Erasmo Carlos Battistella calls for guarantee of predictability, industrial policy, to announce investments
01/27/2023
Erasmo Carlos Battistella — Foto: Claudio Belli/Valor
Erasmo Carlos Battistella, the country’s top biodiesel businessman, is hoping that the government will soon set up its technical team, mainly in the Ministry of Mines and Energy (MME), to present the request to increase the biodiesel blend in diesel from the current 10% (B10) to 15% (B15) from March. The Bolsonaro administration’s decision to introduce B10 is only valid until the end of February, and by then the Lula administration will have to make a decision about the blend.
According to the schedule of the National Program for the Production and Use of Biodiesel (PNPB), B15 should be commercialized as of March this year. However, the previous administration already failed to meet the plan’s schedule by reducing the blend to 10% last year, when it should have been 14%.
The decision froze new investments in the area, including a R$2 billion package by Mr. Battistella’s BSBIOS. According to him, if the new administration resumes the original blending plan, the company can resume its investment plan.
“If B15 returns, BSBIOS will announce new investments in Brazil. Meanwhile, we are making other [investments] abroad,” he said. On the international front, the company’s latest move was to acquire the La Paloma soybean crushing and biodiesel production complex in Paraguay earlier this month.
“We have not [invested in Brazil], but we have not stopped projects. We are working on the engineering part, on the environmental licensing and the projects are ready. What we need is B15, the guarantee of predictability and the existence of an industrial policy,” said Mr. Battistella.
However, he defended that the creation of the government’s technical team should be accelerated. “We are already at the end of January and there are other sectors like us that need to talk to the government,” he said. “We have a dialogue [with the new administration], but we have not yet managed to set up formal meetings as a sector,” he said.
Businesspeople and representatives of the sector are also planning to present the government’s technical team with a plan to review the deadlines for meeting the National Policy for Biofuels (RenovaBio) targets. The last administration extended the deadline for meeting the 2022 target to September this year and said that from 2023 the deadline could be met by March of the following year. The measure caused the price of Decarbonization Credits (CBio) to fall and clouded the long-term scenario of the program.
For the businessman, the Brazilian government needs to move forward with biofuel regulation to close the country’s gap in this area and advance the decarbonization agenda. “Brazil is ten years behind the U.S. in terms of biofuels: we have no regulation for the use of green diesel, we have no regulation for the use of aviation biokerosene (SAF), and we are stuck at B10, while in the U.S. the floor [of the blend] is B20,” criticized the Mr. Battistella, who is attending an international conference on biofuels organized by the Clean Fuels Alliance America.
For him, the zero deforestation policy alone is not enough. “It needs to reduce emissions in land, maritime, and air transport.”
The biofuel leader praised the re-creation of the Ministry of Development, Industry and Trade (Mdic), which is expected to create lines of credit to support industrialization with reduced rates. “Today we have an interest rate that hinders investments not only in industry but in all sectors,” said Mr. Battistella.
In turn, the likely return of Petrobras’ protagonism in areas other than oil and gas, such as in biofuels, is being closely watched by Mr. Battistella, a former partner of the state-owned company in BSBIOS. “I hope it will come back to the [biofuels] sector with the great strength it has, but aligned with the production sector, to add and not to divide. If it is to add, it will be a great reinforcement. If it is to divide, it will be bad. But I expect that it will add”, he said.
Retail giant is analyzing financing alternatives and approaching funds and investors
01/27/2023
It becomes imperative to establish a credit structure for Americanas to maintain operations — Foto: Gustavo Minas/Bloomberg
Americanas needs to keep operations running in the coming weeks while it begins to put together its court-supervised reorganization plan, and some emergency solutions are in sight, sources say. As inventories, especially of food and beverages, dwindle and lines of credit from banks and suppliers are severely reduced or closed for more than 10 days, it becomes imperative to establish a credit structure for the operation.
Retail is one of the businesses most dependent on this flow because it finances its customers. Brazilian retailers typically offer buy-now-pay-later options, but pay suppliers in shorter periods, making the need for working capital intense. If this system comes to a halt, there are few options to try to breathe new life into it, given the high dependence on bank and industry lines.
Sources say that the company’s primary – Jorge Paulo Lemann, Marcel Telles, and Beto Sicupira – have been exploring groups of investors and banks not affected by the current crisis to create a credit fund with the company’s receivables. “It is not yet clear whether there is support from investors for this idea,” says a person familiar with the matter. In this operation, the bank would take the receivables from credit cards, pass on the funds to Americanas, and receive the payment flow, with a discount for the payment in advance.
This is a typical transaction in the market, made directly by retailers with lenders. However, in this case, the factoring of receivables has been the target of cancellation in the last two weeks. In September, Americanas had R$5.2 billion in card receivables.
“The point is that due to the risk of the chain there is no guarantee that this will not end up in the court-supervised reorganization, even if the receivables are owned by the company that is being restructured. The pressure from the banks on any loans it may have is likely to weigh,” says a second source.
Another avenue that has been well received by the market in recent supervised reorganizations, involves debtor-in-possession (DIP) financing, Valor has learned, a financing operation that only happens in court-supervised reorganizations, and can be done with investment funds.
