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Chamber re-election signals Temer has enough support for reforms

03.02.2017

The victory of Rodrigo Maia (Democrats, DEM, of Rio de Janeiro) in the race for the presidency of the Chamber of Deputies shows that the government has a comfortable majority to negotiate the labor and Social Security reforms. Mr. Maia won in the first round with 293 votes, only 15 fewer than the number needed for passing constitutional amendments, which requires a qualified quorum of 308 votes.

The situation may be considered even more comfortable for the government because Jovair Arantes (Brazilian Labor Party, PTB, of Goiás), the dissident candidate of the allied base, was chosen by 105 colleagues. In total, there are 398 federal deputies with whom President Michel Temer can count on Congress to finish his administration with a peace of mind conditioned by Operation Car Wash and economic recovery.

It even becomes redundant to say that Mr. Temer was the great winner of the Chamber’s election. The president is an expert on lower-house elections. Without executive power, he already won four difficult ones — three for the Chamber’s presidency, and in one of them with only an extra vote, and the impeachment of ex-president Dilma Rousseff. Now, as president, his support early on drew the victory of Mr. Maia. The only question was legal, which was dismissed last night by the Federal Supreme Court.

Now holding the presidential pen, Mr. Temer helped Mr. Maia win without ever declaring that he was his candidate.

The election of Mr. Maia ends once and for all the double command of the allied base in the Chamber, which erupted in the Dilma Rousseff-Eduardo Cunha (former lower-house speaker) period. The Chamber now has a unified political command. The so-called Centrão (Big Center, a coalition of smaller parties) no longer exists in the format configured by Mr. Cunha, who bridged partisan differences. It remains — unorganized, perhaps more like the ideology of the original Centrão, which worked in the National Constituent Assembly — a conservative group in traditions and more liberal in the economy. It remains, above all, those who were all the “Big Centers” — essentially physiologists and pro-government congressmen.

Mr. Maia’s vote reinforces a contradiction in the Temer administration, a government with lower popular support but very strong in Congress. The election of Mr. Maia, the approval of the public spending cap, the change in the oil law — President Temer’s biography in the legislative branch already surpasses everything that governments have done since the second term of Luiz Inácio Lula da Silva.

This does not necessarily mean that passing the reforms will be a cakewalk for the political coordination of the government, now under the regency of the Brazilian Social Democracy Party (PSDB). They will no longer discuss abstract topics for the population, such as a ceiling for public spending, but measures that affect people’s pockets, such as pensions and labor contracts.

Mixing low ratings with voting of unpopular measures can result in an explosive combination. And not only that: the government is in a hurry and talks about approving reforms in the first half, because it knows that after July the political environment begins to gravitate around the elections for president, governor, senator and deputies in 2018. The closer is the election, the lower is the willingness of deputies and senators to eliminate voters’ rights or privileges (depending on the point of view) in social security or labor.

Source: Valor International

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The victory of Rodrigo Maia (Democrats, DEM, of Rio de Janeiro) in the race for the presidency of the Chamber of Deputies shows that the government has a comfortable majority to negotiate the labor and Social Security reforms. Mr. Maia won in the first round with 293 votes, only 15 fewer than the number needed […]

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São Paulo Mayor João Doria Puts City’s Assets Up for Sale

25.01.2017

Businessman casting himself as political outsider seeks to liquidate 7 billion reais to fund health and education

The multimillionaire star of the Brazilian version of “The Apprentice” TV show, who took over as São Paulo’s mayor this month, is set to embark on the biggest municipal privatization drive in the country’s history.

João Doria, who won a landslide victory in October and has drawn comparisons to U.S. President Donald Trump, said in an interview with The Wall Street Journal he plans to sell off everything from São Paulo’s carnival venue to rights to the city’s cemeteries, aiming to raise more than 7 billion reais (about $2.2 billion).

The plan by the businessman-turned-mayor comes as Brazil looks to shrink its cumbersome and graft-ridden government apparatus in the wake of a vast corruption scandal that has destroyed voters’ faith in traditional politicians.

