Spending savings now could lead to higher prices later, economists say

Families have been sustaining activity, but analysts see a risk in depleting financial reserves

08/07/2024

Bruno Martins — Foto: Leo Pinheiro/Valor

Bruno Martins — Foto: Leo Pinheiro/Valor

While the strength of Brazilian household consumption in 2024 has surprised even the most optimistic analysts, economists are trying to understand what is driving this phenomenon—whether it is income growth due to a tight labor market or the result of families dipping into their savings. The source of this trend is important because it has implications for future inflation and, consequently, for monetary policy, at a time when the Central Bank sees no room to continue cutting interest rates.

The median expectation of market agents for household consumption growth in 2024 has increased by almost one percentage point since the beginning of the year, to 2.8% in the latest Focus survey by the Central Bank from 1.9% in January. The monetary authority itself now has an estimate higher than this median.

In the second-quarter Inflation Report (IR), released at the end of June, the Central Bank updated its projection for household consumption growth this year to 3.5% from 2.3%, noting that it now expects consumption to rise more than in 2023, when it advanced 3.1%, “despite the slowdown in the expansion of social benefits,” the Central Bank stated in the report.

“Households have high savings rates and financial asset stocks, room for increased spending, and a very heated labor market with rising wages,” said Bruno Martins, an economist at BTG Pactual. “It’s a challenging outlook for the Central Bank,” he added, projecting a 4% increase in household consumption in this year’s GDP.

According to Mr. Martins, BTG’s indicators do not show that families have been depleting their savings this year. “The savings rate indicator continued to rise. It reached the highest level since official records began, excluding the period of fiscal expansion during COVID-19,” he said.

Excluding the pandemic period, which makes evaluation more difficult, Mr. Martins noted that BTG’s household savings rate indicator peaked at 9.4% in 2017 in the four-quarter moving average; in March this year, it hit 9.6%.

“Despite the 1.5% growth in household consumption in the first quarter GDP, the real wage bill and disposable income growth were even higher. I think this growth in household consumption is entirely explained by income growth,” he said.

Fernando Montero, chief economist at Tullet Prebon, said that household consumption rose 4.4% in the first quarter of this year compared to the same period in 2023, surpassing GDP, which grew by 2.46%. As a result, he said, household consumption climbed to 64.9% in 2024 from 63.2% of GDP in the first three months of 2023. During this same period, gross savings in the economy dropped by 1.3 percentage points, to 16.2% in 2024 from 17.5% of GDP in the first quarter of 2023.

Contrary to what might be inferred, Mr. Montero said that families have never consumed so little and/or saved as much of their disposable income as they have at the beginning of this year. In 2024, household consumption as a percentage of Gross Disposable National Income (GDNI), calculated by the Central Bank, in the first quarter was the lowest since official records began, in 2003, Mr. Montero noted. The GDNI includes salaries, social security benefits, social program transfers, and other sources such as rents and financial investments.

In the first quarter of 2024, household consumption represented just over 90% of their gross disposable income, according to Tullet Prebon. In the same period in 2023, this percentage was close to 93%, and in 2022, it was 95%. At the peak of the series, it exceeded 96% in 2008, and at the lowest point until 2024, it was just above 91% in 2009.

“The explanation lies in the record income of families coming from transfers and net public sector spending, which is the real “dissaver” in the system,” wrote Mr. Montero in a report.

Armando Castelar, an associate researcher at the Brazilian Institute of Economics (FGV/IBRE), agrees that the government is a “classic dissaver.” But he also said that the fact that household gross disposable income fell between the first quarter of 2024 and the last quarter of 2023 suggests that the increase in consumption in GDP during this period may have occurred at the expense of a decline in household savings, following an improvement in credit conditions.

Household gross disposable income totaled R$682.1 billion in the quarterly moving average until December 2023, in constant values, adjusted for inflation and seasonally adjusted, Mr. Castelar said. In March this year, this value was R$680.16 billion. “If income does not increase, people can withdraw money from savings or borrow money to continue consuming. Looking at the macro level, it’s the sum of things. The credit helps explain dissaving. Obviously, the flip side is a deterioration in household balance sheets,” said Mr. Castelar.

Mr. Montero noted that household gross income fell by 0.28% in the first quarter of 2024 compared to the fourth quarter of 2023, but after surging by 3.93% at the end of last year, as the payment of court-ordered debts needed to be accounted for by the end of December to avoid contaminating the primary result of 2024.

Mr. Martins, with BTG, noted that another indicator from the bank, which measures the stock of financial assets in household balance sheets, also remains at a high level, which, according to him, “supports the idea that there has been no dissaving, but rather a very strong growth in the wage bill.”

The growth in savings now poses a greater risk for future inflation, Mr. Martins warns. “If, at some point, this savings rate starts to decline, meaning that dissaving does occur, there could be even greater demand pressure, which could affect inflation indicators.”

Mr. Montero, with Tullet Prebon, said he initially thought that household income in the quarter up to May—data yet to be released by the Central Bank—could decline as the government’s early payment of court-ordered debts in February exited the account.

However, strong data from the Brazilian statistics agency IBGE for the labor market and government spending during the period bring doubts to this perspective. The real usual earnings mass in the quarter up to May advanced 9% in the last year, while the federal government’s primary expenditure accumulated a real increase of 13% this year, Mr. Montero said. “These are strong values, based on high levels, adding up to large chunks of GDP and occurring in parallel.”

