Deforestation in the Cerrado biome threatens medicinal plants

Destruction of native forest in the biome harms traditional communities, who depend on these resources to survive

02/02/2024

Lucely Pio — Foto: Katarina Silva /WWF-Brasil

Lucely Pio — Foto: Katarina Silva /WWF-Brasil

Some of the medicinal plant species used by the Xakriabá indigenous people, from the north of Minas Gerais, no longer exist. They have disappeared as a result of the advance of deforestation in the Cerrado biome, regarded as the savanna with the greatest biodiversity in the world.

“We have been struggling with [species such as] desenrola, tiborna, velame. They are becoming scarce, since they are plants from the forest, and we can no longer see them here in our territory; they are now very hard to find. When we see it, it’s just a little plant here, another there,” says indigenous leader Belo Xakriabá.

According to the Ministry of the Environment’s estimates, the biome has more than 12,800 plant species, of which 36.8% are under threat of extinction. Last year alone, the rate of destruction of native vegetation in the biome reached 43%, with the loss of 7,828 square kilometers. In total, 2,137 species have been recorded, more than 220 of which are for medicinal use.

“It’s a biome that has lost more than 50% of its coverage. And, as destruction advances, there is an intrinsic threat to its integrity and its ability to stand, from an ecological point of view,” notes forest engineer Pedro Bruzzi, a coordinator at Rede Cerrado.

He also highlights the impact on traditional communities in the Cerrado, which, in addition to indigenous peoples and quilombolas includes communities that make common use of areas of native vegetation to raise cattle freely in fields without fences, as well as evergreen pickers, among others.

“When we look at statistics and then identify in the field those who are really on the front line, we can be sure that in most cases we have original peoples and communities being expelled from their territories,” the activist says.

That’s what happened to Lucely Pio’s great-great-grandfather, the founder of the Cedro quilombola community in Mineiros, in the state of Goiás, in 1830. “His farm had 30,000 bushels, covering virtually the entire city of Mineiros and its surrounding region. There is also a river, the Rio Verde, which is full of diamonds. That was when the diggers came. They started to take land from my grandfather,” she said.

Managing medicinal plants since the age of five, when she started learning the secrets of the Cerrado’s native vegetation with her grandmother, Ms. Pio is now an activist with the Pacari network, a group that works to protect the biome and the traditional uses of its vegetation. She notes there has been shortage of species such as the jatobá, which grows slowly, at about 0.5 centimeter per year, and can take centuries to reach its maximum height, of up to 25 meters.

“Those who took over the land are the same people who cut down the forest. The community is named Cedro [Portuguese for ‘cedar’] because we used to have a lot of cedar here; today we have just a small amount. The same as with jatobá. At that time, people came with sawmills, cut them down and took them away. Alone, he [her great-great-grandfather] could not fight against it,” she said.

As a consequence, Ms. Pio says, today she relies on neighboring farms, which are dozens of kilometers away, to collect the herbs she uses in rituals and infusions. “That is a legacy that we have lost,” she notes.

According to the World Health Organization (WHO), 80% of the world’s population depends on medicinal plants for primary health care. In a survey carried out by researchers from the State University of Goiás (UEG) in 2018, with 40 residents of the city of Goiás, also known as Goiás Velho, that number is 92.5%. In total, according to the survey, local residents used 140 plant species.

According to pharmacist Debborah Gonçalves Bezerra, PhD in the Cerrado’s natural resources, and one of the researchers in charge of the study, the reduction in the availability of such herbs has direct impacts on the economy and health of the local population, who, in addition to using the plants for self-care, also sell natural medicines, the so-called “garrafadas”—hand-prepared infusions intended for various treatments.

“Furthermore, in the absence of such natural resources, the population struggles to alleviate minor symptoms that could be quickly solved, being forced to seek the Unified Health System to obtain a prescription in order to receive treatment,” she points out.

According to her, many of the herbs could also be used by the pharmaceutical industry, resulting in substantial losses, from a biological point of view. “As the availability of these plants decreases, knowledge about natural resources is also lost. We may lose species whose benefits we haven’t even been able to learn,” the researcher warns.

