Argentine pharmaceutical group acquires 90% stake in Brazilian company; Omilton Visconde Junior retains a 10% stake and remains CEO
Shareholders of Elea, one of Argentina’s largest pharmaceutical companies, finalized this week the acquisition of Cellera Farma, Brazil’s youngest domestically controlled drugmaker, marking their entry into the Brazilian market and the start of an expansion plan aimed at rapid growth in the country over the coming years.
At the same time, the Brazilian pharmaceutical company, whose portfolio includes brands such as Tylex, a painkiller, and Pamelor, an antidepressant, announced a distribution and commercialization agreement for two Sanofi drugs in the domestic market, a deal expected to add R$650 million in annual revenue.
Under the four-year agreement with the French pharmaceutical company, which includes an option to acquire the products, Cellera will double in size and increase its annual revenue to R$1.3 billion.
Cellera was founded in 2017 by businessman Omilton Visconde Junior, a well-known entrepreneur in Brazil’s pharmaceutical industry, alongside private equity firm Victoria Capital Partners.
The stake held by Victoria Capital, 79.9%, along with a 10% interest owned by Visconde Junior’s brother, were sold to Elea’s shareholders. The Brazilian executive will retain a 10% stake and remain chief executive officer, a position he has held since the company’s founding.
The value of the transaction, which has already been approved by Brazil’s antitrust regulator CADE, was not disclosed due to a confidentiality agreement among the parties. Industry sources consulted by Valor estimated, however, that Cellera’s valuation may have reached $300 million when factoring in the Sanofi agreement.
At least two Elea executives, Mathias Sielecki, a shareholder and member of one of the families controlling the Argentine group, and Mariano Foglia, are relocating to Brazil and will join Cellera’s management team as part of efforts to accelerate the company’s growth in the country.
“Elea is a market leader in Argentina and operates in several international markets. Entering Brazil had been an ambition for many years. It is the largest market in the region, with highly competitive and capable companies. We believe that, with our products, we can expand Cellera’s portfolio and also bring a development-oriented approach,” Daniel Sielecki, director and shareholder of the Argentine pharmaceutical company, told Valor.
According to Sielecki, the company recognizes that Brazil’s pharmaceutical market is defined by intense competition, but Elea, which posts annual sales of between $700 million and $800 million, has already dealt with similar challenges. Beyond its investments in the pharmaceutical industry, both inside and outside Argentina, the Sielecki family also has businesses in sectors including oil and gas, petrochemicals and natural gas transportation through TGS.
In addition to the size of the Brazilian market, Sielecki said the continued involvement of Visconde Junior and his experience in the local pharmaceutical industry would be key to executing the company’s growth strategy.
“Our plan is to develop new products and introduce molecules that are not yet available in Brazil. We will assess the Brazilian market and determine exactly which technologies we want to bring here,” he said.
Visconde Junior said that initially, Cellera’s strategy focused on acquiring mature drugs that no longer received significant investment from their original pharmaceutical owners and slowing or stabilizing declining sales trends.
With the Sanofi agreement, however, the company faces a new challenge: Puran, a hormone replacement therapy drug, and Zinpass, used to control cholesterol, are still growing. Puran is the market leader in its segment, with a 50% market share, while Zinpass ranks second in its category, according to Cellera’s CEO.
“It is a different level of competition. Cellera doubled in size in 2019, when it completed major acquisitions, and now it is doubling again,” said Visconde Junior. “The agreement with Elea also creates the possibility of significantly expanding the portfolio and increasing our bargaining power for licensing deals in the most relevant markets,” he added. According to him, an additional R$500 million in revenue is already in the company’s medium-term business pipeline.
*By Stella Fontes — São Paulo
Source: Valor International
https://valorinternational.globo.com/
Rapporteur prepares three drafts with transition periods of two, three and four years, as business-impact measures remain under discussion
The rapporteur for the proposed constitutional amendment that would end Brazil’s six-day workweek with one day off, lawmaker Leo Prates (Republicans Party, Bahia) has completed three versions of his report and will present them to Lower House Speaker Hugo Motta, of (Republicans Party, Paraíba).
Motta will have the final say on which version will be read this Wednesday (20) in the special committee reviewing the proposal.
The difference between the drafts is the transition period, considered the main impasse, and the scope of measures to mitigate the impact on businesses.
One version, backed by the Ministry of Labor and Employment, provides for a two-year transition. An intermediate version sets a three-year transition, while a third establishes a four-year period. In an interview with Valor, Prates said there are still a few points of disagreement with the government, but the main issue has been agreed on.
Prates said one report is “leaner” because the government asked for many points to be removed. Another text, he said, is “more or less.” The third version is “very extensive.” “But all of them have a limit of around 10 articles,” he explained.
Mitigation measures
Among the mitigation measures to be proposed in the report is a definition that only one of the two days off would officially be considered paid weekly rest for labor-law purposes. The second day would be treated legally as a “non-worked business day.”
