accuse his opponent. In the fourth segment, after another mention of the harassment case, Mr. Datena approached Mr. Marçal and assaulted him. Mr. Marçal clutched his ribs, indicating pain, and was insulted by Mr. Datena as he left the auditorium.
Mr. Datena wanted to leave the live debate and ended up being expelled. His team watched the scene with surprise and disbelief.
Moderator Leão Serva announced that the debate would be paused and called for a commercial break. The event resumed about three minutes later.
Following the debate, Mr. Marçal’s campaign released a statement: “Pablo Marçal was cowardly attacked by José Luiz Datena, who struck him in the ribs with an iron chair. Unfortunately, Marçal had to leave the debate urgently in an ambulance to receive emergency medical care.”
The campaign expressed regret that the debate continued without the injured candidate. “It is regrettable that the debate continued without the presence of the attacked candidate. Pablo Marçal is injured, with suspected fractures in the thoracic region and great difficulty breathing,” the statement read. “We hope that appropriate legal measures will be taken and we count on the people’s prayers.”
Tassio Renan, Mr. Marçal’s lawyer, reported that the candidate was experiencing rib pain and hand injuries. Mr. Marçal was to undergo imaging tests and remain in the hospital overnight. His Monday schedule would be canceled. The campaign demanded security presence at future debates.
In a statement, TV Cultura expressed regret over the incident and said it took all necessary actions according to the established rules, including expelling Mr. Datena. “Additionally, the debate continued with the agreement of the remaining candidates,” the statement read.
Upon leaving the studio, Mr. Datena admitted to losing his temper. “Unfortunately, I lost my temper. Should I have left? Probably. I could have simply walked out and gone home, which would have been much better. But just as I weep as a human reaction, this was a human reaction I couldn’t contain,” he added. Asked by a TV Cultura reporter if he regretted his actions, he replied, “Of course not.”
Speaking to journalists, Mr. Datena said it was up to the party to decide his candidacy, but he intended to stay in the race. “I intend to remain a candidate until the end. It depends on the party. It depends on everyone. I intend to continue as a candidate,” he said. “Was I wrong? Yes. But what can I do? It’s done.”
The remaining candidates attempted to capitalize on the episode. Tabata Amaral used the assault to highlight the minority status of women in the race. The candidate called the “men’s behavior” in the debate “outrageous” and thanked Marina Helena for being the only one to maintain the debate’s level by asking about proposals for São Paulo’s adaptation to climate change.
Candidate Guilherme Boulos and the incumbent Ricardo Nunes condemned the assault. The São Paulo mayor used his closing remarks to try to attract Mr. Datena’s voters, betting that the TV presenter would exit the race after the attack. “The assault is unjustifiable, but he was provoked and defended his family’s honor,” he said. After the debate, Mr. Nunes, Ms. Amaral, and Mr. Boulos reiterated that Mr. Marçal had provoked Mr. Datena off-camera and called the incident unfortunate.
The debate marked a significant point in the history of televised political battles in Brazil. With no time in the free electoral broadcast slots, Mr. Marçal was constrained by TV Cultura’s rules and struggled to replicate his previous debate strategy, where he had become the center of attention by insulting all his opponents. He encountered Mr. Datena’s emotional instability, evident in the candidate’s recent public appearances and interviews.
*Por Cristiane Agostine, Murillo Camarotto, César Felício, Maria Cristina Fernandes — São Paulo
Justice argues that the fiscal costs of wildfires outweigh the expenses needed to combat them
09/16/2024
Flávio Dino — Foto: Rosinei Coutinho/SCO/STF
Supreme Court Justice Flávio Dino authorized the federal government to issue extraordinary credits beyond the fiscal target until the end of the year, exclusively to combat wildfires affecting Brazil.
“We cannot deny the maximum and effective aid to over half of our territory, its respective populations, and the entire flora and fauna of the Amazon and Pantanal, based on compliance with an accounting rule not found in the Constitution, but rather in the realm of sub-constitutional laws,” Mr. Dino stated in his decision on Sunday (15).
Additionally, the justice argued that the negative impact on fiscal responsibility would be more attributable to the erosion of productive activities in areas affected by the fires and drought than to the temporary suspension of fiscal rules through the end of 2024.