*Por Cleyton Vilarino — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil restricts issuance of tax-exempt bonds

The measure also covers agribusiness bonds and other real estate securities; the decision was made at a special meeting

02/02/2024

Finance Minister Fernando Haddad is a member of CMN — Foto: Marcelo Camargo/Agência Brasil

Finance Minister Fernando Haddad is a member of CMN — Foto: Marcelo Camargo/Agência Brasil

The National Monetary Council (CMN) announced Thursday (1), after a special meeting, a series of limitations on the issuance of tax-exempt bonds. Taken in the context of reducing tax loopholes and increasing tax collection, the measures restrict the types of backing that can be used in real estate receivables certificates (CRI), agribusiness receivables certificates (CRA), and real estate credit bills (LCI). It is also now forbidden to use funds raised through agribusiness credit bills (LCA) to grant rural credit that benefits from federal economic subsidies.

The changes, effective as of July, come after strong growth in the use of these instruments, including in operations not directly related to the sectors being incentivized. These securities all offer exemption from income tax for investors. The stock of tax-exempt bonds already exceeds R$1 trillion.

The Ministry of Finance has managed to approve taxation on offshore companies and closed-end funds. According to a government source heard by Valor, the CMN is now seeking to tighten the rules for issuing tax-exempt bonds, ensuring the funds raised are strictly directed towards financing agribusiness and the real estate sector. We’re closing loopholes; 2024 is the year when the rich get into income tax,” said the source.

The Central Bank has denied that the changes are aimed at reducing the volume of issuance of tax-exempt instruments. However, its experts told journalists that a drop in issuance could occur.

“The aim is to ensure that issuances serve as a source of funds for public policies, but a reduction in the volume of LIG (Real Estate Secured Bills) and LCI is expected,” said Felipe Derzi, deputy head of the Central Bank’s Financial System Regulation Department. “The market will have to find other business models to support what is not linked to public policy.”

The CMN changed the rules and terms of the LCA, LCI, and LIG. In the case of the LCA, the funds can only be used to contract rural credit “at rates freely agreed under market conditions.”

The collegiate body also prohibited the use of advances on foreign exchange transactions, export credits, receivables certificates, and debentures as LCA backing. The minimum maturity of the LCA was also extended from 90 days to nine months. Another change to the LCA no longer allows the “possible overlapping of tax benefits.” The aim is to gradually restrict the use of rural credit operations with controlled resources in the composition of LCA backing by July 1, 2025.

The changes to the LCI extend the minimum maturity from 90 days to 12 months and specify the types of real estate credit accepted as backing. The amendment removes the possibility of using operations with no connection to the real estate market, even if they are backed by real estate.

With regard to the LIG, the CMN decided to apply the same rules as for the LCI on the backing of real estate credits already used to meet the mandatory targeting of savings deposits. The Central Bank explained that the credit balance of LIGs with these characteristics will be deducted in full from the balances of the real estate credits that serve as reference. The Central Bank said that the change seeks to “avoid a double tax benefit without the corresponding origination of new real estate credit operations.” Only LCI and LGI issuances that take place after the decision will be impacted by the measures.

The CMN has barred the issuance of CRAs and CRIs backed by debt securities issued by public companies not related to the agribusiness or real estate sectors. According to the Central Bank, the measures aim to “ensure that the instruments are backed by operations compatible with the purposes that justified their creation.”

The CMN also prohibited the issuance of rights backed by credits originating from transactions between related parties or from financial transactions “whose resources are used to reimburse expenses.” The measures do not affect CRAs and CRIs that have already been distributed or that have public offers registered with the Securities and Exchange Commission of Brazil (CVM).

The possibility of the government restricting the backing of CRIs and CRAs is something that has worried issuers since December, when rumors about a change in the rules grew. In recent weeks, some companies have decided to shorten the timetable to secure issuances that still comply with the old rules, according to lawyers. At least four issuances that were due to go ahead in the next few weeks have already been paused.

“The measure was much worse than we could have imagined and significantly limited CRI and CRA operations,” said Daniel Laudisio, a partner in the capital markets area at Cescon Barrieu. “As it will greatly restrict those who can raise funds with these securities, the tendency is for the cost of funding to rise.”

Ricardo Stuber, a partner at TozziniFreire, believes that the most significant impact will be the ban on transactions in which the debtor is a publicly traded company or a related party of a publicly traded company and which are not in the real estate or agribusiness sectors. “Another important point is that the use of funds for reimbursement, which was very popular in the market and permitted by the CVM, will now be prohibited.”

The change affects the plans of companies that issue so-called “rental CRI,” whose resources are used to pay past and future rents. This possibility is relatively recent and came into existence thanks to the CVM’s relaxation of the rules. Rede D’Or was the first to issue CRIs for this purpose in May 2022. At the time, the hospital chain raised R$1.14 billion.