Included in the 2020 bankruptcy law reform, the financing model allows for the receipt of value outside the meeting of creditors, which may encourage financiers.
But to move forward, it would require the approval of creditors and the judge in the case – and the company is still in the process of defining its court-supervised reorganization plan within 60 days. Americanas had its reorganization petition accepted last Friday. The DIP investor may still have advantages in the negotiation of assets — the retailer is studying the sale of businesses to pay creditors, such as Hortifruti Natural da Terra.
There are also rumors in the market about the possibility of the chain negotiating short-term, high-rate bridge financing with investment banks or risk investors, whose guarantee would be the units or assets of Lojas Americanas, says a third source. “The problem is that since the terms are very short, the interest is quite high in the month, and you would have to have another quick solution at the end of the loan term,” says a real estate fund manager. Americanas declined to comment.
Today, about R$1.65 billion in debts of the chain with banks BTG, BV, Safra, and Bradesco are blocked due to the court-supervised reorganization. In September 2022, in cash and equivalents, Americanas had about R$4.3 billion. This amount reached R$7.8 billion on January 12, soon after the company reported the investigation on “accounting inconsistencies” of R$20 billion in its financial statements. Just six days later, this amount had already fallen to R$800 million — equivalent to almost half of the labor obligations in September 2022 – as banks froze their open lines.
In a separate development, a São Paulo State Court has accepted Bradesco’s request for the early production of evidence against Americanas. A search and seizure warrant was granted in order to copy the e-mails of directors, board members, and other employees and former employees of the company in the last 10 years. It is a victory in the strategy of the big banks, which are the main creditors of the retailer, to hold the primary shareholders liable for the “accounting inconsistencies” of R$20 billion.
In her decision, Judge Andréa Galhardo Palma says that even though Americanas has allegedly adopted measures to investigate the facts, such as the creation of an “independent committee,” the risks of destruction or damage of documentary evidence — such as e-mails, letters, and internal reports, are not unlikely — are not unlikely “given the high possibility of individual responsibility in various spheres (criminal, administrative, civil) of the agents involved in the alleged fraud.”
In its petition, Bradesco, which is the largest creditor of the retailer, with an exposure of R$4.8 billion, stated that “it is necessary to find the architects of the fraud, as well as those who, violating their fiduciary duties within Americanas, were complacent with the scheme.” The petition was filed by Warde Advogados. Americanas said in a statement that it will wait to be formally notified of the decision to adopt the appropriate measures.
The bank also said that the committee created by Americanas to investigate the case “has nothing independent.” In response, the committee said that the accusations are frivolous and unfounded.
As Valor has shown, Bradesco, Itaú Unibanco, and Santander are seeking the early production of evidence so that, if fraud is proven, they can adopt other legal strategies. One of them is to request the disregard of the legal entity of Americanas, which could pave the way to access the personal assets of the trio of shareholders. Santander requested that in addition to the e-mails of executives and board members, all correspondence — including letters and/or messages sent through WhatsApp, Telegram, or any social media — regarding the reverse factoring operations and any other related to the “accounting inconsistencies” reported by the retailer be immediately presented.
(Talita Moreira, Álvaro Campos, Rodrigo Carro contributed to this story.)
Despite the growth of users, tight margins and strong pressure on services suppliers will harm the business
01/26/2023
The health insurance market is expected to reach 51.5 million users this year — a historical level in the sector. The highest number so far was in December 2014, when there were 50.5 million people with health insurance in Brazil. However, even with this growth, which began with the outbreak of the pandemic, the healthcare industry is likely to have another difficult year, with tight margins and strong pressure on operators, hospitals, clinics, medical diagnosis labs, and clients of health insurance plans when it comes to raising prices.
In nine months of 2022, health insurance companies (not including dental care) reported a net loss of R$3.4 billion. The loss ratio in September was a record at 93.1%. “We estimate that the operators will return to positive profitability in 2024. This year, we expect a stabilization in the fall, considering that the adjustment in 2022 was positive rather than in 2021,” said Renato Casarotti, president of Abrange, a trade association that made the studies to project the number of health insurance users for this year.
According to projections from Citi and BTG, individual plans, a reference for other contracts, is expected to be adjusted by 10%. Citi questions whether the percentage is sufficient to cover the medical expenses of 2022.
This increase in the number of health insurance plans in the country is driven by users who buy products with lower tickets that, in turn, are not compensating for the high medical costs. The consequence is pressure on the entire healthcare chain. Last year, many hospitals and laboratories had difficulties in passing on their new medical service price lists to the operators.
“So, 2023 is likely to be another year of strong competition. We expect a challenging year for the healthcare industry, with higher risks for operators due to even worse loss rates, the need for prices above inflation, and a weaker growth scenario concerning beneficiaries,” said Bank of America (BofA) in a report.
The BofA team, led by Fred Mendes, also recalled that the unemployment rate is at 8.7% and, therefore, the general growth of beneficiaries should be lower than in 2022. According to Abrange’s projections, this year’s growth will actually be lower, with the entrance of 1.1 million new users, compared with 1.5 million last year.