Mr. Dino also ordered the relaxation of rules for hiring and retaining wildfire brigades, waiving the current law’s three-month waiting period for rehiring staff who have previously provided service.
The ruling emphasizes the need for increased involvement of the Federal Police in investigating the role of human activity in the majority of the fires in the Pantanal and Amazon regions.
Mr. Dino’s decision followed a warning from the legal advisory office of the Ministry of Planning and Budget about the risks that extraordinary credits for combating wildfires—outside the fiscal framework’s spending limit—could pose to the balance of public finances.
The legal advisory’s terms were included in a submission by the Attorney General’s Office (AGU) sent to Mr. Dino to support the decision to release extraordinary credits for the 2024 budget. Last Tuesday, the justice gave the AGU 48 hours to present its position.
“The impact on macroeconomic indicators, such as inflation, interest rates, and public debt, could be significant, especially if these extraordinary expenses are financed by increased public debt. Therefore, caution is recommended in issuing extraordinary credits, along with compensatory measures to mitigate fiscal and macroeconomic risks, ensuring the sustainability of public finances in the medium and long term,” said Richard Marinho Cavalcanti, coordinator of Budgetary Affairs for the Ministry of Planning’s legal advisory office.
Mr. Cavalcanti further explained that these exceptional resources might force the government to make fiscal adjustments to meet the targets set by the fiscal framework.
“Although these credits are exempt from the spending limits of Supplementary Law 200/2023, they still impact the primary result target established in the 2024 Budget Guidelines Act. This requires strict fiscal adjustments from the government to ensure compliance with this target, under penalty of fiscal imbalance and economic deterioration.”
Wildfires in Brasília
A large wildfire broke out on Sunday in Brasília National Park, also known as Água Mineral Park.
Mauro Pires, president of ICMBio (Chico Mendes Institute for Biodiversity Conservation), said the fire shows signs of being intentionally set. He stated that the blaze began near the Granja do Torto region and quickly spread into the park due to hot and dry conditions.
As of Sunday night, no arrests had been made. “The cause of the fire is undoubtedly criminal. It started at the border of Granja do Torto and spread into the park,” Mr. Pires said.
The firefighting efforts include teams from the Federal District Fire Department and ICMBio brigades. The teams remained on site as of Sunday evening. The park is a vital conservation area, protecting rivers that supply the region.
As of Sunday afternoon, Brazil still had 6,251 active wildfire hotspots, according to data from the National Institute for Space Research (INPE). Pará had the most fires, with 1,765 hotspots, followed by Mato Grosso with 1,150 and Tocantins with 637.
In São Paulo, at least 12 cities had active fires on Sunday, according to the state’s Civil Defense. On Saturday, the state government deployed 20 aircraft with 100% of its resources to combat fires in 13 municipalities.
From January through Saturday, Brazil recorded 182,568 fire hotspots, nearly triple the number in Bolivia, which ranked second with 64,091. Venezuela had 39,000, and Argentina followed with 22,130.
International debt holders are divided amid negotiations for additional funds
09/13/2024
Airline has begun discussions with lessors and bondholders to find solution to its current financial situation — Foto: Leo Pinheiro/Valor
Groups holding Azul’s international debt bonds are at odds amid negotiations for the airline to raise additional capital, sources informed Valor.
The airline, undergoing a fresh financial restructuring, is seeking to raise between $300 million and $400 million from these creditors by using its logistics arm, Azul Cargo, as collateral.
The primary issue is the discrepancy in the collateral received by various creditors for their past bonds and how these differences might be reconciled to facilitate new capital for the airline.
“Azul has issued multiple bonds with varying maturities and collateral. Some creditors believe these negotiations must take this into account,” an insider revealed. This has led to disagreements within the group, which needs to make a decision regarding the additional funds for the airline.
A report by Debtwire on Wednesday (11) indicated that some creditors had split from the main group and were seeking an advisor, including Oaktree Capital Management.
In a market statement, this group of creditors denied any split but did not detail the internal disagreements regarding the collateral.
“The Ad Hoc Group of Azul Noteholders remains united and intends to engage constructively with Azul,” the group stated. This faction represents about 90% of the senior secured notes maturing in 2028, 2029, and 2030. They also hold 90% of the outstanding convertible notes due in 2028. Cleary Gottlieb Steen & Hamilton LLP and Mattos Filho have been hired as legal advisors, while PJT Partners is serving as the financial advisor.