Back then, the permission was celebrated, as it would significantly increase the list of companies that could access the market. After Rede D’Or, retailers, pharmacy chains, and banks followed. On the agribusiness side, issuances by companies such as restaurant chains with no connection to the sector but which bought inputs from rural producers became common. Vendors from the areas of transportation, logistics, or vehicle leasing also used this relationship with the “agribusiness chain” as backing.

*Por Gabriel Shinohara, Jéssica Sant’Ana, Rita Azevedo, Adriana Cotias — São Paulo and Brasília

Source: Valor International

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Approval of Minerva-Marfrig deal could take longer than expected

Antitrust watchdog CADE says acquisition of assets is not simple, requires more time for analysis

02/01/2024

The approval—or not—of the acquisition of Marfrig’s beef assets by Minerva Foods should take longer than the companies had previously expected. The companies submitted the deal to the Administrative Council for Economic Defense (CADE) on September 27, 2023, when an obstacle to approval was the incomplete composition of the tribunal. But even after the appointment and installation of four new members, the antitrust regulator’s General Superintendence (SG) considered the operation was not simple and, therefore, required more time study it.

The deal includes the acquisition of part of Marfrig Global Foods and Marfrig Chile’s beef and sheep business, encompassing slaughtering and deboning plants, plus a distribution center. The assets are located in Brazil, Argentina, and Chile.

The deal doesn’t mean Marfrig’s exit from the animal slaughtering segment, as the company will maintain other plants. Both companies told CADE that, for Marfrig, the deal is in line with the strategy of focusing on the production of branded meat and high value-added products. As for Minerva, the acquisition is “a strategic opportunity to complement its operations,” with a focus on savings through scale and efficiency gains.

When the companies announced the R$7.5 billion deal to the antitrust watchdog, they described it as a summarized concentration act, a format intended for operations that are considered to be simple, whose deadline in this case is 30 days. As the General Superintendence turned it into an ordinary act, the process can take up to 240 days. In addition, the new deadline considers January 22nd as the starting date, when the General Superintendence asked the companies for new information regarding the operation.

The 240-day period is set out in the legislation. When contacted, CADE explained that the General Superintendence usually works within a 90-day deadline, a shorter period it tries to meet. Still, it is much longer than what Minerva and Marfrig expected when they submitted the deal.

In an order released in December, the General Superintendence said, given that in at least one of the markets involved in the operation (cattle slaughter in Rondônia), the deal could give Minerva a dominant position (with a market share exceeding 20%), it’s not possible to classify it as a summarized procedure.

Additional evidence was also requested. Only after that will the superintendence release an opinion on the case.

Based on the decision, if the deal is approved without restrictions, there will be a 15-day period for third parties or members to question the opinion and then move the deal to CADE’s tribunal. If the superintendence rejects or approves it with restrictions, the case will necessarily be submitted to the tribunal. If the superintendence approves it and there are no manifestations within 15 days, the deal will receive final approval.

The Brazilian Agriculture Confederation (CNA) requested to participate as a third party interested in the process. The entity says it intends to ensure that ranchers established in the areas of meatpacking plants will not be harmed from market power in the future.

CNA said it sent the antitrust watchdog a technical note in which describing the impacts of market concentration in recent years in the sector. According to CNA, the acquisition of Marfrig’s meatpacking operations by Minerva could increase market concentration in some states.

Last week, more than 100 letters were sent by CADE to members of markets that could be affected by the deal. The markets in question involve the sale of fresh beef and lamb in the domestic market; cattle slaughter and its by-products in the domestic market, rawhide in the domestic market; and beef processing activities.

Marfrig and Minerva declined to comment.

*Por Beatriz Olivon — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Firjan points out ways to increase gas production in Brazil

Rio de Janeiro state accounts for 70% of Brazil’s gas production; only 24% of it reaches consumer market

02/01/2024

There is shortage of natural gas in Brazil to meet growing demand. That is the conclusion of the “Prospects for Gas in Rio,” a study by the Rio de Janeiro Federation of Industries (Firjan) to be released this Tuesday (30). “There is a consumer market interested in a greater supply of gas in the country; what is missing in order to meet such potential is greater availability on a competitive basis of price and accessibility,” the study states.

According to Firjan’s survey, the state of Rio de Janeiro accounts for 70% of the Brazilian gas production, but only 24% of it is made available to the consumer market. Among the reasons for that situation, according to Firjan, is the high cost of production, due to the location of producing areas and the existence of contaminants. The volume of gas reinjected by oil companies into wells to streamline production has also increased, the report says.