In practice, Prates said, workers would still have two days off per week for rest. The difference would be technical and temporary, used to calculate labor costs. This would reduce, for example, the value of overtime and other charges linked to weekly rest, easing the economic impact of the change for employers during the adaptation phase.
“We are going to generate the least possible impact in the constitutional text. So, the idea is to remove the 44-hour limit, set 40 hours, two days off, one preferably on Sunday. Because I hope to cause the least possible impact on Brazil’s labor system,” he said.
He said the text will also expressly provide for no wage reduction. In addition, the report will include benefit cuts for companies that fail to comply with the rules of the constitutional amendment. Those that violate the requirements will lose the right to the transition rules provided for in the Transitional Constitutional Provisions Act, he said. “I do not want to establish a penalty. I want to cut the benefits I can grant.”
Prates said he suggested to the government that, after the amendment is approved in the Lower House, the executive branch withdraw constitutional urgency from the bill it presented while the Senate analyzes the proposal, since that mechanism blocks the legislative agenda. “We may need to [vote on] other things, including for the government,” he said.
Specific work regimes
Prates also said there is no agreed voting schedule for the constitutional amendment with Senate President Davi Alcolumbre, of the Brazil Union party of Amapá, and that it is important to wait for senators to deliberate on the proposal before discussing regulation of specific work regimes, which he argues should not be addressed in the Constitution.
“Essential activities must have specific rules in law. But this should not be dealt with in the Constitution. It should be addressed in a specific law. [It is not known] whether it will be the government’s bill, whether it will not be the bill, whether it will be in a separate bill. But I also do not think this discussion should take place now,” he said.
He also said a deadline of 120 to 180 days will be set for Congress to update legislation covering specific cases. “That does not mean the effects of the measure will apply only after that period. The effects should take place within a shorter period. But the laws and agreements need more time to be updated, because the process may take longer.”
The rapporteur indicated that the Lower House’s strategy is to first approve the constitutional text and only afterward define, in detail, regulation through the government’s bill. It is still too early to finalize the bill’s design, he said, because the Senate could change the content of the constitutional amendment.
In Prates’s view, it is not possible to move forward with infraconstitutional rules before knowing the senators’ position. “Neither President Hugo Motta controls the Senate, nor does President Davi control the Lower House,” he said. For that reason, he said he considers it necessary to wait for the Senate’s deliberations before consolidating the final regulation.
Monthly work-hour parameter
The congressman also said he has sought dialogue even with sectors that oppose the proposal or are more resistant to it. He cited conversations with Senator Rogério Marinho (Liberal Party, Rio Grande do Norte) and said points raised by the opposition, especially on mechanisms to make working hours more flexible, ended up gaining space in the committee’s discussions.
Asked about comments made Tuesday (19) by Senator Flávio Bolsonaro (Liberal Party, Rio de Janeiro) regarding the end of the six-day workweek, Prates said the party is free to express its position on the issue, but he does not believe the Liberal Party will vote against the text.
A presidential hopeful for the party, Flávio Bolsonaro said the caucus has reservations about the constitutional amendment and that the executive branch’s proposal tries to sell the public “an easy solution without solving the problem”.
Prates also said the government agreed to adopt a monthly parameter to define working hours, which he said gives more flexibility to workers and employers. “I presented this suggestion to the government and there was no veto,” he said. The congressman also said he will strengthen the use of collective bargaining agreements and defended updating each category’s specific legislation to regulate other work-schedule models.
“You are changing time and you are changing the work schedule. In theory, despite giving some flexibility by using the monthly parameter, you are changing [the schedule] because, in the end, the person will go from four days off a month to eight. Everything will be regulated either by law or by collective bargaining agreement. We are empowering collective bargaining to deal with these particularities that are not for us to handle.”
One proposal rejected
In all, 200 legislative suggestions were submitted for inclusion in the constitutional amendment. Prates said, however, that he accepted only four or five that did not undermine the proposal’s main points: the end of the six-day workweek, a reduction in weekly hours from 44 to 40, two days of rest, and no wage reduction.
The rapporteur said the government asked for the removal of one proposal intended to mitigate the economic effects during the transition period. The idea was that, during the defined transition period, hours worked between the 41st and 44th hours of the week would be paid only as “hours worked,” without the same cost as traditional overtime. Normal overtime rules would continue to apply from the 45th weekly hour.
Prates said that Labor Minister Luiz Marinho opposed the mechanism and that the suggestion was removed from the text after his resistance. “But the final word, again, will be President Hugo’s.”
*By Beatriz Roscoe and Ruan Amorim, Valor — Brasília
Source: Valor International
https://valorinternational.globo.com/
Auditors see possible flaws in risk analysis behind R$12 billion financing
The technical staff of Brazil’s public spending watchdog (TCU) believes there may have been irregularities in the Treasury’s decision to guarantee a loan to the state-run postal company Correios and wants to determine the government’s responsibility for the operation that provided financial relief to the state-owned postal company.