Azul has started discussions with both lessors and bondholders to find a solution to its current financial situation and to avoid a more extensive restructuring through a Chapter 11 bankruptcy filing. Meetings were held last week in New York.
Valued at approximately $800 million, Azul Cargo is expected to be the main asset used as collateral to raise funds and avoid Chapter 11. This operation would follow the same strategy employed with TudoAzul, the airline’s loyalty program, which was used as collateral for a loan last year.
A source familiar with the talks mentioned that Azul needs an influx of funds this year to gain financial breathing room, and it is most likely that this money will come from its current creditors.
The airline sought its bondholders to raise between $300 million and $400 million.
Joana Bontempo, a consultant and head of corporate restructuring at CSMV Advogados, noted that securing new money from creditors holding different bond issues is typically complex, as the bonds need to be renegotiated to allow new collateral and align divergent interests.
“The different payment priorities and creditor rights need to be accommodated to reach a swift and consensual solution,” she said.
According to sources, negotiations with bondholders are closely tied to discussions with aircraft lessors. This is because the holders of international debt have shown interest in providing more resources to Azul, but this new money cannot be used to pay lessors. Therefore, the debt with the lessors must be settled before new funds can be raised.
As for the lessors, total debts amounted to approximately R$18 billion by the end of the second quarter. Current talks involve five major lessors, who hold over 90% of this debt: AerCap, Avolon, Azorra, NAC, and Falko.
Last year, Azul reached an agreement to renegotiate its debt with aircraft lessors, involving the issuance of $370.5 million in unsecured debt maturing in 2030 at a cost of 7.5%, with an option to receive an additional $570 million in Azul preferred shares, priced at R$36 per share.
As the airline’s stock has underperformed due to exchange rate fluctuations and the crisis in Rio Grande do Sul, Azul has initiated a new round of talks to avoid significant dilution.
Sources indicate that current discussions with lessors involve offering a fixed portion of the company in exchange for converting the debt into equity. The dilution is expected to be around 25%.
Behind the scenes, Azul sees a favorable negotiation window. On one hand, the company is not in default on its bonds, which allows for more amicable discussions. Default situations typically force companies into adversarial positions, giving creditors the power to enforce debts—often leading to Chapter 11 protection filings.
On the other hand, Azul will also benefit from the Brazilian government’s release of the National Civil Aviation Fund (FNAC) as collateral for loans. However, the market expects airlines to officially access these funds only next year.
Azul and Oaktree Capital Management declined to comment.
*Por Cristian Favaro, Fernanda Guimarães — São Paulo
The country’s primary and most diversified industrial hub accounts for approximately 33% of the national industrial output
09/13/2024
Over 12 months through July, Brazil’s overall industrial production rose by 2.2% — Foto: Rogerio Vieira/Valor
Following a cumulative increase of 4.1% over three consecutive months, São Paulo’s industrial production fell by 1.8% in July compared to the previous month, according to the Monthly Regional Industrial Survey (PIM Regional) released recently by the Brazilian statistics agency IBGE.
São Paulo is the leading and most diversified industrial hub in Brazil, contributing about 33% to the national industrial output. This decline significantly impacted the overall performance of Brazil’s industry in July, which saw a decrease of 1.4%.
“The 1.8% drop, exceeding the national average, partially offset the accumulated growth from the previous period. The pharmaceutical sector negatively influenced São Paulo’s production output,” said Bernardo Almeida, who leads the survey.
Despite the decline, São Paulo’s industrial production remains 2.2% above pre-pandemic levels.
Compared to July 2023, São Paulo’s industrial sector grew by 5.4%, which is below the national average growth rate of 6.1%. For the year up to July, the growth was 4.7% in São Paulo and 3.2% across Brazil.
Over the 12 months leading up to July, São Paulo’s industrial production increased by 2.5%, while Brazil’s overall industrial production rose by 2.2%.