Natural gas is seen as a key element for energy transition, according to the study. Therefore, companies’ demand for the product has increased, following the trend of seeking a position in a “greener” market. “Gas is a transition energy source given its lower greenhouse elements emissions,” Luiz Césio Caetano, vice-president of Firjan, notes. “We need to make natural gas more competitive.”

According to Firjan, the fact that natural gas is mostly associated with oil production should be regarded as a differentiator in the global market. Brazilian oil, especially that extracted from the pre-salt layer, is one of the most competitive in the world given its low operating costs and low greenhouse gas emissions. “Our production has proven to be resilient to adverse scenarios in recent years, including the effects of the COVID-19 pandemic and the war in Eastern Europe, which had strong impact on the global energy scenario, especially on oil and natural gas.”

“Strategies to streamline the production process, such as adapting existing and idle infrastructure in the Santos basin, must be considered and evaluated as alternatives to reducing investment in natural gas.”

Rota 3 gas pipeline intended to connect pre-salt fields in the Santos Basin to the Gaslub hub for 355 kilometers is expected to enter into operation in the second half of this year. It is expected to ease pressure on supply, according to Mr. Caetano. The pipeline’s capacity is approximately 18 million cubic meters of gas per day. Another project also awaited by the industry in the longer term is the BM-C-33. Scheduled for 2028, the project includes an area operated by Equinor in partnership with Repsol Sinopec Brasil and Petrobras and is expected to flow 16 million cubic meters of gas per day.

Still, Prio, which participates in the Firjan study, argues that the two projects, Rota 3 and BM-C-33, will not be enough. According to the independent oil company, improvements to the country’s infrastructure are required to transport production: “If that [infrastructure construction] is not done, the operation growth will be limited. Rota 3 (2024) and BM-C-33 (2028) are under construction to expand capacity, but they will probably not be enough to supply the entire sector.”

*Por Kariny Leal — Rio de Janeiro

Source: Valor International

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Brazil cuts interest rate by 50bp, signals continued easing pace

Central Bank Committee projects ongoing cuts of 50 basis points “in the upcoming meetings”

02/01/2024

Central Bank's Copom suggested similar reductions “in the next few meetings” should economic conditions unfold as projected — Foto: Beto Nociti/BCB

Central Bank’s Copom suggested similar reductions “in the next few meetings” should economic conditions unfold as projected — Foto: Beto Nociti/BCB

The Brazilian Central Bank’s Monetary Policy Committee (Copom) has once again lowered the Selic (Brazil’s benchmark interest rate) rate, this time to 11.25% per annum, marking the fifth consecutive decrease at a meeting on Wednesday. The committee suggested it might continue with similar reductions “in the next few meetings” should economic conditions unfold as projected. This unanimous decision aligns with market expectations and mirrors the stance of the previous meeting.

Without specifying an endpoint for the current cycle of monetary easing, the Central Bank reiterated its commitment to a contractionary policy aimed at reining in inflation and restoring inflation expectations to target levels.

It also highlighted that future rate cuts would depend on the trajectory of inflationary pressures, including those prices most responsive to monetary policy and economic activity, long-term market inflation expectations, their own inflation forecasts, economic slack, and external and fiscal risks that might skew inflation away from its predicted path.

A survey by Valor Data, conducted before the decision, revealed that out of 142 financial institutions and consultancies polled, 141 anticipated a 50-basis points reduction in the Selic rate. Only one financial analyst projected a 0.75-BP cutoff. The mid-point expectations are centering on a 9% rate by the end of 2024.

Copom noted the current phase of disinflation is “unfolding more gradually” than initially experienced, due in part to the diminishing impact of lower commodity and industrial goods prices. The committee states inflation expectations have “only partially” realigned with the government’s 3% target, with the market projecting a 3.5% inflation rate over the long term. According to the Central Bank, the global scenario remains “challenging.”

Regarding the international scene, Copom acknowledged ongoing volatility spurred by discussions on the commencement of monetary easing in major economies and “persistent high core inflation rates across numerous countries,” which are falling. In the previous press release, Copom still saw “incipient” signs of the falling core rates. Compared to December, the committee has adjusted its previous assessment of a “less adverse” external environment, citing the recent “moderation of longer-term interest rates in the United States.”

The committee underscored that central banks in major economies are steadfast in their aim to steer inflation towards their targets, notwithstanding labor market pressures.