According to information obtained by Valor, auditors believe there may have been flaws in assessing the company’s repayment capacity and a possible failure by the Treasury to effectively evaluate Correios’ financial condition before granting the federal guarantee.
The Treasury and Correios did not respond to requests for comment.
The federal guarantee was granted for a R$12 billion loan to Correios, provided by a group of five banks and approved last year after the government identified a major financial shortfall at the company. In December, the Finance Ministry approved the financing after reviewing the terms of the operation and the postal company’s restructuring plan, which was considered central to making the credit operation viable.
The federal guarantee proved crucial in the negotiations because it lowered borrowing costs. In operations of this kind, the guarantee functions essentially as insurance: if the state-owned company fails to make the payments, the Treasury assumes responsibility for the debt.
The transaction proceeded after the publication of a government ordinance allowing Finance Ministry officials to consider measures in Correios’ financial-rebalancing plan during the guarantee analysis, even though those measures had not yet been implemented.
TCU auditors noted that the procedure deviated from the standard process, which typically assesses the company’s current financial status during the analysis.
In the view of the TCU technical staff, the irregularity stems precisely from the Treasury’s interpretation of the ordinance published on Dec. 12, which established criteria for assessing the repayment capacity of self-sustaining federal state-owned companies.
According to the auditors, the rule may have been used to circumvent a more rigorous analysis of Correios’ financial condition, thereby diminishing the National Treasury Secretariat’s institutional role in mitigating fiscal risks and protecting federal interests.
The assessment was conducted as part of an audit examining the macroeconomic aspects of state-owned companies, overseen by TCU member Benjamin Zymler.
The TCU also argues that the Treasury’s review process appears to have been limited to formally verifying the existence of financial projections in Correios’s restructuring plan, without conducting a deeper examination of the feasibility of the proposed measures, the company’s solvency, or the deterioration in its cash flow.
Auditors also suggest that if Correios cannot repay the loan, the federal guarantee might have served not only to reduce borrowing costs but also to defer fiscal impacts that would otherwise directly impact government accounts and debt. Finally, auditors also considered the timeline used by the Treasury to approve the operation unusually short.
The guarantee was authorized on Dec. 18, 2025, just three business days after the Treasury received the final version of the restructuring plan and six business days after the federal government’s interministerial corporate-governance committee approved the proposal. The committee, known as CGPAR, oversees governance and federal shareholdings in state-run companies. According to the auditors, the time frame was incompatible with the transaction’s complexity and reinforced the perception that Correios’ repayment capacity had not been thoroughly analyzed.
Negotiations over the loan late last year dragged on for several weeks amid the deterioration of Correios’ financial situation. Initially, the state-run company sought R$20 billion in financing, which it considered necessary to fund its restructuring plan in 2025 and 2026. During the initial stages of the negotiations, some banks reportedly offered financing at rates equivalent to 136% of the CDI benchmark interbank rate, a level that the federal government rejected.
The Treasury’s ceiling for operations of this type is 120% of the CDI.
Correios therefore decided to split the fundraising into stages and managed to conclude the first round—totaling R$12 billion—at a cost of 115% of the CDI benchmark. Because the restructuring plan calls for a total of R$20 billion in loans, the company is expected to seek a new round of financing later this year.
However, instead of the R$8 billion initially expected to complete the amount, the next operation is now expected to total around R$7 billion, as previously reported by Valor. In 2025, Correios reported a net loss of R$8.5 billion. Today, the company’s monthly cash flow shows a deficit of approximately R$700 million.
*By Guilherme Pimenta and Giordanna Neves — Brasília
Source: Valor International
https://valorinternational.globo.com/
Costs surge after Middle East war, forcing carriers to trim 93 daily flights in May so far and focus on more profitable routes
The surge in oil prices triggered by the war in the Middle East has led airlines in Brazil to draw up a survival plan for the coming months. Jet fuel, which has historically accounted for about 30% of their operating costs in the country, has doubled since February.
At the same time, the industry is concerned about the expiration, on May 31, of tax incentives for aviation kerosene, known in Brazil as QAV.
On April 2, data from the SIROS system of Brazil’s National Civil Aviation Agency (Anac) showed airlines expected to offer 2,193 flights a day in May in the Brazilian market. The same query on May 12, however, showed a projected daily supply of 93 fewer flights, a 4.3% drop.
With fewer takeoffs, Brazil lost about 14,000 seats a day this month. The data were compiled from Anac’s system by the Brazilian Airlines Association (Abear) at Valor’s request.
For May as a whole, the estimate before the crisis was for 67,980 flights, later reduced to 65,100. In May 2025, the figure was 66,300.
The cuts, however, vary by region. More profitable routes are being preserved, while less profitable segments are losing ground.
The survey shows that the most affected destination was Acre, which lost 14.7% of its expected flight supply for May. Amazonas followed, with a 13.6% decline, then Pernambuco, down 11.2%; Goiás, 9.8%; Pará, 9.3%; Paraíba, 6.3%; and Minas Gerais, 5.6%.