“The heavy role of the state is one of Brazil’s most serious problems—it is inefficient and it invites corruption,” said Mr. Doria, adding that the country’s deep recession has made privatization more imperative.

“This is the moment for us to do this, when we are faced with a crisis of this size,” he said, speaking at the City Hall on Tuesday night at the end of what is typically an 18-hour working day.

Mr. Doria, whose $50-million fortune comes largely from the events-management empire he built, has applied the same brutal pragmatism to his own government. He got rid of the city’s fleet of 1,300 cars and told his staff to use Uber instead. Any city employee who is late to his meetings must also pay a fine of about $60 for every 15 minutes. “Everyone laughed at me, but they are all obeying now,” he said.

The 59-year-old mayor will kick off São Paulo’s privatization drive by selling Anhembi, home to the city’s annual carnival parade, and Interlagos, a Formula One racetrack, which he hopes together will raise an estimated 7 billion reais by the end of this year. With the help of McKinsey and other consulting firms, he plans to then sell off concessions to 107 parks, 22 cemeteries, the municipal funeral service, the crematorium, 16 markets, 29 bus terminals, the ticketing system for public transport, and São Paulo’s Pacaembu soccer stadium by 2018. The funds will largely go to health and education.

He plans to travel to the Middle East, South Korea and the U.S. over the next few months to drum up interest from investors, companies and sovereign-wealth funds.

“Modesty aside, I’m good at convincing people,” he said, pointing to a long list of multinationals he has already persuaded to donate goods and services to South America’s biggest city. Unilever is providing the city’s homeless with soap and toothpaste, while Mitsubishi and Honda are donating patrol vehicles. São Paulo’s most controversial freebie, though, has been cans of gray paint to paint over some of the city’s graffiti, sparking protests this week.

Mr. Doria, who is married to a sculptor with whom he has three children, said he is prepared for fierce opposition in a country where paternalism still runs strong. “It’s not enough for me to convince the rest of the City Hall; there will be protests, there will be people on the streets,” he said, with a defiance reminiscent of his father and political role model, a federal deputy who was exiled to Paris during Brazil’s dictatorship.

Last year’s toppling of Brazil’s Workers’ Party has left an electorate more open to privatization. “There is a new mentality emerging in Brazil now, so resistance to privatization is lower,” said Fernando Schüler, a political scientist at São Paulo’s Insper business school.

Mr. Doria’s biggest challenge will be to convince investors. Geert Aalbers, senior partner at consulting firm Control Risks in São Paulo, said demand will depend on Brazil’s economic recovery, the concession models and financing options offered, and a glut of federal assets also being privatized.

Mr. Doria is hoping his status as an anti-politician will win over investors as well as ordinary Brazilians. Though he ran for the traditional center-right Brazilian Social-Democracy Party, or PSDB, his slogan was “I’m a businessman, not a politician.” While he hasn’t ruled out running for president one day, he has promised not to seek re-election as mayor.

Often seen in cashmere sweaters, Mr. Doria dressed up as a street sweeper on his first day in office in what he says was an act of humility. Despite his antiestablishment bent, he rejects comparisons with Mr. Trump. “I don’t identify with him at all,” he said. “Michael Bloomberg, though—he is a model for me.”

Source: The Wall Street Journal

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Businessman casting himself as political outsider seeks to liquidate 7 billion reais to fund health and education The multimillionaire star of the Brazilian version of “The Apprentice” TV show, who took over as São Paulo’s mayor this month, is set to embark on the biggest municipal privatization drive in the country’s history. João Doria, who […]

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Brazilian executives become more bullish about 2017

17.01.2017

Brazilian executives are twice as optimistic that business will improve in the next 12 months as in the beginning of 2016. This leap of optimism, with the caveat that last year’s survey was conducted at the height of the political crisis, was still considered “impressive” in the 20th annual survey of consultancy Pricewaterhouse Coopers.

Traditionally released on the eve of the World Economic Forum as a kind of mood barometer for the global elite arriving in the Alps for four days of talks in Davos, the survey shows Brazil as the second-best country in terms of business confidence. Fifty-seven percent of Brazilian executives expect sales to increase throughout 2017. Only 24% of CEOs believed in the same a year ago.