Domestically, Copom observed that consumer inflation continues on a disinflationary path “as expected,” with recent data showing underlying inflation measures “nearing the target.”

Copom’s inflation forecasts suggest Brazil’s benchmark inflation index IPCA will decline from 4.62% in 2023 to 3.5% in 2024 and 3.2% in 2025, assuming the Selic rate ends in 2024 at 9% per annum. These projections remain consistent with those outlined in December, which used a Selic of 9.2% at the end of 2024.

The projections for monitored prices were 4.2% in 2024 and 3.8% in 2025. The previous projection was pegged at 4.5% for 2024 and 3.6% in 2025. The committee also stressed that its relevant horizon is now 2024, with the focus now extending more significantly to 2025.

The risk factors for inflation remain consistent with its December decision, which saw the Selic rate decrease from 12.25% to 11.75% annually. The committee identified two primary upside risks: the enduring nature of global inflationary pressures and an unexpected resilience in services inflation, attributed to “a tighter output gap [a measure of the economy’s idleness].”

Copom also pointed out two significant downside risks: the potential for a more acute slowdown in global economic activity than anticipated and a more pronounced disinflationary effect resulting from coordinated monetary tightening across economies. “The Committee believes that the economic environment, particularly due to the international scenario, remains uncertain and calls for caution in the conduct of monetary policy,” it stated.

Furthermore, Copom underscored the critical importance of “achieving the fiscal objectives that have been established.” Highlighting the government’s ambition to eliminate the public sector’s primary deficit this year, following a deficit equivalent to 1.3% of the GDP in 2024, the committee stressed the relevance of this goal for anchoring inflation expectations and guiding monetary policy. “The committee reaffirms the importance of firmly pursuing these targets,” the statement said.

The January meeting’s decision to further reduce the Selic rate by 50 BP continues the trend initiated in August 2023, when the benchmark rate stood at 13.75%. This latest adjustment marks the fifth consecutive cut of identical magnitude.

Prior to this easing cycle, the Selic rate was maintained at 13.75% for 12 months starting from August 2022, capping a bullish cycle that commenced in March 2021 and concluded in August 2022.

Throughout this period, Copom escalated interest rates to 13.75% from 2% annually, executing a substantial 11.75-percentage-point hike as part of the Central Bank’s strategy to curb inflation in the wake of the pandemic.

Copom has scheduled its next meeting for March 19 and 20.

*Por Gabriel Shinohara, Alex Ribeiro — Brasília, São Paulo

Source: Valor International

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Gol studies measures against LATAM for trying to take its planes

One day after the airline filed for court-supervised reorganization, Santiago-based group reportedly sent letters to lessors eying up to 25 aircraft

01/31/2024

Gol shares plunged again on Tuesday (30) trading session — Foto: Fabiano Rocha/Agência O Globo

Gol shares plunged again on Tuesday (30) trading session — Foto: Fabiano Rocha/Agência O Globo

Gol is studying measures against LATAM after the competitor attempted to take 20 to 25 of its 737 planes. Gol’s lawyers told the New York judge responsible for the case, in documents seen by Valor, that LATAM sent letters to the lessors on Friday (26) to try to take the aircrafts one day after Gol filed for bankruptcy protection.

Gol shares plunged again on Tuesday (30) trading session, marking a 26.97% drop. The company ended the day with a market capitalization of R$1.2 billion, a 55.4% loss when compared to Thursday (25), when it filed for court-supervised reorganization, according to Valor Data.

LATAM does not operate the 737 model and, according to Gol’s lawyers, the Santiago-based group is trying to illegally interfere in its rival’s restructuring. Andrew LeBlanc, a lawyer at the Milbank law firm, told Judge Martin Glenn that “several” articles in the legislation prevent the Chilean company from taking such approach.

Mr. LeBlanc told the judge that Gol is studying which measures to take against LATAM. The lawyer also argued that it is necessary to ensure that Gol will be able to negotiate with lessors without the “interference” of parties acting “inappropriately.”

The 737 model is crucial for Gol’s single fleet strategy. LATAM, in turn, has a fleet of 256 Airbus models, used on short-haul flights. The Boeing family (58 units in total) is used mainly in long-haul flights—through the 787, 777, and 767 models.

The lawyer said the letter starts by alluding to “recent events” in the industry, an obvious reference to Gol’s bankruptcy filing.

He notes that LATAM also underwent Chapter 11 in New York court in a two-year process, which means, according to him, that it knows the limits of the Bankruptcy Code.