Yihao Lin, an economist at Genial Investimentos, said stronger household consumption compared with 2024 first-quarter GDP growth and the contraction of the economy’s savings rate compared with the same period in 2023 indicate household dissaving. However, he argued that this was not the main factor for consumption growth. “It’s an additional factor, but we must remember that there were court-ordered debt payments, fiscal policies like the minimum wage increase, and a larger investment budget,” he said.

Although the interest rate outlook is not as favorable as once thought, Mr. Castelar said that the trend is still towards greater credit availability for families, which also tends to support consumption throughout the year. “The whole idea of monetary policy with the high Selic interest rate is to put a brake on this, but the dynamic should still be greatly influenced by consumption,” he said.

Genial’s Mr. Lin said that not all of the strong wage gains and labor market growth translate into activity. “When we look at credit and household debt data, which have improved or at least remained stable, we suspect that part of these gains is being directed towards debt repayment. This combination of a labor market with income gains for families, who in turn are managing to control their debts, is still quite favorable for consumption, even though the interest rate is high,” he added.

*Por Anaïs Fernandes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Controversial points of tax reform left out of advisory opinion

Inclusion of meat in the tax-exempt basic basket still under negotiation

07/05/2024

Reginaldo Lopes — Foto: Lula Marques/Agência Brasil

Reginaldo Lopes — Foto: Lula Marques/Agência Brasil

After 40 days of debates, the advisory opinion of the rapporteur on the bill to regulate the tax reform introduced dozens of changes that were a consensus among the members of the Lower House working group—and, therefore, also with the government, represented by Congressman Reginaldo Lopes. However, the most controversial points will still be decided in negotiations over the coming days.

The working group provided Lower House Speaker Arthur Lira with a list of points lacking consensus, which need to be decided “by vote.” Among these points are the inclusion of meat and salt in the tax-exempt basic food basket (with a zero rate for the new VAT); the transition rules for car rental companies; the categorization of medicines with tax rates of 0%, 10.6%, and 26.5%; whether health insurance plans contracted by companies will grant them credit rights; the taxation of firearms with the Selective Tax (an excise tax); and the percentage of tax refunds (“cashback reward”) for low-income populations on water, electricity, and sewage bills.

Mr. Lira, and the members of the working group themselves, will continue the negotiations now. A meeting is already scheduled for Monday at 6 p.m. with the Northern region’s lawmakers to discuss the Manaus Free Trade Zone and regional aviation. In the case of the free trade zone, the group’s intention is not to alter the bill sent by the government. For regional aviation, the group decided that only flights on routes with less than 600 passengers per day would have a reduced VAT rate of 15.6%. One of them told Valor the change was made at the airlines’ request.

On Thursday night, President Lula requested a constitutional urgency regime for the bill, an act published in an extra edition of Brazil’s Official Federal Gazette This could accelerate the deadline for the parties to present amendments and cause the proposal to go directly to the plenary after 45 days, but the Lower House intends to vote on it before then. According to experts, the request mainly serves to demonstrate support for the reform’s advancement and pressure the Senate to impose a faster pace on the proposal.

Since the government sent the bill, the most controversial issue has been the items in the basic food basket, which will not pay any VAT. Products like rice, beans, and milk are on this list of 18 products, but the agribusiness lobby, supermarkets, and President Lula advocate for the inclusion of meat—which is on the list to be taxed at 10.6% or, in the case of premium meats like salmon, at the full rate of 26.5%.

There are also demands for less expensive cheeses and salt, but the working group members and Mr. Lira decided to share this decision with the plenary because, if accepted, it would increase the standard rate to 27.1%. Only one product was included in the basic consumer basket in the rapporteur’s opinion: babassu oil, a moisturizer made from the plant of the same name that, in popular medicine, has anti-inflammatory and healing effects.

According to Valor’s findings, the reason for this choice was a political agreement among the legislators to include oils made from regional plants in the tax-exempt basic basket. With the removal of meat, the working group also preferred to exclude the oils, but Congressman Hildo Rocha insisted, and the product, very popular in Maranhão and Piauí states, was the only one maintained.

Another controversial issue is the taxation of medicines. There are three lists: tax-exempt drugs, mainly for cancer; those with reduced taxation, which will pay 10.6%; and others with full taxation, which includes dipyrone, paracetamol, and other anti-inflammatory drugs. The sector was pressing for price reductions, but the lawmakers preferred to keep the table as it is to avoid affecting the general rate.

However, they made one change: Viagra (sildenafil), used for erectile dysfunction and pulmonary hypertension, would not be taxed in the government’s version. The legislators decided to tax it at 10.6%. This was a coordinated move after protests from feminist movements in public hearings. Instead, they reduced to zero the tax on menstrual health items, such as sanitary pads.

The controversial Selective Tax—as the excise tax has been called—created by the reform to discourage the consumption of goods and services harmful to health and the environment will burden electric cars, betting contests (lotteries, bets, and draws), and “fantasy games” (where the player simulates a sports team and wins or loses based on real-world results). Firearms, however, were excluded and will have the same taxation as a refrigerator or diaper, but this could still change through an amendment in the plenary. “It’s much better to relieve food taxes than weapons,” said Vice President Geraldo Alckmin on Thursday.