Given this scenario, the analysts that follow the sector have reduced their growth expectations for practically all the listed healthcare companies. The price target projected for this year for 10 of the 11 companies linked to healthcare plans, hospitals, and medical diagnosis was reduced. The only exception was OdontoPrev, which operates in a segment with a low loss ratio.
This reduction in the target price was followed in several cases by a change in the recommendation of the stock. Last year, analysts indicated buying stocks of almost all healthcare companies. In the review of this beginning of the year, many analysts are recommending only holding the stock.
New projections on what the prices will be in December come on top of low prices, as healthcare stocks plummeted last year.
The biggest devaluations were faced by Kora (84.97%), Qualicorp (64.56%), Dasa (58.07%), Hapvida (51.06%), Oncoclínicas (46.4%), Mater Dei (46.19%), Rede D’Or (33.33%), and OdontoPrev (18.92%). Right after comes SulAmérica, which joined Rede D’Or, with a drop of 18.86%. Among the public companies, Fleury is the one with the least losses, with a devaluation of 8%. Hermes Pardini, which announced a merger with Fleury, had gains of 13.6%. Finally, Alliar shares rose 44.29% due to the sale of the company’s controlling group, whose shareholders established a price premium to get rid of their shares.
Itaú BBA argued in its report that it is taking a more cautious approach to the sector given the uncertainties surrounding growth, profitability, and high capital costs for longer than initially thought. In addition, in the bank’s view, investors are giving less benefit of the doubt to long-term projects and prefer to look more to the short term.
“Health insurance companies are under pressure. To deal with the current situation, they are increasing write-offs, lengthening payment terms, and adjusting prices below inflation. The measures affect revenue, margins, and the cash conversion cycle of service providers,” said XP.
According to Lígia Bahia, a physician and professor at the Federal University of Rio de Janeiro (UFRJ), the current scenario marked by tight margins and fierce competition tends to set back the project of making the sector more integrated – a recurrent discourse before the pandemic. In this health market, there is a dichotomy: operators win when hospitals lose and vice-versa, generating extremely conflicting relationships. “Today we live a dynamic of growth with lower returns. Today, it’s each one looking out for itself, for its own demands,” Ms. Bahia said.
In her view, another reflection of the current moment is the reduction in the coverage of health plans – a movement that has been occurring, even in health plans with higher ticket prices.
Asked about the negative performance of the operators and the impacts on the chain, the National Agency of Supplementary Health (ANS) informed that it is attentive to the results of the operators, but pondered that the data published so far are partial, referring to the first nine months of 2022. “Only after the accounting evaluation will it be possible to say if 2022 was a year of profit or loss for the sector.”
The ANS also highlighted that it has adopted measures such as the approval of new regulatory capital rules that will generate an estimated financial impact, based on second-quarter data, of around R$9 billion, compared to the current requirement. “It is important to emphasize that these changes do not in any way diminish the sector’s security, on the contrary, the idea is to cover market risks with the lowest possible barriers for operators.”
Revenues reached an all-time high, but number of bags shipped decreased 9% year-over-year, to 3.7 million
01/26/2023
Revenues from shipments reached a record of $705.7 million, up 24.5% year-over-year, thanks to higher prices — Foto: Divulgação/FAF
Brazilian soluble coffee exports reached record revenues last year, but volumes declined due to problems affecting global logistics, including the consequences of the war in Ukraine. Brazil exported 3.7 million 60-kilo bags to 100 countries in 2022, down 9% from 2021, according to the Brazilian Soluble Coffee Industry Association (Abics).
Revenue from shipments reached a record of $705.7 million, up 24.5% year-over-year, thanks to higher prices.
“The decrease in volume reflects the global economic scenario, which was affected by the Covid-19 pandemic, logistical hurdles, high logistics costs, high raw material prices in Brazil, and the impact caused by the Russia-Ukraine war,” said Aguinaldo Lima, director of institutional relations at Abics, in a statement.
Eastern European countries are important consumers of this type of coffee. Purchases from Russia, which has been at war with Ukraine since last February, fell 64% in 2022, and the country imported just over 135,000 bags. The Russian market fell from second to eighth place in the ranking of the largest buyers of Brazilian soluble coffee, according to Abics. Ukraine, which was the seventh largest importer, was not even among the top 15 buyers in 2022.
Among the top importers is the United States, with purchases of 770,000 bags, up 8.4% from 2021. This is followed by Argentina with 303,000 bags (-14.6%); Indonesia with 269,000 bags (-3.3%); and Japan with 188,000 bags (-30.3%).
The high prices do not mean more income for the segment, said Mr. Lima. “The raw material – Arabica and Robusta coffees – reached prices never seen before, and at certain moments the values in Brazil were much higher than international prices,” he said. As a result, competing countries took the market share left by Brazilian exporters.
The Brazilian domestic market, on the other hand, consumed nearly 998,000 bags last year, up 1.4% year-over-year. According to Mr. Lima, this is the highest historical level of sales. He recalled that the industries have expanded their plants and diversified their products to attract Brazilian consumers.