The figures also show that the situation is likely to worsen in June, with airlines’ supply projections pointing to a reduction of 121 flights a day.
Sharper impact ahead
The issue featured prominently in conversations between airline executives and analysts during first-quarter earnings presentations. Because the conflict began on February 28, its impact on first-quarter numbers was more limited. The stronger effect, executives said, is expected in the second and third quarters.
One of the ways Azul has sought to navigate the crisis has been to reorganize its network. On May 7, executives at the carrier said the company would cut its planned seat supply for May and June by 5% because of higher jet fuel prices.
Azul Chief Executive Abhi Shah said the airline has focused on fine-tuning capacity, raising fares and prioritizing more profitable routes. “We will make more cuts as necessary. We have been very proactive,” he said. Even so, he noted that Brazil’s airline industry has been less aggressive in cutting capacity than carriers in other parts of the world.
On fares, Shah said the sector has been conservative but has moved ahead with repricing in response to the crisis. Since the war began on February 28, he said, nine price-adjustment campaigns have been carried out, compared with three in the same period last year. “Today, we are seeing 30% growth in the average fare for future bookings,” Shah said.
Seat-growth guidance
Latam told the market on May 6 that it was canceling its 2026 seat-supply projections because of the oil crisis. The company had previously targeted an 8% to 10% increase in seats globally this year.
Latam Brasil Chief Executive Jerome Cadier said the airline has so far been making targeted adjustments to flights. For June, the company reduced its expected supply for the month by about 3%. “We have to look not only at the price of fuel [in the future], but also at demand elasticity.”
The company had previously projected average jet fuel prices of around $90 a barrel. It now assumes prices of about $170 a barrel for the second and third quarters and $150 for the fourth quarter.
Higher fuel prices added $40 million to Latam’s costs in March alone. For the second quarter, the company estimates fuel spending will be $700 million above what had been expected.
As a result, Latam now expects adjusted EBITDA to be $400 million lower than the range previously projected. Its current forecast is for EBITDA between $3.8 billion and $4.20 billion, compared with the previous range of $4.2 billion to $4.6 billion.
Gol is also monitoring the issue. People familiar with the matter said the airline reduced its planned seat supply by about 6% in May and June because of the rise in oil prices. The company was contacted but did not comment. Gol delisted from the Brazilian stock exchange and is no longer required to disclose its results.
Abra, the holding company that controls Gol and Avianca, has also been following the issue closely. At its latest press conference, in late March, executives pointed to a hedging strategy designed to help the group navigate the start of the crisis with more flexibility. The group hedged 50% of its fuel consumption between March and May and raised the hedge to 40% through the end of August.
Tax incentives
On May 1, state-controlled oil company Petrobras raised jet fuel prices by 18%. It was the third consecutive increase for the fuel. In March, the adjustment was 9.4%. In April, the increase was even steeper, at 54%. Outside Brazil, jet fuel rose to about $4 a gallon from $2.
The crisis in Brazil, however, is different from other markets, where companies face the risk of fuel shortages. Petrobras produces locally about 90% of the jet fuel used by domestic airlines.
Even so, Abear has voiced concern over the federal government’s decision not to extend the exemption from PIS/Cofins social taxes levied on aviation fuel.
On May 13, the government announced new measures to contain increases in diesel and gasoline prices, but jet fuel was left out. If the current scenario remains unchanged, the tax benefits granted to the airline industry will expire on May 31.
In a statement, Petrobras said it will continue to offer the market the option of paying part of the adjustment in six installments, with the first payment due in August 2026.
However, the mechanism has not proved effective. People with knowledge of the situation said the rates charged were considered high, at about 16% a year, above the Selic, Brazil’s benchmark interest rate, now at 14.5%.
On the other side, sources said distributors have not engaged with the installment plan. That is because they would be responsible for paying Petrobras in the event of a default by any airline. As a result, in many cases, distributors began requiring guarantees before allowing installment payments.
Petrobras did not comment on the industry’s difficulties in accessing the installment plan.
*By Cristian Favaro — São Paulo
Source: Valor International
https://valorinternational.globo.com/
Study says Brazil could expand further through hotpot chains and digital retailers
The main segment currently served by Brazilian beef exports in China is the food service industry. Brazilian product is already estimated to account for more than 60% of the beef used in casual dining restaurants, fast-food chains, and hotpot restaurants, according to a study by Leandro Feijó, Brazil’s agricultural attaché in Beijing.
The study suggests Brazil could further expand its presence in the Chinese market through partnerships with Chinese hotpot chains and both physical and digital supermarket retailers, as well as by selling meat-and-vegetable kits for home hotpot preparation, increasing visibility on food delivery apps, and promoting tasting campaigns through livestreaming platforms.
Chongqing is one of China’s four municipalities directly administered by the central government, alongside Beijing, Shanghai, and Tianjin. With more than 3,000 years of history, the city was built along the banks of the Yangtze River. It has more than 20,000 bridges and viaducts connecting its multilayered urban structure, where streets and plazas rise dozens of meters above ground level and even a metro line literally passes through a residential building.