The working group decided to keep the Selective Tax on boats and aircraft, cigarettes and tobacco products, alcoholic and sugary beverages, and extracted minerals (iron ore and oil), in addition to automobiles, but excluded trucks, regardless of the fuel used. “Brazil is a road transportation country. This would go to freight. It’s no use giving with one hand and taking with the other,” said Congressman Claudio Cajado.

The rapporteur’s opinion also made changes to please sectors with many votes and facilitate approval. Bars and restaurants will now have access to the credit regime and be able to exclude delivery costs from the tax base. There was also a reduction in the tax burden for the construction sector—a determination that public administration suppliers will only settle taxes after receiving payment—, improvement in the credit system, and “split payment” (which will automatically distribute taxes to states and municipalities and speed up tax credits for companies).

*Por Raphael Di Cunto, Marcelo Ribeiro, Guilherme Pimenta, Beatriz Olivon — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Braskem’s value plunges below Novonor’s R$15bn bank debt

Scenario is one of crisis in the sector, uncertainty over the sale of Novonor’s stake

07/05/2024

Braskem’s polypropylene production plant in West Virginia, U.S.: Petrochemical company has lost nearly R$20bn in market cap since resumption of sale process — Foto: Divulgação

Braskem’s polypropylene production plant in West Virginia, U.S.: Petrochemical company has lost nearly R$20bn in market cap since resumption of sale process — Foto: Divulgação

Braskem, amid a stalled sale and industry-wide slump, has seen its assets deteriorate. The petrochemical company has a market capitalization of R$14.7 billion, less than half of the R$34 billion it was worth when Novonor (formerly Odebrecht) resumed the formal process of selling its stake in 2021. This value is also below the nearly R$15 billion in debts owed by the parent company to banks that hold the company’s shares as collateral. This year, Braskem’s shares have accumulated a loss of 16.6% on the B3 stock exchange.

The situation reflects the combination of the worst downturn in the global petrochemical industry with the multi-billion expenses following the ground subsidence in Maceió, the capital of Alagoas state, where the company was extracting rock salt, and uncertainties regarding the company’s future, which also counts Petrobras as a significant shareholder. Looking ahead, doubts prevail.

On the sale front, the recent withdrawal of the Abu Dhabi National Oil Company (ADNOC) and the change in Petrobras’s command brought no relief. Valor has learned that after the new management team took over the state-owned oil company, the indication to Novonor was that it continued to support the ongoing process. However, the change in leadership reignited fears of a potential nationalization of Braskem.

According to sources close to the discussions, the Petrochemical Industries Company (PIC), a Kuwaiti state-owned company interested in the Brazilian petrochemical firm, is still conducting due diligence. The expectation is that this phase will be completed in August. If PIC decides to proceed with an offer for Novonor’s stake—38.3% of the total capital and 50.1% of the voting capital—and Novonor accepts the proposal, Petrobras may decide whether to join the sale or exercise its right of first refusal on its share.

When contacted, Petrobras said about two weeks ago that it was still conducting due diligence on Braskem for a possible exercise of the tag along or right of first refusal. “So far, there has been no decision from Petrobras’s board of directors on the matter,” it said. Novonor declined to comment on the matter.

The devaluation of Braskem has also raised questions about the sale of the shares held by Novonor. At current market prices, Novonor would raise just over a third of the amount owed to banks and would not settle this commitment.

Internally, to mitigate the damage from an unusual combination of pressure factors, which resulted in the loss of its investment-grade credit rating—making access to new funds more expensive—Braskem has adopted stringent measures. Cost reduction and productivity improvement, the sale of non-strategic assets, investment cuts, and workforce downsizing are on the list of actions.

In its most recent move, the petrochemical company signed an investment agreement with Solví to form a joint venture in industrial waste management. In practice, the transaction represents the sale of Cetrel, responsible for waste treatment, environmental monitoring, and water supply in the Camaçari Industrial Complex in Bahia. Under the agreement, Braskem will contribute Cetrel to the joint venture and receive R$284 million, while Solví will include GRI and Emergencial in the partnership and hold 50.1% of the new company—the remaining 49.9% will be owned by Braskem.

When contacted, Braskem replied that it continues to seek to reduce fixed and variable costs and increase productivity, as well as monetize adjacent assets. In 2023, according to the company, the adoption of these initiatives had a positive impact of $390 million on operating results (EBITDA) and $525 million on cash generation. At the beginning of the year, additional initiatives were identified and they, by the end of March, added $58 million to EBITDA.

“It is important to highlight that our continuous objective, today and for the coming years, is resilience and discipline in capital allocation, seeking new financial preservation initiatives while advancing in the implementation of our growth strategy,” it said.

The expectation for the next petrochemical cycle is for improvement in the coming years as the excess supply of basic petrochemicals and resins, particularly polypropylene (PP) and polyethylene (PE), is absorbed by demand, according to forecasts from international consultancies such as ICIS, Platts, and Argus. However, it’s unclear at what pace this will happen, which should keep sector margins (spreads) and the company’s financial leverage (which in March exceeded 8 times) under pressure for some time.