The judge asked if it was confirmed that the letter was real and, according to the lawyer, it even had letterhead. The lawyer said he believes it is real and that the airline will investigate over the next few days whether it is having an effect.

The letter to lessors comes at a time when Gol struggles to negotiate contracts. Amid issues in the production chain, the market currently operates with a tight demand for aircraft. The scenario is different from what it was at the time LATAM and Colombian Avianca filed for Chapter 11.

In a statement, LATAM neither confirmed nor denied the existence of the letter. According to the statement, the company is in “permanent contact with all relevant stakeholders in the fleet [equipment and maintenance lessors and suppliers] as part of its business.” The airline said it has been active “in the market for several months with the aim of securing the necessary capacity to meet ongoing and long-term needs in the context of global supply chain challenges and aircraft/engine shortages.” When contacted, Gol declined to comment.

The rivalry between the airlines has been quite intense. No one is hoping for a large company’s bankruptcy, which could destabilize the entire transportation industry, but everyone wants to increase market share in the face of the weakness of a competitor who, before the pandemic, was the leader. In the past, Gol had around 38% market share. Last December, it was close to 33%, when it was outperformed by LATAM, with 38.7%.

At the time of Azul’s debt restructuring with lessors, which was concluded last year, sources pointed out that LATAM had made the same attempt to take Airbus aircraft from its competitor in conversations with lessors.

When LATAM filed for court-supervised reorganization in the U.S.—between 2020 and 2022—Azul tried to negotiate with Chilean creditors the acquisition of LATAM Brasil, as reported by Valor.

But Azul’s attempt does not come out of the blue. The company tried to purchase the assets of Avianca Brasil (OceanAir) before it went bankrupt. Gol and LATAM, however, launched a harsh campaign against it, preventing the deal. As a response, Azul decided to leave the Brazilian Association of Airlines (ABEAR), which now includes both Gol and LATAM, among other smaller airlines.

*Por Cristian Favaro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Foreign capital inflows unlikely to make real much stronger, Citi says

External scenario should continue to play relevant role in the real’s performance, while commodity prices and trade balance may not provide same support as last year

01/30/2024

Eduardo Miszputen — Foto: Carol Carquejeiro/Valor

Eduardo Miszputen — Foto: Carol Carquejeiro/Valor

Although Brazil remains a standout among emerging markets and has recently been the focus of foreign investors, the country is unlikely to attract capital flows that would push the exchange rate much higher, said Eduardo Miszputen, the head of global markets at Citi Brazil. He believes that the external scenario should continue to play a relevant role in the real’s performance, while commodity prices and the trade balance may not provide the same support as last year.

“The year 2024 should be a bit of a repeat of 2023, with external factors providing more stability to the local market than internal factors,” he told Valor. In this sense, the evolution of interest rates in the United States, which has been a daily topic for global financial assets since the turn of the year, should remain relevant.

“We still have two wars going on, and there is a risk that these conflicts will escalate. Another factor that could cause instability is the U.S. election at the end of the year,” he said.

“Apart from that, the U.S. interest rate environment and the U.S. economy itself should bring uncertainties that will create some volatility in the markets,” said Mr. Miszputen. Since the beginning of the year, the domestic exchange rate has relied on expectations for U.S. interest rates, and as a result, the correlation between the performance of the real and the behavior of short-term Treasuries is quite high. Year to date, the dollar has appreciated 1.91% against the real.

As for Brazil, the executive sees a more stable scenario, although it is not yet able to attract a strong flow of foreign capital. For Mr. Miszputen, Brazil has attracted attention among emerging markets because it has opportunities for growth; some economic and fiscal stability, with reforms being made; an interest rate that should remain high; and a strong trade balance. “We are likely to become a pillar of stability, because we are far away from wars and the effects of these conflicts.”

“I think Brazil is consolidating itself as one of the most interesting emerging markets for foreign investors. Unfortunately, we are still far from investment grade. I think this is the big obstacle to an additional flow of investors into Brazil,” said Mr. Miszputen. He points out that credit rating agencies such as S&P Global and Fitch upgraded Brazil’s credit rating last year, but the country’s sovereign rating remains two notches below investment grade.

Citi, which topped the ranking for foreign exchange services to clients in 2023 for the fifth year in a row, believes that a tougher stance by the government on fiscal matters could improve perceptions of Brazil and thus increase the flow of foreign capital. “People understand that there can be some leeway and that the government is interested in social initiatives and policies. This is understandable, but obviously a greater rigidity on public accounts would lead to a better perception of the country,” he said.