A key growth engine for central and western China, Chongqing has expanded rapidly and is now home to more than 32 million people across its urban core and districts spread over 80,000 square kilometers, an area roughly comparable to the Brazilian state of Santa Catarina.
But hotpot is not the only avenue for growth in Brazilian beef consumption in China. During an event hosted by the Brazilian Beef Exporters Association, or ABIEC, in Chongqing, renowned chef Mao Xiaojun presented reinterpretations of traditional Chinese dishes using Brazilian beef, including spring rolls and Sichuan-style multi-flavored beef, inspired by neighboring Sichuan province. Mao owns the Silver Pot restaurant in Chengdu, which earned a Michelin star for four consecutive years.
“These are dishes that combine global ingredients with local cuisine. It is the globalization of cuisine,” he said while preparing the recipes. “Brazilian beef has excellent quality,” he added.
Brazilian beef is also widely used by China’s food processing industry. Chongqing Lilai Food is one example. The company, visited by Valor, produces dried beef snacks, a product considered part of China’s intangible cultural heritage. With annual revenue of about R$370 million, Lilai Food leads its local market. In addition to retail operations, the company has built a strong digital sales strategy through apps such as TikTok and WeChat.
Several Brazilian companies export forequarter cuts to the factory, located 25 kilometers from downtown Chongqing. Inventory at the facility included products from at least three Brazilian meatpackers: Naturafrig, MBRF, and Minerva.
*By Rafael Walendorff, Globo Rural — Chongqing, China
Source: Valor International
https://valorinternational.globo.com/
Rising demand for hybrid, electric vehicles boosts imported car sales, pressures domestic auto industry
As Brazilian consumers show growing interest in hybrid and electric cars, most automakers producing locally are losing market share. All of them aim to enter the electrification era and reclaim their leading role in the industry. For now, however, Chinese manufacturers have proven more agile, especially in winning over consumers opting for fully electric vehicles.
Brazil’s passenger car market is expanding rapidly. Between January and April, 659,500 passenger vehicles were sold, an increase of 19.4% compared with the first four months of 2025. Passenger cars drove total vehicle sales, which reached 873,500 units, up 14.9%, while truck and bus sales continued to decline, falling 17.2% and 16%, respectively.
That growth, however, was not reflected in production. From January to April, Brazil produced 872,600 vehicles, an increase of just 4.9%, well below the pace of market expansion. The slower production growth partly reflects the growing appeal of imported cars among consumers who previously remained loyal to domestically produced models.
At the same time, the trend is also visible abroad. Vehicles manufactured in Brazil are losing market share in neighboring countries to other foreign brands, particularly Chinese automakers.
Chinese imports are gaining ground across South America. As a result, Brazil’s vehicle exports fell 11.7% in April to 43,200 units. In the first four months of the year, exports dropped 16.9%, totaling 142,400 units. Revenue from overseas sales declined 25.5% during the period to $3.2 billion.
In Brazil, sales of imported vehicles rose 12% in the first four months of the year, including a sharp 31% increase in April compared with the same month last year. Imported vehicles accounted for 24% of retail sales last month. Sales of vehicles imported from China surged 81.6% in the period.
Much of the strong performance of imported vehicles reflects rising Brazilian demand for hybrid and electric cars. According to the Brazilian Electric Vehicle Association (ABVE), monthly average sales of hybrid and fully electric vehicles reached 30,600 units between January and April, up 124% from the same period of 2025, when average monthly sales totaled 13,600 units.
ABVE classifies electrified vehicles as fully electric models, plug-in hybrids, and conventional hybrids with electric propulsion. The association does not classify so-called mild hybrids as electrified because they do not feature electric traction. Under that methodology, electrified vehicles accounted for 16.2% of passenger car and light commercial vehicle sales in April.
Last week, Thomas Owsianski, the new CEO of General Motors for South America, said that no one could have predicted a year ago that hybrid and electric vehicle sales in Brazil would reach current levels.
According to the National Association of Vehicle Manufacturers (ANFAVEA), which includes mild hybrid cars in its calculations, locally produced vehicles already account for 40% of electrified vehicle sales. Although they lack electric propulsion, mild hybrid cars are expected to occupy the role once held by Brazil’s economy car in the electrification era.
Most automakers with factories in Brazil are investing in developing these vehicles, particularly models capable of running on ethanol.
The perception that imported vehicles are taking over market share once dominated by locally produced models is increasingly evident in comments from industry executives. Reviewing first-quarter results last week, ANFAVEA president Igor Calvet said, “We are not capturing all of the demand in the domestic market.”
Through the end of the year, automakers operating in Brazil are also benefiting from government support. Part of the domestic market expansion recorded through April reflects demand for economy cars eligible under the federal government’s Sustainable Car program. In April, sales of models benefiting from Industrialized Products Tax (IPI) exemptions rose 30.7%. Only vehicles manufactured in Brazil qualify for the program.