According to Argus Media Brasil, even with the slight improvement in Braskem’s spreads during the first quarter, “an imbalance between supply and demand for petrochemical products persists, given capacity additions in Asia and lower global demand.” “Because of this, there is an expectation that petrochemical spreads will remain below mid-cycle conditions, causing the company’s leverage to remain high for longer than anticipated,” said Frederico Fernandes, a petrochemical specialist at the consultancy.

*Por Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Azul plans business combination proposal with Gol in three months

Negotiations progress on Gol’s future amid its U.S. restructuring efforts

05/07/2024

According to insiders, Azul is facing financial challenges, compounded by the weakened Brazilian real and escalating costs, as it negotiates with creditors — Foto: Divulgação

According to insiders, Azul is facing financial challenges, compounded by the weakened Brazilian real and escalating costs, as it negotiates with creditors — Foto: Divulgação

Azul intends to submit a business combination proposal with Gol to the United States Bankruptcy Court for the Southern District of New York within the next three months, sources told Valor. Currently, discussions are ongoing with Abra, the holding entity that owns Gol and Colombian airline Avianca.

The proposal’s submission to the New York Court is a required step due to Gol’s ongoing restructuring under Chapter 11 in the United States.

Gol’s participation in Chapter 11 has adversely affected its stock market performance, presenting a strategic opportunity for Azul, whose market capitalization is approximately six times greater than that of its competitor.

According to insiders, Azul is facing financial challenges, compounded by the weakened Brazilian real and escalating costs, as it negotiates with creditors.

Sources have indicated to Valor that negotiations between Azul and the shareholders of Abra have advanced. “What has been discussed is structural, governance, and transactional terms. The current market prices of Azul and Gol are not perceived as reflective of their true value, prompting extensive financial analyses to ascertain each company’s worth. This task is complicated by the volatile exchange rate [in Brazil],” one source explained.

Interest in a potential merger between Gol and Azul has intensified after they announced a codeshare agreement. However, the feasibility of such a merger raises questions about how it would be received by Brazil’s Administrative Council for Economic Defense (CADE).

Gol has initiated discussions with creditors and investors as part of its restructuring efforts. The proposed plan involves refinancing approximately $2 billion and securing a capital injection of $1.5 billion, potentially through issuing new shares.

However, there are mounting concerns in the market regarding Azul. Despite the airline finalizing an $800 million restructuring agreement with lessors, which includes provisions for payments to be partly made through share issuance at R$36—significantly above today’s share price of nearly R$7—there is growing unease about Azul’s financial stability. Payments under this restructuring are set to start in the third quarter of this year, totaling R$240 million for the semester. Yet, the strategy of converting these payments into shares at the initially agreed price is viewed unfavorably by stakeholders on both sides.

Simultaneously, the group is actively working to enhance its financial flexibility by launching a new debenture issue. Sources indicate that Azul aims to secure R$600 million through this debenture, which will be incorporated into a Credit Rights Investment Fund (FIDC).

However, Azul’s fundraising efforts are occurring amid a challenging market environment, heightened by President Lula’s critical comments towards the head of the Central Bank, Roberto Campos Neto, which have injected significant volatility. The debenture has been structured in multiple tranches, offering rates ranging from CDI + 3% to CDI + 8.5%—CDI being Brazil’s interbank short-term rate. To date, the average amount raised stands at R$300 million, at a rate of CDI + 6%.

This fundraising is crucial for bolstering Azul’s cash reserves, particularly as the airline sector faces escalating costs driven by the weakened real. Currently, there is limited scope within the industry to increase fares. Additionally, the crisis in Rio Grande do Sul has emerged as a particular point of concern, given that the state represents 10% of the sector’s overall demand.

As part of its Chapter 11 proceedings, Gol has been submitting its preliminary financial results on a monthly basis to the Southern District of New York, revealing signs of the broader challenges the industry faced in the second quarter.

“[In May], Gol’s EBITDA margin was 11%, which is considered weak, particularly in light of the issues in Porto Alegre that affected everyone’s results. Essentially, the sector started the second quarter on a weak footing and will continue to feel the impact of rising costs into the third quarter,” explained a source.

Market experts suggest that an EBITDA (earnings before interests, taxes, depreciation and amortization) margin of around 25% is considered healthy to effectively cover the cost of capital in Brazil.

The competitive landscape for Gol and Azul could become even more challenging as Latam, which currently holds over 40% of the Brazilian market share, is taking steps to solidify its position by bolstering its liquidity.

On March 3, Latam announced plans to conduct a secondary offering aiming to raise at least $200 million and is considering relisting its American Depositary Receipts (ADRs) in New York, which were previously suspended during the group’s restructuring phase.

Sources indicate that this financial strategy could enable Latam to reduce its fares by alleviating balance sheet pressures and paying off high-interest debts.

“By not reducing fares, Latam is inadvertently supporting Gol and Azul. If Latam manages to renegotiate its debts and gains financial leeway, it will disadvantage its rivals, who are burdened with higher debts and depleting cash. Latam has no current incentive to increase prices,” a source informed Valor.

Meanwhile, the prospect of government support for Brazilian airlines has faded. There has been longstanding discussion about utilizing the National Fund of Civil Aviation (FNAC) to secure loans, but progress has stalled. Despite multiple deadlines being set, no substantial actions have been taken.