The executive said that, at least for now, he doesn’t see the evolution of the debt bringing or taking money out of the country if the government maintains its plans in line with market expectations. “Today, foreign ownership of Brazilian debt is around 9.5%, a relatively low level historically. That’s why I don’t see a significant volume of outflows, even if there is a fiscal deterioration,” he said.

As for the impact of a narrowing of the interest rate differential between Brazil and the U.S., Mr. Miszputen points out that even if the Selic policy rate continues to fall, the Fed funds rate should also start to fall, and as a result the interest rate differential could remain at 5 to 6 percentage points, which would continue to be attractive to foreigners.

“If there are no major surprises, the carry trade strategy in Brazil for 2024 will be a very positive operation in terms of financial results,” he said. “We think interest rates here will fall to 10%. If that happens, and if the U.S. starts cutting rates there, we won’t have a change that will affect the appetite for investment in Brazil or the withdrawal of investment.”

*Por Arthur Cagliari, Victor Rezende — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil reports worst primary deficit since 2020

Result includes social tax PIS/Pasep and revenue from sale of electric utility Copel and excludes court-ordered payments

01/30/2024

Rogério Ceron — Foto: Washington Costa/MF

Rogério Ceron — Foto: Washington Costa/MF

The Lula administration posted a primary deficit of R$230 billion in its first year, the worst result since 2020, as reported on Monday (30) by the National Treasury. Of that amount, R$92.4 billion comes from court-ordered payments of federal debts at end of the year and must be excluded for the achievement of the primary result target as per decision by the Federal Supreme Court. As a consequence, the primary deficit was R$138.1 billion, or 1.27% of the gross domestic product.

The 2023 result is lower than the target of a R$213.6 billion deficit set for 2023. However, the amount considers revenue of R$24 billion from social tax PIS/Pasep as primary, as well as revenue of R$2 billion resulting from the sale of electric utility Copel. Both revenues are not in line with what says the Central Bank, responsible for calculating official statistics. Therefore, on February 7, when the Central Bank releases its data, the primary deficit of the central government will hover around R$256 billion (with court-ordered payments) and R$166 billion (without court-ordered payments, which is considered for the target).

Although the primary result was within the target, it is the second worst deficit since official records began, second only to 2020, the first year of the COVID-19 pandemic, when the deficit was R$939.9 billion, in adjusted values. The 2023 deficit was also greater than those recorded in the first year of both Temer and Bolsonaro administrations, second only to the first year of former President Dilma Rousseff’s second term, when the central government posted an inflation-adjusted deficit of R$183.1 billion in 2015.

In addition to lower-than-expected revenue in some fronts, especially the Social Contribution over Net Profit (CSLL), which fell 10.4% (loss of R$ 17.6 billion), the increase in other expenses also played a role: there was an increase of 42.4% (R$98.7 billion) in programs whose expenditures are under control of flows, such as Bolsa Família, which has expanded, and a 7.9% increase in social security benefits (R$66.4 billion).

Furthermore, the central government’s negative result was also driven by the payment of R$20 billion in offsets to states, resulting from reductions in Tax on Circulation of Goods and Services (ICMS) rates in 2022, during the election season; R$6 billion from the allocation to the secondary education fund; and R$1.4 billion from a BNB capitalization carried out in December. National Treasury Secretary Rogério Ceron argued that the deficit would have been R$109 billion (1% of GDP) except for those three extraordinary factors, in addition to the court-ordered payments. According to his opinion, the primary result would be consistent with the target the National Treasury had been pursuing since mid-2023.

The federal government posted a real drop in revenue of 2.8%. The most significant drop was in concessions and permits (82%). Dividends and shares of state-owned companies also plunged (44.7%).

According to Mr. Ceron, tax revenue was also impacted by other factors: tax offset made by companies due to the so-called thesis of the century, which struck out the ICMS from the PIS/Cofins calculation base, generating tax credits for companies—the government is now trying to address this issue through Provisional Presidential Decree 1,202, which curbs tax offset; the Events Sector Emergency Program (Perse) tax waiver, around R$17 billion, compared to the expected R$4 billion; and lower-than-expected inflation.

On the other hand, funds that have been released but were not used by ministries totaled R$19.8 billion in 2023, with a positive impact on the primary result. The “pooled” amount was slightly below that recorded in 2022, of R$20.7 billion, in current values.