Although many companies still face depressed demand, making the business improvement scenario less challenging, the survey also reinforces the belief that the economy has bottomed out.

Only Indian executives are more optimistic over the near term: 71% predict growing revenues in the next 12 month. The global average is 38%, up three percentage points from last year. The survey held 1,379 interviews with CEOs in 79 countries.

Despite the enthusiasm among Brazilian executives, foreigners are still bearish and show a certain caution. Clearly underlining the domestic market’s importance, Brazil was set aside by 7% of executives as one of the three more relevant countries for their multinational companies’ growth in the next 12 months.

Although far from showcasing a loss of interest, this percentage nevertheless increases the distance from Brazil’s bronze medal in investor preference before the crisis. Brazil was only behind the US and China as an expansion priority in 2014. Now it ranks seventh, behind Germany, the UK, Japan, and India. Emerging markets are generally less popular this year. Russia and Argentina, for instance, lost membership to the list of top-ten market “darlings” they enjoyed early in the decade.

Despite the political earthquake caused by the presidential election of Donald Trump in the US and the British vote to leave the European Union, CEOs are slightly more optimistic than a year ago. The percentage of executives confident that global growth will accelerate rose to 29% from 27%.

“Although 2016 was very turbulent, confidence is recovering, even if slowly and far from the levels we saw in 2007,” PwC’s global chairman, Bob Moritz, says about the year before investment bank Lehman Brothers collapsed – considered a kind of harbinger of the worsening crisis.

In such a free-market bastion as Davos, some of the “biggest concerns” of CEOs about the future of their businesses sound predictable, like excess regulation, bemoaned by 80% of them. Brazilian executives agree, pointing out high taxes and inadequate infrastructure as the other biggest concerns.

The new PwC report has an appendix about technological transformation and the “deglobalization” era slowly taking shape with growing protectionism and rejection of integration processes. The consultancy interviewed over 5,000 people in 22 countries and found that only 38% see a positive impact from globalization in the flow of capital, goods and information.

“Widespread public discontent could potentially erode the necessary confidence for sustainable long-term growth,” Mr. Moritz says. This trend reinforces the need of a “deeper” and “two-way” relationship between executives and consumers, employees, shareholders and the general public.

The report also notes the impact of automation. Twenty years ago, the report says, there were 700,000 industrial robots in world factories. Today there are 1.8 million; it could reach 2.6 million by 2019. Artificial intelligence advances would push the transformation into services, while 3D printing expands to such high-profile areas as the vehicle and aircraft industries. Seventy-nine percent of those polled say technology will eliminate jobs in the next five years.

But the public’s fears aren’t supported by the immediate expectations of CEOs. Only 16% of them plan to lay off workers in the next 12 months – and no more than a quarter of them blames technology. “Understanding the roots of this perception is the first critical step toward communicating business’s benefits to society,” Mr. Moritz says.

Source: Valor International

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Brazilian executives are twice as optimistic that business will improve in the next 12 months as in the beginning of 2016. This leap of optimism, with the caveat that last year’s survey was conducted at the height of the political crisis, was still considered “impressive” in the 20th annual survey of consultancy Pricewaterhouse Coopers. Traditionally […]

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“Brazil is at a turning point,” Bradesco CEO says

17.01.2017

Bradesco CEO Luiz Carlos Trabuco uses the weather forecasts of -15 degrees Celsius this week in Davos — even frequent visitors of the alpine town during the winter are scared of such intense cold — to establish a contract with the global prospects.

“In terms of temperature, it will be one of the coldest meetings,” says the banker, who every year attends the World Economic Forum here. “Regarding the world, it never has been so heated, so belligerent. It seems that the mood has gotten worse in comparison to previous years.”

The message that Mr. Trabuco carries in his luggage to Davos, as a highly sought after executive by foreign investors, is that “Brazil is at a turning point” and “the stock of pessimism of the last three years is being exhausted.” In his opinion, 2017 will have two years in a single one: the first half carries an inertial recession; the second ends with GDP growth at an annual rate of up to 2.5%, inflation under control and single-digit interest rate.