Representatives from Gol, Abra, Latam, and Azul have all declined to comment on the matter.

*Por Cristian Favaro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Iconic Brazilian brand Gradiente switches to solar power

Staub family’s company aims to combine strong brand with service delivery focused on residential market

03/07/2024

Marcelo Ribeiro and Eugênio Staub — Foto: Gabriel Reis/Valor

Marcelo Ribeiro and Eugênio Staub — Foto: Gabriel Reis/Valor

Gradiente, a company owned by the Staub family, is investing R$50 million to enter the solar power industry through distributed generation. The new venture, called Gradiente Solar, aims to become a systems integrator for power generation, focusing on residential and small business markets.

The company seeks to capitalize on a market with low professional standards in equipment installation by offering post-sale services to customers. Eugênio Staub, CEO of Gradiente, noted that the company concluded its court-supervised reorganization in 2023, which had been ongoing since 2018. Gradiente also made a public offer to delist its shares and is engaged in a legal dispute with Apple over the use of the iPhone trademark in Brazil, currently under review by the Supreme Federal Court (STF). Now, the company plans to return to the market with a focus on service delivery.

“It’s a new beginning for us, and we decided to restart activities in the solar sector because it’s very promising,” said Mr. Staub. “We will focus on rooftop installations for homes and small businesses, as this market needs more professionalism and organization.”

The investment will be made with the group’s own capital over the course of 2024. Initially, the company will operate in the State of São Paulo, within the concession areas of CPFL and Enel, and then expand to other regions.

Solar is the fastest-growing source in Brazil, driven by distributed generation systems on rooftops, facades, and small plots of land. Brazil has over 30 GW of installed capacity distributed across 3.9 million consumer units. Each consumer unit represents a household, commercial establishment, or property.

This shift towards solar power is largely driven by consumers exchanging their electricity bills for financing payments, typically attracting middle-class customers with electricity bills over R$300 per month. The urgency was amplified by the 2022 enactment of the legal framework for self-generation of energy, which created a sense of urgency to secure exemption from the distribution network usage fee. These state subsidies are embedded in the Energy Development Account (CDE), funded by other consumers through tariffs.

Gradiente is in talks with two Chinese manufacturers to supply the equipment, aiming to profit from resales. Marcelo Ribeiro, CEO of Gradiente Solar, stated that the goal is to offer a comprehensive range of products and services, including accident insurance, project design, equipment selection, installation, certification, monitoring, and maintenance, all supported by a well-known brand

“We see major players investing in large-scale solar farms, and generally, small consumers participate in the energy transition indirectly. With the Gradiente brand, which resonates with Brazilians, we saw an opportunity to enter this market,” Mr. Ribeiro said. “Our focus is on microgeneration, prioritizing residences,” he added.

*Por Robson Rodrigues — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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The alleged “copy and paste” scheme of forged funds in Americanas

Signatures were forged in fictitious agreements with industrial companies; Unilever, P&G, and Philips were targeted

07/03/2024

Under the fraud scheme at Americanas, signatures of executives of manufacturing companies were digitally copied from real contracts, according to ongoing investigation — Foto: Bruno Peres/Agência Brasil

Under the fraud scheme at Americanas, signatures of executives of manufacturing companies were digitally copied from real contracts, according to ongoing investigation — Foto: Bruno Peres/Agência Brasil

On March 9, 2019, Maria Christina Nascimento, working in Americanas for 35 years, since 1984, told Paula Faria, from commercial support, that she urgently needed to fix a problem involving fictitious authorizations for cooperative advertising fund allocation with suppliers.

“Colgate and Multilaser each have 2 signatures and they are identical. They are [placed] in the exact same position on the line and in the same fit,” said Ms. Nascimento, who was Ms. Faria’s boss in the department, in a Whatsapp message. The same thing happened with the L’Oréal invoice.

Ms. Faria countered by saying that the signature was repeated because it was always the same person who signed the contracts with Lojas Americanas suppliers. Ms. Nascimento, however, demanded a quick solution.

“Although it is the same person, they would not sign exactly alike on the same signature line. Help me! I need to fix this today,” the boss urged.

Under the fraud scheme, the signatures of executives of manufacturing companies were digitally copied from real contracts, filed within Americanas, and then pasted into forged contracts.

The problem is that the repeated signatures were identical on the forged agreements. And that could raise suspicion among auditors, who checked contracts on a sample basis.

The text messages are part of a Federal Police request for provisional remedy submitted to the Court last week and reviewed by Valor. On the 27th, the Federal Police launched “Operation Disclosure” with 15 warrants targeting former Americanas executives.

According to investigations by the Federal Prosecution Service (MPF) and the Federal Police, a scheme was in place for writing a series of forged contracts in the online operation of B2W (Submarino, Shoptime, Americanas.com), and Lojas Americanas, which happened with the endorsement of the top management.

Plea bargainer Marcelo Nunes told the MPF that, in 2021, there were R$1.4 billion in cooperative advertising funds, for annual net revenue of R$27 billion. Mr. Nunes did not inform whether the amount was all related to the fraud scheme.