A relação direta entre a fome e as mudanças climáticas foi debatida por pesquisadores que se reuniram na Universidade do Estado do Rio de Janeiro (Uerj) nesta semana, no 6º Encontro Nacional de Pesquisa em Soberania e Segurança Alimentar e Nutricional, que termina nesta sexta-feira (13). Coordenadora do evento e professora do Instituto de Nutrição Josué de Castro, da UERJ, Rosana Salles da Costa explica que a insegurança hídrica, por exemplo, pode ser uma consequência das mudanças climáticas que também reduz o acesso à alimentação saudável.
“A segurança alimentar se relaciona a diversas questões. Podemos colocar como uma delas as mudanças climáticas com, por exemplo, o prejuízo no acesso à água em quantidade e qualidade”, explicou à Agência Brasil. “Estamos debatendo no país a questão da segurança hídrica, que, com as mudanças climáticas e as queimadas que estão acontecendo, acaba prejudicando várias áreas de plantio de alimentos produzidos para o consumo nacional”.
A professora ressalta também ser importante observar o aumento do preço dos alimentos, resultado de uma sequência de acontecimentos que dificultam o acesso à alimentação. “Uma vez que você prejudica o plantio e o cultivo de alimentos destinados ao consumo da nossa população, infelizmente, o preço também é afetado. A partir daí, temos que pensar em políticas públicas e em como reverter os efeitos das mudanças climáticas, porque elas estão presentes e temos que pensar agora em como vamos enfrentar as dificuldades relacionadas à segurança alimentar, articulando com os Governos Federal, Estaduais e Municipais medidas de redução da fome e promoção da alimentação saudável.”
Realizado pela Rede Brasileira de Pesquisa em Soberania e Segurança Alimentar e Nutricional (Rede Penssan), o encontro trouxe como tema “Pesquisa e políticas públicas em soberania e segurança alimentar e nutricional no enfrentamento das desigualdades, da fome e das mudanças climáticas”, reunindo pesquisadores nacionais e internacionais, alunos de graduação e de pós-graduação para debaterem as influências das mudanças climáticas no acesso à alimentação adequada pela população.
Segurança alimentar
Rosana Salles da Costa esclarece que segurança alimentar se relaciona ao acesso à alimentação adequada para todas as pessoas de uma família, refletindo o direito humano à alimentação adequada. Por outro lado, a insegurança alimentar se faz presente quando uma das questões relacionadas à alimentação, seja em quantidade ou qualidade, não é garantida. No Brasil, a insegurança alimentar é avaliada a partir da Escala Brasileira de Insegurança Alimentar (EBIA). “Os níveis de insegurança alimentar são três: insegurança alimentar leve, moderada e grave. A insegurança alimentar grave reflete a fome na nossa população, ou seja, famílias que passam o dia todo sem comer ou que fazem uma única refeição ao dia”.
No país, conforme dados da Pesquisa Nacional por Amostra de Domicílios (Pnad) Contínua, referentes ao último trimestre de 2023, 10,8% dos lares comandados por mulheres convivem com a insegurança alimentar moderada ou grave. Considerando os lares chefiados por homens, essa porcentagem passa para 7,8%, revelando uma diferença de três pontos percentuais. Com relação à cor ou raça, 74,6% dos domicílios que enfrentam a insegurança alimentar grave são chefiados por pessoas pretas e pardas.
“Infelizmente, temos o grupo classicamente mais afetado que são os lares chefiados por mulheres, especialmente as mulheres negras”, analisa a professora. “Esse também é um tema de debate de alguns dos painéis e de vários trabalhos do 6º EPISSAN. O encontro não debate apenas resultados, mas também é muito propositivo. Os pesquisadores presentes analisam e fazem propostas de políticas que, principalmente para os lares chefiadas por mulheres negras, são urgentes”, complementa.
Encontro
Além dos debates realizados, foram apresentados durante o evento dados preliminares sobre pesquisas conduzidas no país pela Rede Penssan e com apoio do App VIGISAN, aplicativo desenvolvido pela própria instituição para auxiliar na abordagem aos pesquisados que compõem, muitas vezes, grupos sociais vulnerabilizados. No encontro, também foi apresentada a plataforma FomeS, elaborada com financiamento do Ministério da Saúde (MS) e do Conselho Nacional de Desenvolvimento Científico e Tecnológico (CNPq). A ferramenta agrega dados nacionais sobre mudança climática, insegurança alimentar, insegurança hídrica, saúde e estado nutricional de crianças.