Restrained in praising the government, but demonstrating support to the reform agenda proposed by President Michel Temer, Mr. Trabuco sees two “unannounced and correlated pacts” as effect of the crisis. One is the growing coordination between executive, legislative and judiciary branches. Another is greater harmony between state and market. Both revolve around the need of reforms. “The crisis has been so evident and the future view of the economy has been so compromised that most of the Brazilian society is seeking the middle path, in which there is no ideology. You can’t look back,” he says.

Below, excerpts of his interview with Valor:

Valor: What is the message that you and other Brazilian business leaders will bring to Davos?

Luiz Carlos Trabuco: Brazil is at a turning point. In 2017, we will have two years in a single one. The first half is a given: the inertial recession still causes slowdown in the economy. It stops worsening, but we will still see negative data, especially in the economic activity. In the second half, the expectation I have been hearing — and I also believe in it — is of another year. We will have concluded the agenda of proposed reforms and the reduction of the Selic [benchmark interest] rate will already be producing results, from the point of view of changing the cost of capital, in addition to a consolidation in the drop of loan delinquency. Troubled credits are being cleaned off the banks’ portfolios, either by write-off or by renegotiations with increase in collaterals. As for irrecoverable credits, you book as loss and turn the page. But when the client may improve the guarantees, the banks — and we in particular — have been lengthening maturities and changing profiles. The default problems in 2016 will not repeat in 2017.

Valor: Hanging over President Michel Temer is the risk of invalidation of his campaign ticket [with ex-President Dilma Rousseff] by the Superior Electoral Court. Do you count on a certain normalization of the political scenario or see the possibility of more turbulence?

Mr. Trabuco: Risks always exist, but the turbulence we saw last year was very intense and impossible of happening in 2017. The tone of this year is a pragmatism and a realistic view of the present. This has been the government’s demonstration. There is awareness that time is short, that there is no space for anything extravagant or unorthodox, but that the future will depend on the work seen now. There is an expansion of the awareness, by the Brazilian society, that the agenda proposed by the government is necessary. It is not the possible agenda, it is the necessary agenda.

Valor: So you bet on passage of the Social Security reform and the labor mini-reform? Is there no risk that the proximity of the 2018 elections will block this agenda?

Mr. Trabuco: We have no alternative. We’ve reached a level of awareness that this is absolutely necessary. Otherwise there will be no sustainable growth. If not that, it is the “chicken flight.” When I say that 2017 is worth two years, it is recalling that 2018 is also an election year. The reforms need to be carried out now. But this future depends on closing the doors to the past. What is past is past. This stock of pessimism of the last three years, mainly in 2015 and 2016, is being exhausted. It ties the shift in expectations. There is a certain moment in which there is the so-called material fatigue. The climate of pessimism is left behind. We are undergoing a transition moment. The new government proposed an important agenda, hefty, but key to restore growth and job creation.

Valor: Does the 75-basis-point reduction of the Selic rate marks a shift of mood in the economy?

Mr. Trabuco: This is a localized issue. The new cycle of monetary easing was a sure thing. The prior cycle, of monetary tightening, was extremely intense. This rigor was necessary, mainly, to establish credibility in inflation targets. But once made permanent it would bring an unbearable cost to the public debt. The Copom [Monetary Policy Committee] statement already signals new 75-basis-point cuts in the next meetings. It was not a decision based on reports. It was a sound conclusion: we won the opportunity of cutting rates in a more accelerated manner. This has to do with the deceleration of inflation. There is near unanimity that the future inflation is behaving and maintaining such high rates would be innocuous to reduce the indices to another level.

Valor: What is your expectation for the Selic’s trajectory?

Mr. Trabuco: It is moving toward one digit.

Valor: Does it fall to 9%, as some analysts are predicting?

Mr. Trabuco: I wouldn’t be able to say whether it gets to 9%, but something a little under 10%, probably. The direction is positive, the scenario is benign for this trajectory.