The forgery was internally dubbed as “supplementary collection” and started in 2012, according to preliminary data gathered by the authorities. Former CEO Miguel Gutierrez, now living in Madrid, Spain, mentioned that date in a 2017 email exchanged with Carlos Padilha, then chief financial officer at Lojas Americanas. Both are being investigated by authorities.

The fund forgery was made to boost the group’s results. The fictitious figures were recorded as credits. In the case of Lojas Americanas, they reduced the Cost of Goods Sold (COGS) and, therefore, improved gross profit. At B2W, they also improved COGS and reduced marketing expenses.

In practice, as the funds did not exist, the documents were forged just to meet possible requests for verification by the audit.

In addition to the signature issue, there was another headache for the alleged fraud organizers. There were “good and bad” fictitious contracts.

In a 2019 text message exchange, Ms. Nascimento said that the Multilaser and L’Oréal forged contracts were “good” but there were other “not so good” forged contracts.

“If they get the good ones, I think it will work,” said Ms. Nascimento, commenting on the hypothesis that the documents would receive approval from KPMG auditor Carla Bellangero, in charge of the account at the time.

Ms. Bellangero was at the Americanas Investigative Parliamentary Committee (CPI), in August 2023, and presented indications that she had been deceived by the retailer. KPMG was the retailer’s auditor from 2016 to October 2019, when it was replaced by PwC shortly after meeting the mandatory minimum timing, as ordered by the rule on auditor rotation for public companies.

In another conversation, on February 23, 2018, Ms. Nascimento asked Ms. Faria to correct the fictitious funds. She claimed that the chocolate manufacturer Garoto’s contract had three signed fund authorizations, while the “cover” of the letter displayed a different date compared to the document. Ms. Faria said she would fix the problem.

Just two days earlier, on February 21, 2018, KPMG’s Ms. Bellangero met with Flávia Carneiro, then controller superintendent at Lojas Americanas, according to a Whatsapp message.

“Carla is still here,” Ms. Carneiro told Ms. Nascimento in the text message. “It’s tough. Better send it today,” she asked, regarding the 2018 forged letters.

In January 2024, Flávia Carneiro entered an agreement with the MPF to become a plea bargainer and handed over to the authorities documents and text messages that formed the basis for the investigation.

In the forgery process, dates and amounts were changed, but not industry registration data.

Christina Nascimento is being investigated for racketeering, use of insider information, and market manipulation. She is included on the list of 14 former executives targeted for search and seizure by the Federal Police on the 27th. Paula Faria’s name is not on the list. Some former employees have not yet been targeted by the Federal Police and could join a group of people who probably have been coerced into participating, according to MPF suspicions. The investigation is still ongoing.

There are 27 companies targeted for the alleged fraud scheme in the retailer in different years, according to authorities and plea bargainers in the provisional remedy. The list includes all types of companies, but there are a greater number of large groups.

“That helps to generate many contracts, as it is natural for a multinational company to have a large advertising budget. And the more contracts, the harder it is for an auditor to identify an error,” says a superintendent who negotiated contracts with Americanas.

Among the 27 companies are Unilever, Colgate, L’Oréal, J&J, Mondelez, Coty, Hasbro, BIC, Oi, Tramontina, and 18 more, in just a few weeks of 2016, 2017 and 2019, according to emails and text messages.

In 2016, seven companies, including Philips, Sony, and Black & Decker, were mentioned in text messages involving the forgery of funds.

Cooperative funds are widely used in retail, and they include a variation that can facilitate fraud.

At Americanas, there were three types: linked to the store’s purchasing targets with industries, linked to some loans negotiated with suppliers, and linked to price cuts in promotions. Industrial companies backed part of the promotion. “Each cooperative advertising fund agreement is one agreement, they are never the same. Perhaps that’s why it was so easy to forge it as the company wanted,” says another supplier.

Also according to the Federal Police, plea bargainer Marcelo Nunes said KPMG carried out processes for checking information with suppliers through a sample basis. The Americanas’s commercial department would contact manufacturers so that they could confirm the fund information.

Mr. Nunes did not provide further details of how that was done but affirmed that suppliers were unaware of the scheme and were deceived. Americanas’s commercial support area took statements from manufacturers confirming the total amounts, including real and fictitious, and sent them to auditors.

“As there are so many amounts involved, it is not easy to realize that you are being deceived,” says one factory superintendent. “Also, because industrial companies made a lot of money with Americanas, which always paid full price for products, their commercial relationship was good, and no one would want to create a problem,” the superintendent says.

The fraud step-by-step process involved a few people. The forged amounts were recorded in an Excel file, one by one, manually, by the commercial support area. The file would be named version 1, 2, or 3 depending on how many versions there were. The real list was called “version 0.”

Then, that was forwarded to the shared services center (SSC), which entered the data into the system, without checking it. The information technology area granted access to the system to a select group of people, who were part of the fraud scheme.

Based on Whatsapp text messages, executives said CEO Gutierrez received all file versions. The former CEO claims he was unaware of the fraud.

According to a third manufacturer, there is no expectation in the market of any legal action against Americanas as, in the reorganization plan, collaborating creditors committed not to litigate against the company.

As agreed, there is also no possible litigation against primary shareholders Beto Sicupira, Marcel Telles, and Jorge Paulo Lemann. Their names were not mentioned in the Federal Police’s provisional remedy and the MPF claims that the board of directors (which includes the partners or those appointed by them) were deceived.