Partnership provides for use of new satellite for corporate market
01/26/2023
Rafael Guimarães — Foto: Silvia Costanti/Valor
U.S.-based Hughes will team up with British company OneWeb to offer a low-latency satellite communications service in Brazil, targeting the corporate market, starting in the second half of the year. The technology to be used is the same as that used by billionaire Elon Musk’s Starlink: a constellation of low-orbit satellites. This is a group of satellites that orbit the Earth in sync. The technology makes it possible, for example, to offer mobile services via satellite, which in practice means Internet access on planes, ships, and buses.
Hughes was a founding investor in OneWeb and continues to hold a stake in the company. Other OneWeb’s shareholders include the British government, Japan’s SoftBank, and French satellite operator Eutelsat.
Hughes has been in Brazil for 55 years and uses three geostationary satellites to provide services in the country. This type of satellite rotates in the same direction and at the same speed as the Earth. Therefore, although it is in motion, it appears to remain stationary in an orbit 36,000 kilometers above the Earth’s surface. This distance causes the communication signal to take almost 0.5 seconds to travel to the satellite and back to Earth. It may not seem like much, but this time lapse is a deterrent to providing some types of services in the banking industry, for example.
Low-orbit satellites, on the other hand, are 600 kilometers away from Earth and therefore have a response time comparable to that of fiber optics, said Rafael Guimarães, CEO of Hughes do Brasil. “The OneWeb constellation will be complete and operational by the second half of the year,” the executive said. Last year, Hughes and OneWeb signed an initial partnership to serve the Indian market. And now, in a second phase, they have signed an agreement to provide service across the Americas, from Canada to Tierra del Fuego, Argentina.
Unlike Starlink, which offers Internet access plans for individuals, Hughes will focus its commercial efforts on businesses and governments. “We have no plans to use our constellation to serve individuals,” said Mr. Guimaraes. The executive said it would be “wasteful” to use the network to provide broadband access to residential customers, as it is prepared to meet the requirements and specifics of the enterprise market.
Since 2016, Hughes has offered a satellite broadband service for end users (B2C) in Brazil, but its customer base in this segment has been shrinking. At the end of November last year, the operator had 208,300 subscribers in this category (individuals), according to data from the National Telecommunications Agency (Anatel), down 26% from November 2020, when it had 281,700 subscribers.
“We reached our maximum capacity very early on. In order to continue providing this service with quality, we reduced the number of subscribers,” said Mr. Guimarães, adding that each satellite has a fixed data transmission capacity. Broadband users, in general, tend to consume more and more data.
To continue growing in this segment, Hughes expected to launch Jupiter 3, the fourth satellite to help serve the Brazilian market, last year. The invasion of Ukraine in February 2022 caused the launch to be postponed. This is because the U.S. government now has priority in the launches.
Now Jupiter 3 is expected to be in space by the middle of this year. The satellite will have a total capacity of 600 gigabits per second to serve the Americas. Mr. Guimarães does not reveal how much of that capacity will be dedicated to Brazil. “It will be a big chunk,” the executive said.
Situation may be comparable with other large court-supervised reorganizations and mean the largest hit for the financial industry since pandemic
01/26/2023
Case is likely to be biggest hit to banking industry since coronavirus pandemic — Foto: Dado Galdieri/Bloomberg
The collapse of Americanas after the discovery of a R$20 billion “accounting inconsistency” earlier this month is likely to cause strong impacts on the quarterly results of Brazil’s largest banks. As there is no defined rule for the level of provisions, it is impossible to know the exact amount, but industry sources say the case may be comparable to other large court-supervised reorganizations, including those of phone carrier Oi and mining company Samarco. This is also likely to be the biggest hit to the banking industry since the extraordinary provisions made at the start of the coronavirus pandemic in early 2020.
The total exposure of Americanas’s 10 largest creditor banks is R$23.4 billion, according to the list of creditors released by the company on Wednesday. This means that if the banks were 50% provisioned, as is the market practice for court-supervised reorganization cases, the impact would total R$11.7 billion. Some lenders question figures in the list, as is the case of Deutsche Bank, BV, and BTG. These last two took money from Americanas’s accounts to pay the debt, but these funds were later blocked by the courts.
In a report released Wednesday, XP estimates that the provisions of the five publicly-traded banks could reach R$8 billion, if the level of 50% of the exposure informed in the list of creditors were considered. The most affected ones would be BTG, Santander, and Bradesco, which may see their quarterly profit reduced by 20% to 30%. Itaú and Banco do Brasil would face a smaller hit, of less than 10% of profit.
“Overall, we expect a greater impact of the Americanas case on BTG, followed by Santander and Bradesco, as these banks have the largest relative exposure to Americanas’s debt. The higher provisioning in the near term would not only marginally reduce their capital ratios, but also temporarily pressure their earnings and profitability,” analyst Renan Manda wrote in the report. “Additional provisions of the remaining amount may be set up in the following quarters if the company’s new payment schedule is delayed or if banks make additional downgrades in their risk rating [for Americanas].”