For 2024, Mr. Ceron said preliminary data from January point to an increase in revenue, which creates a positive scenario for a zero deficit this year, in line with the target set in the federal budget.

Finance Minister Fernando Haddad commented that this year’s target depends on a good interaction with the Judiciary and the Legislative branches. “The target is set in agreement with Congress, but the primary result depends a lot on this good interaction with the Judiciary and the Legislative [branches]. As far as we are concerned, we will continue with the same commitment [in 2024],” Mr. Haddad said.

Rafaela Vitória, chief economist at Banco Inter, notes “the fiscal deterioration seen in 2023 is quite worrying.” “Not only did the government experience a drop in revenue, which was 2.8% below 2022 adjusting to inflation, but also expenses grew at an alarming rate of 12.5% above the IPCA,” she pointed out.

“Although fiscal expansion did not boost inflation last year, which subsided due to the fall in raw materials and the counterpoint of a restrictive monetary policy, there is concern about the continuation of such expansion, which is well above projections within the new fiscal framework,” the economist argued.

Felipe Salto, chief economist and partner at Warren Investimentos, points out that the 2023 result “was strongly affected by court-ordered payments.” “But it was important to break the snowball before it became unmanageable,” he notes. “For 2024, the key challenge is not a zero deficit. It’s about reducing the deficit and fully complying with the framework,” he argued.

*Por Guilherme Pimenta, Jéssica Sant’Ana — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Government wants to act before crisis hits agribusiness, minister says

Officials project scenarios for extending investment installments, creating new lines of financing, and measures to support commercialization

01/25/2024

Carlos Fávaro — Foto: Edilson Rodrigues/Agência Senado

Carlos Fávaro — Foto: Edilson Rodrigues/Agência Senado

The combination of a predicted shortfall in Brazil’s grain harvest and continued low international commodity prices has created a scenario that is as rare and complex as it is potentially damaging to rural producers and challenging for agricultural policy in 2024, according to Agriculture Minister Carlos Fávaro.

The focus of the ministry will be to anticipate the “imminent crisis” and announce measures to help farmers before the end of the soybean harvest, the minister told Valor. The intention is to avoid an environment of debt and damage before taking action. He also believes that the second corn harvest will be smaller than originally predicted.

Mr. Fávaro informed President Lula of the situation in a phone call on Tuesday and will meet with Finance Minister Fernando Haddad next week to discuss measures to minimize the financial impact on farmers.

Faced with budgetary constraints and still incipient data on losses in the soybean harvest that has just begun across the country, government officials are doing the math and only projecting scenarios for possible extensions of investment installments, the creation of new lines of financing, and the implementation of measures to support marketing.

Mr. Fávaro acknowledged that “the profitability of this harvest is already gone, even for the highly productive ones”—due to the still high production costs and the impact of the climate on the average yield—and that 2024 will be an atypical year. “We will work with what we have and minimize the impact so that we can grow again in the 2024/25 harvest,” he said. “Now we have to do everything we can to move forward with as little impact as possible,” he added.

“Many producers will harvest less and some much less than last year. The drop in production with low prices sends up a red flag, so we have to act very quickly. It’s a rare scenario, but when it happens it becomes very serious,” said Mr. Fávaro.

The minister emphasized that one of the proposals on the table is to extend the investment installments, which could generate costs for the National Treasury. Internal analyses are being carried out to determine how many and which contracts may need to be extended, given that production in some regions of the country will be less affected, as well as the interest rates on these loans. For example, the technical team is evaluating the volume of operations contracted since the 2016/17 harvest in the Moderfrota, Pronamp Investimento and Inovagro lines, which mature in 2024.

“With the prospect of a decrease in the Selic policy rate, if the rate is closer to the interest charged on these operations in previous years, the subsidy will be small. We can try to find a space here,” said Mr. Fávaro. He noted that the budget is limited and that he will not do anything that could jeopardize the government’s fiscal targets.

The minister said the measures should not be delayed to avoid side effects in the agribusiness sector, such as defaults, producers being denied credit, lack of access to new credit, and an increase in debt. Some measures should be announced before March, he said.

The Ministry of Agriculture is also working with the Brazilian Development Bank (BNDES) to create a line of credit in dollars with an extended term for working capital, which could help retailers and other companies give a boost to rural producers who finance their activities with private loans. Mr. Fávaro said there could be other measures, but did not provide details.

*Por Rafael Walendorff — Brasília

Source: Valor International

https://valorinternational.globo.com/

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