When contacted, the mentioned companies Oi, Candide, Philips, and Colgate did not respond. Nadir Figueiredo says it is unaware of the facts and documents. The company claims that, if there were forgery of data, it occurred without its approval. Nestlé, the owner of Garoto, says it has no base to comment on.

Allied claims it is unaware of the facts and added that bonuses are common and that the amount mentioned in the list of funds has been released. Unilever responded that it does not comment on ongoing investigations. The other companies did not immediately respond to Valor’s inquiries. Paula Faria and Christina Nascimento could not be reached to comment.

*Por Adriana Mattos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Haddad to present fiscal adjustment measures to Lula

Economic team has been working on expenditure review agenda for 60 days

07/03/2024

Fernando Haddad — Foto: Cristiano Mariz/Agência O Globo

Fernando Haddad — Foto: Cristiano Mariz/Agência O Globo

Finance Minister Fernando Haddad will meet this Wednesday with President Lula to present proposals to ensure compliance with the fiscal framework until 2026. He avoided mentioning a date for the announcement of the measures and emphasized that the final decision on which paths will be taken lies with the president.

His statement comes amid demands from the financial market for spending cuts, as the fiscal adjustment has been carried out solely on the revenue side for a year and a half. From the expenditure perspective, the government has increased spending since the so-called Transition proposal to amend the Constitution and has only made registration revisions of social benefits.

According to Mr. Haddad, the economic team has been working on the expenditure review for 60 days, despite not having presented anything concrete yet. “The president has summoned the ministries of Planning and Management, the chief of staff and the Ministry of Finance not only for the preparation of the 2025 budget but also for the budget execution of 2024.”

Another concern of market agents is what the government will do in the May-June report on the evaluation of revenues and expenditures for this year’s budget, which will be released on July 22. Valor has learned that the economic team estimates that a potential freeze plus a cost-cutting plan could reach, at most, R$10 billion. The figures are still being reviewed by government experts and may change.

These experts see it as possible to implement a freeze (due to the risk of exceeding the spending limit) and a cost-cutting plan (due to the risk of not meeting the target range) simultaneously—which, if confirmed, would be unprecedented for this government. The practical effect for the affected ministries would be the same: the freezing of funds until the budget situation improves and the freeze can be lifted.

However, the preliminarily estimated amount is much smaller than expected by the market, which points to the need for a total spending freeze of up to R$40 billion.

On Monday, Mr. Haddad said that the spending freeze “will be as large as necessary for our goals to be achieved, both from the expense perspective, which has a cap, and from the revenue perspective, so that we approach, within the range, the 2024 target.”

The target for this year is a zero deficit, but the government has a buffer of up to R$28.8 billion. This is the figure the team is working with to determine the need for a spending freeze. The freeze occurs when there is a risk of exceeding the annual spending limit, according to the new fiscal framework rules.

Valor has also learned that the Ministry of Finance does not consider it essential for the public spending watchdog TCU to respond at this moment to a public inquiry about the maximum allowable cost reduction for the year, as the amount to be announced in the May-June report will be well below projections.

There is a disagreement between the ministries of Finance and Planning on whether a provision included in the 2024 Budget Guidelines Act is enough to provide legal security to the interpretation that the maximum allowable cost reduction this year is R$25.9 billion, ensuring a minimum real growth of 0.6% in spending.

Government experts argue that the 0.6% is budgetary and does not apply to financial execution itself. Thus, the maximum reduction of expenses could reach up to R$56 billion.

TCU experts, when analyzing the request, understood that the limitation sought by the Ministry of Finance could constitute a violation of the Fiscal Responsibility Act and the public finance law, potentially leading to punishment for public officials. The TCU members may or may not follow the auditors’ conclusions.

The inquiry was scheduled for judgment in the TCU’s plenary session on June 19 but was removed from the agenda. The evaluation among TCU members is that the topic is politically sensitive.

*Por Jéssica Sant’Ana, Murillo Camarotto, Gabriela Pereira — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Global success of taxing the wealthy requires widespread adoption

Mass participation in the agreement could generate up to $250bn a year to combat hunger and the effects of climate change

07/02/2024

Mauricio Lyrio — Foto: Wenderson Araujo/Valor

Mauricio Lyrio — Foto: Wenderson Araujo/Valor

The success of implementing a wealth tax, a proposal spearheaded by Brazil during its G20 presidency this year, hinges on global adoption, according to Ambassador Maurício Lyrio, secretary of Economic and Financial Affairs at the Ministry of Foreign Affairs and Brazil’s G20 Sherpa, the personal envoy leading negotiations. Speaking on Monday at the Science 20 (S20) discussions in Rio, Mr. Lyrio also addressed energy transition, climate change, debt swaps, and combating hunger.

Mr. Lyrio emphasized that the government aims to continue the debate initiated in 2021 when the G20, in a binding agreement with the Organization for Economic Cooperation and Development (OECD), developed the “Two-Pillar Solution” to better direct the taxation of multinational corporations across their various markets.