*By Marli Olmos — São Paulo
Source: Valor International
https://valorinternational.globo.com/
Analysts say Central Bank is buying time after oil shock, but strategy may prove costly if inflation expectations keep drifting higher
The Central Bank’s Monetary Policy Committee (COPOM) delivered an unusual decision in late April, cutting the Selic base rate by 25 basis points even as its inflation forecasts deteriorated for the relevant policy horizon.
Since the committee formally began targeting the 18-month-ahead window for monetary policy in mid-2024, this was the first time the benchmark rate and inflation projections moved in opposite directions. The decision has raised caution among market participants, who now see less clarity in the Central Bank’s reaction function.
With the inflation picture worsening significantly after the oil shock caused by the war in the Middle East, investors believe the COPOM is betting that oil supply will normalize and is trying to preserve the easing cycle to gain time, a strategy that could become costly later.
That view is shared by Juliano Cecílio, chief economist at asset manager Adam Capital, who disagrees with the decision to keep cutting the Selic amid current inflation above target and unanchored inflation expectations, both in the market and at the Central Bank itself. He also notes that Brazil’s economy was already feeling the effect of a significant fiscal impulse, which supported activity and service prices throughout 2025 and early this year.
“We had the largest forecast error in the IPCA’s historical series in February, before the war began, and that was basically caused by service inflation,” Cecílio said, referring to Brazil’s benchmark consumer price index. “Right after that, when the war came, a narrative emerged that expectations rose only because of that [in the Central Bank’s Focus survey], but before the conflict there was already a series of fiscal stimuli and an acceleration in service inflation.”
The three-month moving average of annualized and seasonally adjusted underlying services inflation, a less volatile measure than the monthly reading and widely used by the market, shows signs of acceleration. The measure stood at 4.74% in December, 5.41% in February, and 5.32% in March. Some firms estimate that April’s IPCA may show a new acceleration in underlying services inflation, to around 5.7%.
For Cecílio, the oil shock acted as a “smokescreen” that kept the Central Bank from identifying the core problem: “An economy strong enough to prevent service inflation from cooling or to keep it accelerating.”
More tolerance
Cecílio also sees greater leniency by the monetary authority toward the worsening inflation forecasts, although he says the phenomenon is neither new nor limited to Brazil. A study by Adam Capital shows COPOM’s sensitivity to deteriorating projections has declined since the pandemic, a trend also seen at major central banks such as the Federal Reserve.
“In 2026, we mark the sixth consecutive year in which the PCE deflator [the Fed’s preferred inflation gauge] is above the 2% target. That is an unusual situation,” Cecílio said. “The Central Bank [of Brazil] looks at these post-pandemic examples of greater tolerance for inflation deviations, and that helps explain this looser reaction function.”
Cecílio said reduced sensitivity to expectations has already led to monetary-policy mistakes in recent years, including the Selic-cutting cycle in 2023 and 2024, which was followed soon after by a 450-basis-point increase in the benchmark rate between September 2024 and June 2025.
“Central banks did not make bets in the past. They always worked with the most conservative premise possible, and that no longer seems to be happening,” Cecílio said. He sees the COPOM losing credibility in the current rate-cutting cycle, as longer-term IPCA expectations become further unanchored.
Since the start of the war, the median Focus survey forecast for 2028 inflation has risen to 3.64% from 3.5%, a development the COPOM itself has flagged with concern in its recent communication.
Clearer threshold
The additional drift in inflation expectations was highlighted by BTG Pactual as a warning sign for monetary policy. “The deterioration reduces the comfort to extend the cycle without making the reaction threshold clearer, that is, which conditions would lead to a pause, an end to the cycle, or greater restriction. Without that, the risk increases of further deterioration in the anchoring of expectations and in the credibility of communication,” economists Tiago Berriel and Iana Ferrão said.
In a note to clients, they said the Central Bank’s reaction function has changed and has become “harder to infer.” BTG believes qualitative judgment now carries more weight in the monetary authority’s decision-making process, while projections provide less guidance on the next steps for interest rates.
“It has become less clear what [level of] deterioration in projections, expectations, or core measures would lead the COPOM to stop the cycle,” Berriel and Ferrão said. That is because the current Selic-cutting cycle rests on two points: the extended period of monetary restriction and a greater qualitative assessment of how persistent the shock caused by the war in Iran will be.
For Ian Lima, active fixed-income manager at Inter Asset, the Central Bank is trying to buy time to better understand the effects of the oil shock on Brazil’s economy while preserving the easing cycle and signaling a bias toward further Selic cuts in upcoming decisions. “By continuing to ease, the Central Bank keeps the interest-rate market pinned down in some way. If it pauses the cycle, the market could flirt with a Selic hike, and that would tighten financial conditions, which it does not want to deliver. It is a bet, but it is easier than for other central banks in Europe and Asia,” Lima said.