Valor: You say 2017 will be two years in one. What will be the pace of growth late in the year?

Mr. Trabuco: Our economic department projects that, in the last quarter, we will be growing at an annual rate between 2.3% and 2.5%. Let’s not underestimate the capacity that the monetary easing cycle has in the Brazilian economy. The expectation with the government agenda is of a revision in the country’s cost of credit. In the last weeks of last year, this constituted an important agenda. As of April, there is the banking system’s commitment to reshaping credit-card instruments such as revolving credit and installment plans. I’m optimistic about the agenda. We don’t expect devaluation of the real against other currencies. The capital inflow is big, the trade balance surprised, the current-account deficit is around 1% of GDP.

Valor: Is the rate cut alone enough to ensure growth in the second half or does that depend on the combination of interest and reforms?

Mr. Trabuco: The interest rates, alone, don’t ensure. Together with the reforms and also with the concessions program, they allow restoring growth. It is true that, after such a protracted recession, the resumption of growth doesn’t create jobs at a first moment. The economy grows on top of idle capacity. When confidence solidifies, it turns into greater job creation. What’s new is that we are constructing in Brazil, since last year, a governance model around two unannounced and correlated pacts.

Valor: Which ones?

Mr. Trabuco: There is a link between executive, legislative and judiciary. In moments of doubt, the branches of power end up coordinating themselves. Why did this happen? Because the crisis has been so evident and the future view of the economy has been so compromised that most of the Brazilian society is seeking the middle path, in which there is no ideology. There is another unwritten pact that is a sort of advance in the coexistence between state and market. This governance model has already yielded a positive agenda, which is under way and has as priority item taking Brazil off the insolvency route. An insolvent country with such a high social debt is something catastrophic.

Valor: What is the focus of your Davos schedule?

Mr. Trabuco: I had a very big demand from investors, four of equities, one of them shareholder in the organization. But I also had demands from bond investors. I am anxious to capture their concerns regarding Brazil so we can give the adequate responses. We coordinated the last [bond offering] by Petrobras, which was very successful. We have a series of offerings in the pipeline. The market has always been open to Brazil. Now it’s time to take advantage of this drop in domestic rates, which will attract another capital flow. If we are capable of eliminating risk factors that may cause bad mood of investors, the possibilities are exceptional.

Valor: You mentioned earlier that you expect a consolidation in the decline of loan defaults. Could you better explain that?

Mr. Trabuco: When the crisis intensified, from 2014, companies were extremely balanced and with favorable cash generation. We felt a reduction in the indebtedness level of companies at that moment. The lack of credit growth is due to two factors: less need of financing to multiply the business, but also by the repayment of financial obligations. Consumer loan delinquency took long to appear. This first happened with companies, which fell into crisis. During 2016 and maybe in the first half of 2017 we will have many reprofilings, changes of level in the maturities. The Selic rate cut will help. Renegotiating credit at such a high cost of capital may burden companies even more. The point is to create a debt profile that fits the pocket and cash generation of consumers and companies. We’ve already had credit recovery at worse moments. Only 80% of the total stock of past-due credit was renewed. Today it is around 90%.

Valor: How is the succession process at the bank?

Mr. Trabuco: The succession process was initially planned to take place in 2017. Because of a board proposal, ratified by shareholders, I continue in the post for the next two years — until 2019. The succession will happen with the Bradesco values: here we value in-house talent, the career process, identification with the bank. It’s a natural path.

Valor: What is the challenge in the time you still have ahead of the bank?

Mr. Trabuco: We have huge challenges and my presence as CEO was a vote of confidence to achieve our big goal in 2017 and 2018, which is the integration of the acquired bank [HSBC], the largest acquisition in our history, equivalent to 20% of our size and precisely at the toughest moment of the economy. In any favorable scenario, the synergy gains provided by this deal add value to the shareholder. The bank’s performance last year shows we are prepared, even at an adverse scenario of credit. The organization’s earnings through the third quarter show we have a good business model: we are a bank of credit, but also of service provision, and we have the largest insurer in Latin America, in addition to an investment bank well segmented. Last year, our share price rose 62% on Bovespa, which means a market acknowledgement.