Pillar 1 ensures that part of the profits of multinationals remain in the market jurisdictions where the profits are generated, while Pillar 2 establishes a 15% minimum tax on their global operations. Finance Minister Fernando Haddad, leading the G20 Financial Track, commissioned a study by French economist and University of California Professor Gabriel Zucman. The study proposes a 2% tax on large fortunes. According to the study, there are about 2,000 to 3,000 ultra-wealthy individuals worldwide, and a global agreement among all countries could generate $200 billion to $250 billion annually.

“It’s crucial to ensure effective international coordination. A global taxation effort won’t be effective if not universally accepted. We must work collectively to prevent tax evasion by defining headquarters,” said Mr. Lyrio. “It’s not simple, but Minister Haddad has managed to bring the issue to various governments, and there’s already a lot of positive reaction.” He noted that there is no consensus yet on how the revenue would be allocated.

Mr. Lyrio also mentioned that the G20 Summit will coincide with the COP29 in Baku, Azerbaijan, leading to potential cross-influence between the summits. He believes that achieving the goals of the Paris Agreement and future agreements requires multilateral negotiation. Mr. Lyrio pointed out that the G20 comprises diverse countries, with some rich in fossil fuels and others, like Brazil, in renewable resources. He argued that Brazil is one of the few countries where new oil and gas exploration frontiers like the Equatorial Margin are unlikely to cause a substantial impact.

“Brazil is a unique case; we completed the energy transition before the environmental crisis. About 93% of Brazil’s electricity is renewable, mostly hydropower, along with solar and wind,” he said. “Exploring more oil doesn’t change this mix; our emissions [from power generation] are already much lower than other countries.”

As Brazil’s main initiative in the G20, Mr. Lyrio highlighted the “Global Alliance Against Hunger,” which has three pillars: the Autonomous Pillar, where participating countries choose a social program to implement from a range of options; the Financial Pillar, which discusses the possibility of debt swaps for poor and indebted countries implementing social programs; and the Knowledge and Cooperation Pillar.

On July 4, Mr. Lyrio will receive proposals from the 13 engagement groups forming the social axis of the economic forum at the G20 Sherpas’ track meeting. For the first time, these contributions will be delivered in time to be incorporated into the declaration to be submitted to member states, which will be reviewed at the Leaders’ Summit in November in Rio.

Before that, a forum will gather all representatives from the engagement groups. “Previously, it was an informal relationship, now we’ve institutionalized it. This isn’t a pro-forma contribution, not something received at the last minute when the declaration is already negotiated. We want a real contribution.”

*Por Victoria Netto — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Animal protein expected to be included in basic food basket

Group working on tax reform report expected to conclude it this Tuesday

07/02/2024

Arthur Lira — Foto: Bruno Spada/Câmara dos Deputados

Arthur Lira — Foto: Bruno Spada/Câmara dos Deputados

Members of the working group responsible for discussing the main text of the regulation of the tax reform have made progress in ensuring that the exemption of animal protein in the basic food basket is included in the proposal.

The group responsible for drafting the report on the institution of the Tax on Goods and Services (IBS), Contribution over Goods and Services (CBS), and the Selective Tax (IS) conducted a new review of the report on Monday and will meet again on Tuesday to try and finalize the draft.

“There is an understanding among us that we should include animal protein,” Congressman Joaquim Passarinho told Valor.

One of the compensations under consideration for the inclusion without increasing the rate is that sports betting be taxed by the selective tax. The scope of the excise tax could also extend to electric cars, but a decision on this point has not yet been made.

More advanced, the working group of the Lower House on the bill that creates the management committee for the new IBS, created by the tax reform, finalized a draft report on Monday and sent it to the Extraordinary Secretariat for Tax Reform at the Ministry of Finance for evaluation.

According to Congressman Vitor Lippi, the report will reinforce a “friendlier tax authority” and fiscal citizenship. “There is no reason for the tax authority to be harsh on good taxpayers. It should be tough on bad taxpayers, evaders, and chronic debtors,” he said.

The lawmakers want to ensure harmony in the decisions of the management committee, which will manage the IBS, and the federal government, which will run the CBS.

The two taxes should follow the same rules and function, in practice, as a single tax, but there is fear among taxpayers of an increase in tax litigations due to divergent opinions between states and the federal government. Therefore, according to Mr. Lippi, the opinion will reinforce the requirement for harmonization in decisions on the two taxes and introduce measures to avoid litigation, with more possibilities for resolving disputes through administrative means.

The meeting included representatives from the federal government, states, and municipalities. Two of the seven members of the working group, Congressmen Vitor Lippi and Luiz Carlos Hauly, were at the meeting.

The working group members will meet with Finance Minister Fernando Haddad this Tuesday to discuss the text with the federal government. Later, there will be a public hearing with governors and state finance secretaries to discuss the proposal.

The lawmakers denied rumors that Speaker Arthur Lira had reached an agreement with the main parties in the Lower House to prohibit the presentation of amendments during the plenary discussion of the topic.

Although one of the texts is not yet finalized, there is an expectation that both groups will present their reports to the speaker and party leaders on Wednesday. The round of consultations with the party caucuses is expected to begin shortly thereafter.

This schedule was designed by Mr. Lira to facilitate the approval of the measures before the parliamentary recess.

*Por Raphael Di Cunto, Marcelo Ribeiro — Brasília

Source: Valor International

https://valorinternational.globo.com/
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