XP’s analysis considers a provision of 50%, which is likely to be the minimum banks will adopt. The R$20 billion hole in Americanas was announced on January 11, but it is still unclear whether the banks recorded the provisions in the fourth quarter (as a subsequent event in the financial statement) or in the first quarter of 2023. According to an executive from a medium-sized bank, the tendency in his case is that it will be on the fourth-quarter financial statement, at 50%. The representative of another large bank comments that if the negotiations of the creditors with Americanas advance well, the banks could include an explanatory note about the case in the fourth-quarter report, but leave the provisions for the first quarter of this year. “However, I don’t think that will be the case.”
Last week, Citi had also released a report assessing the potential impacts of Americanas on the large publicly-traded banks. If they have to provision 50% of their exposure, the most affected one would be Bradesco, with a need for R$2.35 billion. Next come Santander (R$1.85 billion), Itaú (R$1.7 billion), BTG (R$950 million), and Banco do Brasil (R$ 650 million). Valor found that Safra has already provisioned half of its exposure to Americanas, which is R$2.4 billion, and BV has also done the same.
Credit Suisse made a similar calculation this week before the list of creditors was released. The bank estimated a provision of 30% and foresees a tax benefit that would reduce the final effect on profit by 45%. In this case, the impact on Bradesco’s result would be R$700 million, while Itaú and Santander would suffer an effect of R$500 million each and BB would have to provision R$300 million.
In the case of BTG, the actual debt is likely to be lower than what is reported in the list of creditors. There is R$1.2 billion in Americanas’s assets that could be used to offset debts – which would reduce total exposure. In addition, the bank also has around R$400 million in reinsurance, which would bring the exposure down to R$1.9 billion.
As for BV, the exposure in the list of creditors is also “inflated” due to debt securities structured and distributed to the market by the bank last year. Despite being CCBs, these bonds, which have relatively short terms of one or two years, never passed through the bank’s balance sheet and were distributed to some assets. The real exposure would be R$206 million – the bank also tried to take this money from Americanas’s accounts, but the amount was later blocked by the courts.
Obviously, the impact on profits is one reason that has made banks adopt a very hard strategy toward Americanas. But the main one is the stance of the trio of primary shareholders – billionaires Jorge Paulo Lemann, Beto Sicupira, and Marcel Telles – who claim they were not aware of the problems at the retailer and would not be willing to put up all the money that the creditors think will be necessary to fix the company. The CEO of a large bank, convinced that there was fraud, blames the trio for the case. “They are people of notorious legal, business, financial, and accounting knowledge, and they are businessmen of great technical capacity. They can never allege ignorance and try to hold third parties, the banks or the audit firms responsible.”
A prevailing view in the market is that the provisioning in court-supervised reorganization cases must be, at least, 30%. In resolution 4,966, issued at the end of 2021, the Central Bank defines a non-performing asset as one that has “indications that the respective obligation will not be fully honored in the agreed conditions, without it being necessary to resort to guarantees or collateral.” One indication, according to the Central Bank, is court-supervised reorganization.
Brazil’s Central Bank also defines non-performing assets are those more than 90 days overdue. In resolution 2,682/1999, when it created a system to guide the provisioning levels, the Central Bank established that delays of more than 90 days should be classified as level E, with a provisioning of at least 30%.
An executive of a large bank says that in the case of large companies, which have debentures and bonds with high liquidity in the market, the discount on these instruments is a good indication of how much the banks should provision. In the last few days, Americanas’s bonds have been trading close to 20% of face value, which suggests that banks could have to provision 80%.
Despite the still tense atmosphere in the relationship between the banks and Americanas, some point out that there has been some easing in recent hours. The banks have been meeting daily to discuss strategies and have also had somewhat less frequent talks with Rothschild. The consultancy Alvarez & Marsal would not be so involved in these negotiations. In these talks, there are still no firm proposals on a possible haircut percentage on the debts.
O Valor contacted all creditor banks of Americanas. Most of them declined to comment, claiming they have to comply with banking secrecy and do not comment on cases sub judice. Banco do Nordeste said that the operations are backed by highly liquid collateral and were contracted for investments in the opening of dozens of stores in the Northeast region, “which generated many jobs and income for families in our area of operation.” Daycoval said it has been working with credit for more than 50 years and the exposure to risk in these operations is natural, as is the provisioning of funds to cover eventual cases of default. “In the Americanas case, 50% of the amount has already been provisioned in the 2022 balance sheet.”
An analyst who has been following the sector for many years believes that banks are likely to report quarterly results with and without the Americanas provision and that cases of this magnitude are quite rare. “I think the degree of dissatisfaction of the banks with Americanas comes from the implicit guarantee by the three shareholders, which simply has not been converted into reality. The quarterly results are going to be a bloodbath.”
Study shows that searches on the Internet for the topic skyrocket after a certain point
01/24/2023
Brazilians begin to be bothered by the dynamics of prices when inflation is higher than 3.7% in 12 months, a study from MCM Consultores found.
This means, in theory, that from this level on, consumers and companies start to take into account the dynamics of inflation in their day-to-day economic decisions. This would translate not only into an “expenditure of cognitive resources,” but also into the creation of frictions between the agents’ actions that make inflation more inertial – and the Central Bank’s work harder.