Valor: Bradesco made the point of advocating the conclusion of Murilo Ferreira’s term as Vale CEO. Has there been any disagreement with the government?

Mr. Trabuco: This is a matter always discussed at Valepar — with Previ, Mitsui, BNDES and Bradespar. Murilo’s tenure is under way and there is an extremely respectful relation between the parties. That discussion occurred during the tenure, but the tenure will go through May and is preserved.

Valor: Do you expect an outcome in 2017 for the accusations against you in Operation Zelotes [of acting to influence trials at the Administrative Council of Tax Appeals)?

Mr. Trabuco: We — Bradesco and I in particular — have an immense respect for the institutions: the Federal Police, the Public Ministry and the judiciary. The case exists, we made the defense and are confident there will be an understanding in relation to what happened and to what didn’t happen. I have a lot of confidence in the justice.

Source: Valor International

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Bradesco CEO Luiz Carlos Trabuco uses the weather forecasts of -15 degrees Celsius this week in Davos — even frequent visitors of the alpine town during the winter are scared of such intense cold — to establish a contract with the global prospects. “In terms of temperature, it will be one of the coldest meetings,” […]

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Brazil Surprises With Deep Rate Cut, Signals New Easing Pace

11.01.2017

Brazil slashed its benchmark interest rate in a surprisingly aggressive move, as policy makers ratcheted up their efforts to jumpstart the country’s shrinking economy.

The central bank board, led by President Ilan Goldfajn, unanimously voted on Wednesday to lower the benchmark Selic rate by three quarters of a point to 13 percent — a move that was predicted by just four of 48 analysts in a Bloomberg survey. Most of them expected a 50-basis-point cut.

In a strong message to start 2017, the bank said inflation appears to be converging to target and growth remains weaker than expected. The cut was the deepest yet of the current easing cycle, which began in October last year. While inflation has hit its slowest level in over two and a half years, high debt levels and waning confidence among both businesses and consumers still hinder the recovery of an economy mired in deep recession.
Under pressure to act more aggressively, the central bank said in a statement accompanying the decision that it had established a “new rhythm of easing” given the anchoring of inflation expectations, widespread disinflation and economic activity that remains short of expectations.

President Michel Temer expressed his “satisfaction” with the bank’s decision, according to the presidential spokesman, Alexandre Parola. The cut “reinforces the president’s conviction that the elements are in place for a recovery of economic growth and the creation of new jobs in the course of this year,” he said.

Investors also welcomed the bank’s decision, with the iShares MSCI Brazil Capped ETF rising as much as 2.6 percent after the announcement. Swap rates in contracts maturing in Jan. 2018 fell 37 basis points on Thursday morning as traders began pricing in some three additional Selic cuts of 75 basis points this year.

“The bank indicates it should keep this pace of easing for at least the next two meetings,” Andre Perfeito, chief economist at Gradual Cctvm, wrote in a research note. “It is reasonable to imagine that we can have a key rate very close to one digit by the end of this year.”

Consumer prices rose 6.29 percent last year, compared with 10.67 percent in 2015, the national statistics institute said in a separate report earlier on Wednesday. The inflation slowdown has been sharper and more widespread than anticipated.

The central bank “made it very clear that it sees a better inflation and exchange rate outlook and worse activity which made them opt for a more aggressive cut,” said Luciano Rostagno, chief strategist at Banco Mizuho, in an interview after the decision.

“The bank is setting a new rhythm for rate cuts and it will continue unless some unfavorable factor arises,” he said, citing as an example a possible depreciation in the value of the real after U.S. President-elect Donald Trump takes office.