O encontro contou com patrocínio do Ministério da Saúde (MS), do Ministério da Ciência, Tecnologia e Inovação (MCTI), do Ministério do Desenvolvimento e Assistência Social, Família e Combate à Fome (MDS) e da Coordenação de Aperfeiçoamento de Pessoal de Nível Superior (CAPES).
Despite two tax hikes, Chinese brands have yet to increase prices
09/12/2024
BYD operation at Suape Port in Pernambuco — Foto: Maira Erlich/Bloomberg
Since the government announced the gradual reinstatement of the Import Tax on electric and hybrid cars, the tax has been increased twice, in January and July. However, Chinese brands, which are the main importers of these vehicles, have not yet raised their prices. To avoid immediate price hikes, these companies prepared in advance by importing large volumes of vehicles, resulting in sufficient stock to maintain current prices for the time being.
ANFAVEA, the association representing manufacturers in Brazil, has expressed concerns over this situation. Last week, the association’s president, Márcio de Lima Leite, said that the inventory of Chinese electric and hybrid vehicles reached over 86,000 units in June, just before the second phase of the tax increase. According to him, this stockpile was enough to cover nine months of sales. By the end of August, the inventory was still over 81,000 units, Mr. Leite reported.
Since 2016, fully electric cars have been exempt from the Import Tax, and hybrids have been subject to a reduced rate. At the end of 2023, the government announced a phased reintroduction of these taxes. The first two stages of the increase occurred in January and July, bringing the rates to 18% for fully electric vehicles, 25% for hybrids, and 20% for plug-in hybrids. This gradual increase is scheduled to continue until it reaches the maximum rate of 35%, as permitted by the World Trade Organization (WTO), by July 2026.
Noting the strong competition from Chinese brands, ANFAVEA drew parallels with decisions made by other countries, such as the United States, which increased the Import Tax on Chinese goods from 25% to 100%. Consequently, ANFAVEA decided to petition the Ministry of Finance to immediately raise the Import Tax on electric vehicles to the maximum rate of 35%.
So far, the government has not commented on this request. Last week, Vice President Geraldo Alckmin sidestepped questions on the issue during an interview hosted by ANFAVEA.
The interview continued after the minister had left ANFAVEA’s headquarters in Brasília. The same reporter who had questioned him about the tax then posed a similar question to the association’s president. Mr. Leite said that the request to increase the tax to the maximum rate would now be directed to the Foreign Trade Chamber (CAMEX).
This situation has intensified the competition in the Brazilian market between domestic automakers and Chinese brands, which also plan to establish production facilities in Brazil but currently rely on imports. While ANFAVEA represents the domestic side, the Chinese brands are associated with the Brazilian Electric Vehicle Association (ABVE).
On the inventory data presented by ANFAVEA, ABVE President Ricardo Bastos said that the association did not have the exact numbers because its members “have more important things to do than count cars.”
However, Mr. Bastos did not dispute the information, estimating that the figures were likely accurate and considered it “natural” for companies to stockpile in anticipation of a tax increase.
The market for electric and hybrid vehicles continues to grow. With 14,600 units sold in August, including locally manufactured models like those from Toyota, sales volume represented a 57% increase compared to the same month last year.
Although the market share for hybrids and electric vehicles remains small compared to the overall market, it accounted for 6.6% last month. The growth rate remains robust.
The substantial inventories help these brands gain recognition in Brazil as they prepare to start local production. BYD plans to begin assembling vehicles later this year using imported parts in a factory being built in Camaçari, Bahia, at the former Ford site. Great Wall Motors (GWM) is preparing the facility it acquired from Mercedes-Benz in Iracemápolis, São Paulo, to commence operations in the first half of 2025.
Competition in the Brazilian vehicle market is expected to remain fierce, especially with increased credit availability driving demand.
In August, the daily average of new registrations reached 10,800 units, the highest of the year and a 19.5% increase over August 2023, according to ANFAVEA. Domestic sales totaled 237,400 units, including cars, light commercial vehicles, trucks, and buses, marking a 14.3% increase compared to the same month last year.
From January to August, the total market grew by 13.3%, totaling 1.62 million units. In the same period, sales of hybrids and electric vehicles reached 109,200 units, a 123% increase compared to the same period in 2023.
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