In an interview last week, President Luiz Inácio Lula da Silva questioned the inflation target pursued by the Central Bank: “You established an inflation target of 3.7%. When you do this, you are obliged to squeeze the economy more to reach the target. Why did you need to reach 3.7%? Why didn’t you do 4.5% like we did?” The 2023 target is 3.25%, with a tolerance interval of 1.5 percentage points, up or down.
To reach this result, the study uses the annual variation in the frequency of searches for the term “inflation” in Google Trends in Brazil as a way to measure people’s interest or concern about the topic. It compares this data with the inflation over 12 months, measured by the official inflation index IPCA. The studied period goes from November 2005 to October 2022.
The results suggest that, between zero and 3.7%, the interest for the word is low and statistically not significant. In other words, Google searches cannot be attributed to current inflation. This, in fact, is the state considered ideal or optimal from an economic point of view, equivalent to an environment of so-called “price stability.”
From this point on, however, there is a jump in the frequency of searches for the word on Google, which moves into a new, statistically significant regime.
“If inflation starts to increase a lot, people become interested in the subject and this starts to generate effects in terms of prices and wages,” says Vitor Kayo de Oliveira, an economist at MCM Consultores who led the study.
Mr. Oliveira’s experiment employs, with some modifications, a methodology borrowed from a paper by economists Oleg Korenok, David Munro, and Jiayi Chen, published in September last year. They investigated the subject using data from 37 countries and came to the conclusion that, for this group, this threshold is between 2% and 4%. In the United States, the reference economy, it came to 3.55%.
The research led by Mr. Korenok was cited in a recent article signed by Olivier Blanchard for the Financial Times. In it, the former chief economist of the International Monetary Fund (IMF) again advocated a change in the inflation target pursued in developed countries, to 3% per year from 2%.
Mr. Blanchard is one of the mainstream economists who have been advocating a higher inflation target for developed countries since the 2008 financial crisis. The argument, since that time, has been that a 2% target made it too narrow for central banks to act in times of crisis without falling into the “zero lower bound” — the limit beyond which conventional monetary policy loses effect.
At first, however, Mr. Blanchard advocated for a looser target of 4%. In his article last year, he advocated 3%, considering, among other things, the work of Mr. Korenok and his colleagues.
In practical terms, “the ideal would be to set the inflation target below this threshold. This way, people wouldn’t worry about inflation, with the indexation of prices and contracts, for example, and the work of monetary policy would be easier,” says Mr. Oliveira.
In the case of the United States and other developed economies, he adds, this means an expansion of the target, currently at 2%. In the Brazilian case, the threshold found in the experiment is not far from the current target, which is 3.25% this year and 3% as of 2024.
“Ideally, from the point of view of how people interact with inflation, it would be to keep it below that 3.7%,” says Mr. Oliveira.
Mr. Korenok and his coauthors also studied Brazil but did not find enough evidence that there was a relationship between inflation dynamics and people’s interest. To reach his result, the MCM economist used some controls, such as the economic slack measured by the Central Bank’s Economic Activity Index (IBC-Br) and the three-month moving average of the FGV’s Consumer Confidence Index.
Unlike the original, Mr. Oliveira’s experiment also allowed more than one “jump” in interest for inflation on the internet. This third step appears at 8.1%, when Brazilians’ attention to inflation is 50% more intense than in the previous state.
Brazil’s securities market watchdog wants to know if the accounting problem is restricted to Americanas
01/24/2023
There is a risk that this is not Americanas fraud only, but an accounting method used by other companies, expert says — Foto: Gustavo Minas/Bloomberg
Brazil’s Securities and Exchange Commission (CVM) is questioning at least nine publicly traded retail companies to understand how they deal with a practice that is at the center of the issues involving the “accounting inconsistencies” of retail giant Americanas. The companies were consulted by the securities market authority. In the experts’ view, the goal is to understand what the market’s practices are and if the problem could repeat itself, even if in smaller proportions.
The so-called “risco sacado,” also known as forfait in Brazil, in general result from a triangulation between the company (buyer), suppliers, and banks. These operations use customer receivables to leverage the company with bank financing and with the company’s guarantee, without necessarily being represented as financial liabilities due to the specificity of each operation format. This practice is typically accepted by the market and is not restricted to retail companies.
In a note, CVM confirms that it has sent questions to companies on the matter and says that whenever necessary it interacts with capital market participants to request important information for analysis and supervision work.
One company questioned was Via. The company spontaneously manifested itself on the matter the day after Americanas disclosed accounting inconsistencies of R$20 billion that motivated the exit of CEO Sergio Rial and chief financial officer André Covre. The company said in a note, on January 12, that all these operations are recorded in its financial statements under international accounting standards and that it details the operation in the financial report. The operation is detailed in an explanatory note and the interest expenses are registered in the company’s results as a financial expense. Sought, the company declined to comment.