Source: Bloomberg

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Brazil slashed its benchmark interest rate in a surprisingly aggressive move, as policy makers ratcheted up their efforts to jumpstart the country’s shrinking economy. The central bank board, led by President Ilan Goldfajn, unanimously voted on Wednesday to lower the benchmark Selic rate by three quarters of a point to 13 percent — a move […]

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Low popularity aside, Temer is productive in terms of passing bills

04.01.2017

Despite President Michel Temer’s weaknesses and the political turmoil of 2016 — the most turbulent year since the end of the military dictatorship, with the combination of impeachment, corruption scandal, ouster and arrest of the Chamber of Deputies speaker and fight for power with the judiciary branch — the Brazilian Congress set a fast pace of passage of matters of interest to the government.

Since when he took the post that was occupied by ex-President Dilma Rousseff, who had to step down for her impeachment trial in May, Mr. Temer celebrated the passage of six rules of relevant economic impact in Congress: two constitutional amendment proposals (PEC) — the spending cap and the DRU, which gives more flexibility to federal spending — and four bills.

There are also 21 provisional measures (MPs), decrees in effect since their issuance by the government, depending only on final Congress approval, something that almost always occurs. They include the MP of the reform of high school and the one that frees funds from inactive accounts of the Workers’ Severance Fund (FGTS).

The issuance of MPs, later converted into laws, gives an objective comparison parameter of the high level of activity in the Temer administration. Since May 12, when Ms. Rousseff was removed from office by the Senate and he took on as interim president, the government sent 40 MPs to Congress. In a similar period, he only loses to ex-President Fernando Henrique Cardoso, who issued 48 in the first eight months of his first term. Ex-President Luiz Inácio Lula da Silva issued 22; Ms. Rousseff, 17.

Another possible comparison is of amendments to the Constitution. In the first eight months of Ms. Rousseff, four were passed, twice as many as for Mr. Temer, but they had much less comprehensive impact than the spending cap and the DRU. They were about a career plan for community healthcare agents, introduction of food as a social right, the statute of the youth and authorization of divorce without judicial separation.

Under Mr. Lula, in 2003, Congress passed a relevant renewal of the Provisional Contribution over Financial Transactions (CPMF) and two other amendments of less impact. Under Mr. Cardoso, or FHC, only one of the four amendments passed are comparable in depth and comprehensiveness: the one of telecoms privatization.

Of all laws of interest to the Temer administration already passed, the most radical and of greatest repercussion was the PEC that capped government spending, a new fiscal regime that forbids the government from increasing its expenditures above inflation for the next 20 years. The other change in Constitution was the PEC that extended the DRU provision through 2023. The DRU provision raises the limit of revenues that the government can use freely to 30% from 20%, and the PEC extended the rule to states.

Congress also passed the law that removes the obligation for Petrobras to participate in all pre-salt oil operations, the creation of the Investments Partnerships Program (PPI), a new regulatory framework for the power industry and the so-called Governance Law of State-owned Companies, with stricter criteria for appointment of directors and new transparency rules.

Both houses of Congress are also considering a group of other rules of interest to the government. The most important one is the Social Security reform, slated to be considered in March by the deputies of the Special Committee. Three bills have gotten Senate approval and now await vote at the lower house, the Chamber of Deputies: a new law for biddings and procurement, the new parameters for filling jobs at regulatory agencies and a new law with stricter governance rules for pension funds.

In a period of remarkable political instability, what explains such productivity?

Analyst Antonio Augusto de Queiroz, researcher of the Inter-Union Department of Parliamentary Advisory (DIAP), says the explanation is in the market-friendly character of the measures passed. “Few times there has been in Brazil such a big pro-market convergence like the one we see today,” he says. “An orchestration of the three branches of power in the sense of implementing this agenda in which the big maestro is the market. It is the rescue of that pro-market agenda that was suspended during 13 years by the PT [Workers’ Party] administrations,” he says.

In his assessment, there is a division of functions between the branches to accomplish such task. The executive handles the adjustment of fiscal issues, Congress acts on improving the business environment, and the judiciary, he adds, takes decisions that are in tune with such mood. Mr. Queiroz highlights the role of the Federal Supreme Court (STF) in this context. He cites recent rulings of eliminating the possibility of coming out of retirement, which produces big savings for the government, the authorization of deducting the salary of public servants on days of strike and the decisions in the sense of making the agreement prevail over the law, going against a precedent of the Superior Labor Court (TST) and in tune with the labor reform.