Lima sees the impact of the war on Brazil as milder and says the Central Bank has “fat to burn” after raising the Selic to 15% last year, its highest level in almost two decades, and holding it there for nine months.
“Some say the increase to 15% was made precisely to put [interest rates] at a restrictive level beyond any doubt,” Lima said. Brazil’s real interest rate is now around 10%, well above most market estimates of the neutral rate, which stand near 6% to 7%.
“I think this slow cycle of cuts fits the current context. The COPOM has some fat and is burning it. If it had left the Selic unchanged at 15%, expectations would be rising because of oil, and it might have had to raise rates,” he said.
Room for cuts narrows
Still, the space for further Selic cuts has narrowed “substantially,” said Aurélio Bicalho, chief economist at Vinland Capital. He said the Central Bank is “acting in a way that manages some of this uncertainty and tries to continue the cycle for some time.” In the asset manager’s monthly call, Bicalho said the Central Bank is likely to keep lowering the Selic at the current pace of 25 basis points until September.
Although he agrees that monetary policy has been working to cool activity, a point emphasized by the Central Bank, Bicalho said that has never been used as a justification for easing interest rates. He noted that Brazil is part of a group of countries with high inflation, unanchored expectations, and credibility problems at the monetary authority, which should force the COPOM to pause the cuts before the last quarter.
“It will have to stop [the cycle] because the inflation outlook is very unfavorable. The IPCA will move toward 5% this year and, if the Central Bank continues the cycle for much longer, inflation in 2027 will also be much higher,” he said.
* By Gabriel Caldeira and Victor Rezende — São Paulo
Source: Valor International
https://valorinternational.globo.com/
Government’s budget proposal projects delayed stabilization of debt burden
Debt projections presented by Brazil’s federal government in its annual budget guidelines proposal will be scrutinized by the country’s public spending watchdog, according to people familiar with the matter.
The assessment inside Brazil’s Federal Court of Accounts, known as the TCU, is that the proposal does not clearly explain the assumptions underlying the projected trajectory and eventual stabilization of public debt.
One issue raised is that while the government frequently predicts an eventual turning point for public debt, the outlook often worsens again within a few months, as seen in previous years, delaying stabilization.
Even if the watchdog ultimately determines that the government’s information is accurate, it still plans to keep a close watch on the issue.
In a statement, Brazil’s National Treasury said it “recognizes the importance of oversight institutions” and noted that “audits and information exchanges are conducted continuously.”
Brazil’s fiscal framework law, approved in 2023, requires the government to present in the budget guidelines proposal the fiscal results needed to stabilize public debt as a share of gross domestic product over a 10-year horizon.
The 2027 proposal, however, showed a deterioration compared with the previous version.
Under the 2026 budget guidelines proposal, gross public debt was expected to peak at 84.2% of GDP in 2028, then begin to decline the following year.
In the new 2027 proposal, the peak has been postponed to 2029 and revised upward to 87.8% of GDP, with debt declining only from 2030 onward.
From that point, the government projects a gradual decline to 83.4% of GDP by 2036.
In the document, the government says the scenario assumes the continuation of fiscal reforms over the coming years to make the projected primary-balance trajectory feasible.
“In this context, the importance of deepening public spending review measures and initiatives to increase public revenues should be emphasized,” the document says.
“The implementation of a fiscal adjustment capable of supporting the projected primary-balance path is a requirement for stabilizing the macroeconomic scenario over the medium term.”
Besides the primary fiscal balance, debt projections are also directly influenced by variables such as GDP growth and Brazil’s benchmark interest rate, the Selic.
According to the government’s projections, the central government’s primary balance would improve from a deficit of 0.44% of GDP in 2026 to a surplus of 0.05% in 2027.
The government expects gradual improvement in subsequent years, with the surplus reaching 0.62% of GDP in 2028 and 0.93% in 2029.
From 2030 onward, the projections assume primary surpluses above 1% of GDP, reaching 1.5% by 2036.
The proposal also assumes a gradual decline in interest rates and continued economic growth throughout the next decade.
The government projects the average Selic key rate at 13.6% in 2026, falling to 10.6% in 2027 and 9.3% in 2028 before stabilizing at 6.4% from 2031 onward.
For GDP, the projection is for real growth of 2.3% in 2026, accelerating to 2.6% between 2027 and 2029 and reaching 3% from 2034 onward.
Another important variable is the cost of debt, measured by the implicit interest rate on Brazil’s gross general government debt.
According to the proposal, the nominal implicit rate would fall to 9.8% in 2027 and 9.1% in 2028, down from 11.8% in 2026, and then reach 7.2% from 2034 onward.
The real implicit rate, adjusted for inflation, would decline from 7.8% in 2026 to 6.6% in 2027, then continue to fall until stabilizing around 4.1% from 2033 onward.
For economist João Pedro Leme of Tendências Consultoria, the government is working with overly optimistic parameters, producing a more favorable debt trajectory.
He argues, however, that the repeated revisions to the debt outlook impose a “reputational cost” on the government and make fiscal policy management more difficult.