In 2016, CVM pronounced itself on the subject through a circular letter. The regulator warned about the need for companies to evaluate these operations and shows that the concern is not new. The capital market regulator recommended that if there was an understanding that the operation was a bank debt, it should be reclassified in the financial report as such. This point of attention has been repeated annually in the document since then. “The 2016 circular letter was not prescriptive. It may be that CVM will have clearer guidelines starting with the next circular, and will ask for classification criteria for companies. I think they will be more explicit in the way they want these operations to be treated,” said Luciana Dias, a lawyer and professor at Fundação Getulio Vargas.
More recently, in November 2021, the International Accounting Standards Board (IASB) requested, via public hearing, that companies give more details on such operations. IASB is the organization that publishes and updates the International Financial Reporting Standards (IFRS). There is also an understanding by IFRIC, the committee that interprets the IFRS standards, that it is necessary to assess the substance of the transaction when recording it in the financial report.
There is still a regulatory gray area, in the view of Ahmed El Khatib, a professor at Fecap. “This undefined question makes everyone understand their own way of doing things,” he said. If the company does not classify the financial expenses correctly, there would be a generalized distortion: the profit may be higher than it really is, which has an impact on the distribution of higher dividends, cash flow, and equity.
“There is a risk that this is not Americanas fraud only, but an accounting method used by other companies. If so, more companies may have built-in losses that nobody knows about. The CVM wants to have a snapshot of the market to show that the companies’ financial reports are reliable,” said Alexandre Chaia, a professor at business school Insper.
There was an analogous situation in the United States in 2000. In that year, the Enron financial scandal generated insecurity concerning the accounting of operations with derivatives and subsidiaries. As a response, two years later the Sarbanes-Oxley Act (also known as SOX) was created, aimed at protecting mainly investors from accounting errors and fraud. “Enron did what everyone else did. SOX is a consequence of the distrust of the market. This law serves as a reference for any company that operates in the international market,” said Mr. Chaia.
European commission vice president says he is pleased with the promise of zero deforestation
01/23/2023
Frans Timmermans — Foto: Divulgação
“The eyes of the world are turned to Brazil”, says Frans Timmermans, Executive Vice President of the European Commission, and leader of the European Union international climate negotiations. The Dutchman, who is on a two-day visit to the country, wants to hear from the Lula administration what the plans to contain deforestation are, visit the Amazon, and initiate talks for COP28, the UN conference on climate change to be held in December in the United Arab Emirates.
Mr. Timmermans is also in charge of the debate on the European Green Deal at the European Commission, the executive branch of the block. The environmental agenda today is an economic agenda, and this was clear in the latest movements of the European Union, which is usually in the forefront of this issue and is concluding two legislations that affect Brazil — the one that wants to curb the importation of commodities linked to deforestation and the one that will adopt a mechanism for adjusting the carbon border.
The regulations have been viewed with anxiety by developing countries. “The climate crisis is a global crisis, and we can’t solve it by pushing emissions elsewhere,” he says, admitting that what is driving deforestation is the demand from markets like the EU for commodities like cocoa, coffee, palm oil, beef, and soy. “This new law will be holding us accountable for our consumption patterns,” he notes.
About the border tax on carbon from products, he says it is neither punitive nor protectionist. “We have done our best to design it in a way that respects global trade rules,” he says, adding that the system focuses on cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen.
“Renewable hydrogen will be an essential component of the future clean industry,” he acknowledges. Some industries such as steelmaking, chemicals, or long-distance trucks cannot become electric and need an energy carrier. That’s where hydrogen comes in. “It’s the rock star of the energy transition,” says Mr. Timmermans.
In recent years, and forcefully at recent COPs, the European Union has said it needs to broaden the donor base for climate finance. The UN Climate and Biodiversity conventions say it is the industrialized countries that are responsible for providing funds, but the Europeans argue that the world is not the same as it was 30 years ago. “Every country that is part of today’s industrial and economic elite can and must contribute to keep our planet a safe home for humanity,” argues Mr. Timmermans.
Mr. Timmermans recalls that G20 countries are responsible for 80% of emissions and “must improve their climate commitments.” In Brasilia, the European Commission vice president is expected to hold bilateral talks with Vice President Geraldo Alckmin and Ministers Marina Silva (Environment), Silvio Almeida (Human Rights), and Sonia Guajajara (Indigenous Peoples) before going to Belém. He will also visit Colombia and Mexico.
Before leaving, he gave an interview, in writing, to Valor. See below the main parts of it:
Valor:What are the goals of your visit to Brazil? How can European Union collaboration happen during Lula’s administration?
Frans Timmermans: This is the first time I will be in Brazil as executive vice president of the European Commission. I have already been here as a Dutch foreign minister and even lived in São Paulo when my father was the Dutch consul in the city. Right now, the eyes of the world are on Brazil. I was happy that I already had the opportunity to meet President Lula at the end of 2022, still as president-elect. We talked for a long time about the opportunities for the EU and Brazil to work together, including in the fight against deforestation, and about Brazil’s candidacy to host COP30. The desire to host the global climate conference in Belém and the decision to submit this candidacy soon after the inauguration say a lot about the government’s great ambitions for climate and environment.
Valor:President Lula and Minister Marina Silva are committed to zero deforestation, but Brazil will need help, especially after the Bolsonaro years. How can Europe help?
Mr. Timmermans: They have many ideas on how to stop deforestation. They know that it is in Brazil’s interest to do this. During my visit, first of all, I intend to hear what the new government is planning. The Amazon is an ecosystem of global importance, but how the forest is protected in Brazil is a sovereign decision of your country. I am happy that the government is so strongly committed to zero deforestation. You can be sure that the European Union is seriously considering how to help Brazil achieve this.
Valor:How and when the legislation of not importing goods produced by deforestation will come into operation? Although it is understood that the law goes in the right direction, not to stimulate deforestation, some people see it as protectionism and a barrier to the European market. What do you think about this?
Mr. Timmermans: Deforestation and forest degradation are important drivers of climate change and biodiversity loss. But what is driving deforestation? It’s the demand from markets like the EU for commodities like cocoa, coffee, palm oil, beef, and soy. So, this new EU law will be holding us accountable for our consumption patterns. More than 1 million European citizens have demanded that we do this so that our consumption in Europe does not cause environmental damage elsewhere. The law applies to European and non-European traders alike, and we take care to ensure that it is fully compliant with international trade rules. The goods I have mentioned, but also wood and rubber, can no longer be sold on the EU market if they are produced by deforestation. Once the law is fully adopted, there will be a year and a half to implement the new rules.
Valor:The European Parliament approved in December the first border tax in the world, the Carbon Border Adjustment Mechanism (CBAM). Will it be valid only for European companies outside Europe or for all? Will there be a test time and priority sectors? The measure is also seen as protectionist.
Mr. Timmermans: With CBAM, we want to avoid “carbon leakage.” I mean that efforts within the EU to reduce greenhouse gas emissions must not lead to Europe exporting emissions to other parts of the world. The climate crisis is global, and we cannot solve it by pushing emissions elsewhere. We also want to encourage clean industrial production in other countries. The result is simple: the less carbon that is incorporated into a product, the less CBAM will apply. CBAM is not punitive and it is not protectionist. We have done our best to design it in a way that respects global trade rules (WTO). The system focuses on products: cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. It will be introduced gradually over the next few years. In the transition phase, which will begin in October, importers of goods under CBAM will only have to report the greenhouse gas emissions incorporated in their imports; there will be no costs. Only after the transition period will they have to pay for the embedded carbon emissions. This price will be equivalent to the carbon price of products manufactured in the EU.
Valor:In the climate COPs, the EU has advocated the expansion of the number of donors to climate finance. Developing countries understand that this is rewriting the Climate Convention and even the Paris Agreement.
Mr. Timmermans: Every country that is part of today’s industrial and economic elite can and must contribute to keeping our planet a safe home. We cannot base new financing arrangements on an economic division that made sense in 1992. That would only allow countries that are now major economic powers to say, “Oh, we are part of the developing world, so we have no legal, moral or political obligation to contribute.” That is why the EU was so adamant in Sharm el-Sheikh [host of the COP27 in Egypt] to prevent the Damages Fund from being based on the same treaty article as the previous funds. This is not rewriting the convention. We are simply using other parts of the treaty. We need to do this if we want to achieve the necessary change and bring these funds to the countries that cannot cope with the climate crisis on their own. We need to bring in international and development banks and be able to attract private financing. That is the only way we can succeed.
Valor:There is a race in the world for the production of hydrogen, with more than 60 countries getting ready. Is there a demand for so much supply?
Timmermans: Absolutely. Renewable hydrogen will be an essential component of the future clean industry. Some industries such as steel, chemicals, long-distance trucks, and buses can’t go electric and need an energy carrier. Hydrogen will be critical in our industrial future. It is truly the rock star of the energy transition. Right now, we are living in the dilemma of who comes first. The industry wants to switch to hydrogen but is still reluctant to invest because they are not sure there will be enough supply. Potential producers, on the other hand, are not sure because they want to know if there will be buyers. We are developing a hydrogen bank in Europe to help fill this gap. We are also looking at cooperation with countries that are developing their renewable energy sector, to see if we can help transfer knowledge and create clean industrial value chains around the world.
Brazilian exports of steel products totaled $9.3bn in 2021 and are expected to grow this year
01/23/2023
(USITC)
The United States International Trade Commission (USITC) decided to lift the antidumping duty applied to Brazilian exports of carbon steel plate, in force since 1993.
According to the Ministry of Foreign Affairs, the U.S. will no longer charge additional 74.52% ad valorem duties on the import of carbon steel plates from Brazil.
“It should be noted that there was no change or revocation of trade defense measures for the other markets subject to the end-of-period review conducted by the USITC, with Brazil being the only country excluded from the surcharge,” said the Foreign Affairs Ministry, known as Itamaraty.
In a statement, the Brazilian government said it was proven that the extinction of the measure for Brazilian exports will not result in material damage to U.S. industry.
According to Itamaraty data, in 2021 Brazil exported $9.3 billion in steel products. Of this, 54%, or $5.1 billion, were destined for the United States. Brazilian exports related specifically to carbon steel heavy plates totaled approximately $75 million in 2021, a market that may increase after the surcharge lift.
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