Leme also said that the lack of detail regarding certain fiscal assumptions in the 2027 proposal creates uncertainty.
The document projects net primary revenue remaining elevated as a share of GDP, rising to 19.2% in 2030 from 18.9% in 2026.
At the same time, expenditures would decline by almost 1.5 percentage points of GDP over the same period, falling to 18% in 2030 from 19.4% in 2026.
The economist acknowledged that the budget guidelines proposal is not intended to detail specific adjustment measures.
Even so, he argued that the absence of clearer signals from the economic team regarding that agenda increases skepticism toward the projected scenario.
“That puts market participants in a wait-and-see position,” he said. “We have not seen a fiscal consolidation of this magnitude in a very long time.”
“There are doubts about how the government intends to organize spending cuts equivalent to 1.5% of GDP without creating a contractionary effect while still delivering economic growth close to 3% per year, which is above what used to be considered Brazil’s potential growth rate,” Leme added.
Alexandre Andrade, director at Brazil’s Independent Fiscal Institution, a Senate-affiliated fiscal policy watchdog, said the perception that the debt turning point is constantly postponed is confirmed when comparing successive budget cycles.
According to him, this partly reflects what the government describes as the real cost of financing, but that is not the only factor complicating debt stabilization.
Andrade contended that, despite the government’s plan assuming adherence to the fiscal framework, including primary surpluses and ongoing spending reviews and reforms, the actual primary balances in 2024 and 2025 were inadequate to limit the increase in gross public debt.
“Legal deductions from expenditures in calculating the primary result may help the government formally meet the target set in the budget guidelines law, but the effective fiscal result ends up weaker—and that is the variable that affects public debt dynamics,” he said.
Another issue raised by Andrade concerns the gap between the government’s projections and market estimates.
“As a rule, the executive branch’s projections tend to be relatively more optimistic,” he said.
The Treasury also said it “publishes the Fiscal Projections Report every six months,” which also includes debt estimates.
Brazil’s Planning and Budget Ministry declined to comment.
By Giordanna Neves and Guilherme Pimenta — Brasília
Source: Valor International
https://valorinternational.globo.com/
Funds will support eucalyptus cultivation on degraded land in Mato Grosso do Sul, where company plans new mill
Bracell, the pulp producer owned by Asian conglomerate Royal Golden Eagle (RGE), has secured a R$1.5 billion credit line from BTG Pactual to finance eucalyptus planting on degraded land in Mato Grosso do Sul state, where it plans to build a new pulp mill with estimated investment of $4 billion.
BTG, the biggest winner among private banks in the second auction of Eco Invest Brasil, a program that combines public and private funding to leverage investment in sustainable projects, has a total of R$4.9 billion to allocate toward the productive restoration of degraded land in Brazil, which was the focus of this round.
With the amount offered in the second auction—made up of 40% Treasury resources and the remainder raised by BTG from investors—the bank committed to enabling the restoration of 164,000 hectares of degraded land, converting them into agricultural and forestry production systems.
The Bracell contract, representing roughly one-third of the total area BTG aims to restore, was the first agreement signed and will allow for the recovery of 54,000 hectares in Brazil’s Cerrado biome. The financing line has a 10-year term, and Bracell could begin construction of the new facility in Bataguassu later this year. Under that timeline, the mill, with annual production capacity of 2.8 million tonnes, could begin operating in 2029.
“This transaction is a win-win: financing terms compatible with eucalyptus’s seven-year cycle, at competitive cost, while also restoring degraded land,” said Rogerio Stallone, the BTG partner responsible for corporate credit.
According to the executive, the favorable cost and maturity terms offered through Eco Invest ultimately made possible an investment in land restoration that Bracell might not have pursued under standard market conditions.
In an emailed statement, Bracell’s vice president of finance banking, Claudio Pitchon, said the operation will enable “the expansion of our forest base, while also contributing to carbon capture and storage.”
According to Pitchon, Bracell is currently one of Brazil’s largest green loan borrowers. “The structure of this transaction reinforces the advancement of financial solutions aligned with Brazil’s climate agenda, connecting private capital to projects with verifiable environmental impact,” he said.
Bracell, which operates mills in Bahia and São Paulo and is one of the world’s largest producers of dissolving pulp, does not disclose the size of its eucalyptus land holdings in Brazil. The company has pledged, however, to preserve one hectare of native vegetation for every hectare of eucalyptus planted.
According to Rafaella Dortas, BTG’s partner and ESG director, the bank assessed the socio-environmental requirements for participating in the second Eco Invest auction and concluded it had the internal capacity to manage the program’s required monitoring, including hectares restored and carbon stored. “It is a financially competitive transaction and operationally feasible from a risk perspective,” she said.
In a separate initiative, BTG has also recently raised $1.24 billion for its reforestation fund, which is currently considered the largest in the world.
*By Stella Fontes — São Paulo
Source: Valor International
https://valorinternational.globo.com/