Political scientist Fernando Abrucio, professor at Fundação Getulio Vargas (FGV) in São Paulo, also sees a strong relation with the ouster of Ms. Rousseff. “Since part of this political coalition committed to do the impeachment, and did, they had to give an answer later. So things moved forward. And they had to respond above all because of the economic crisis,” he explains.

His FGV colleague Marco Antônio Carvalho Teixeira, also a political scientist, agrees and recalls a symbolic episode in this sense: the speech by ad man Nizan Guanaes in the Economic and Social Development Council in November, in which he asked Mr. Temer to take advantage of his high disapproval rate to pass measures that other leaders would have difficulty to advance.

For him, maintaining the fluid relation with deputies and senators is what’s left to the government in order to secure its survival. “Temer has a Dilma level of popularity. So, he has no way out. Notice that he received dozens of deputies in this period. It’s almost a parliamentary type of government,” Mr. Teixeira says.

Source: Valor International

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Despite President Michel Temer’s weaknesses and the political turmoil of 2016 — the most turbulent year since the end of the military dictatorship, with the combination of impeachment, corruption scandal, ouster and arrest of the Chamber of Deputies speaker and fight for power with the judiciary branch — the Brazilian Congress set a fast pace […]

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Reforms, the springboard for 2018, are advancing

02.01.2017

This year will be unique. 2017 inherits the scorched earth of a recession and political turmoil in 2016 and lays the ground for the new administration to be elected in 2018, and is born with a key mission: producing positive enough economic results to offset the distrust of institutions caused by the reality laid bare by Operation Car Wash, halting the regression imposed on the welfare of Brazilians and rescuing the productive sector from chronic apathy, restoring faith the possibilities of the future.

Resulting from a more restrictive monetary policy amplified by zero or negative activity, even due to an imbalanced scenario abroad, the convergence of inflation to the 4.5% target – the Central Bank’s goal for 2017 – is the most promising data as the calendar turns. The year begins overloaded by a significant increase in bus fares and the still resilient inflation of services, which derives especially from sectors that will stop getting tax breaks and those preparing for greater taxation.

Fitting into the target pursued by monetary officials, the now slower inflation promises to become an important argument for reviewing more frequently the Brazilian policy rate, the Selic, which could reach single digits in 2018.

This prospect is starting to be forecast by economists from large banks who recognized the challenge of building scenarios, including alternative ones for 2017 and 2018, without including hypotheses from markedly political developments. Not including those aspects in analyses creates fertile ground for speculation about likely or potential economic policy decisions.

Until recently the future was conditioned to the current government’s real ability in Congress to pass the constitutional amendment proposal capping spending, and to ensure enough support for pension reform.

Capping expenditures to the 12-month inflation of the year ending in June passed both Houses of Congress in two rounds of voting. The Social Security reform proposal already passed the Senate’s Constitution and Justice Committee (CCJ). The next step is a debate at the Special Committee created with the sole purpose of reviewing the issue, as soon as the parliamentary recess ends on February 1.

But Congress will justifiably have another priority by then: voting for the presidents of the Chamber of Deputies and the Senate. Without choosing who will lead both houses, decisions that depend on legislative approval will get stuck. The Michel Temer government doesn’t have time to run any more risks.

Federal deputy and current Chamber speaker Rodrigo Maia (Democrats, DEM, of Rio de Janeiro) could win re-election. There is a clear congressional mobilization in this sense. The Senate is headed by Renan Calheiros (Brazilian Democratic Movement Party, PMDB, of Alagoas), who is the target of several lawsuits that pushed him to clash with the judiciary branch. Mr. Calheiros, a defendant in Operation Car Wash, as the Petrobras corruption scandal is better known, hanged on to the Senate presidency by a thread but was pushed aside from the line of presidential succession if Mr. Temer is ousted or incapacitated.

The priorities of structuring reforms were forwarded well but the woeful financial situation of some states and the resistance to yielding to fiscal discipline cloud the advances toward the government’s goal of producing growth capable of bolstering candidacies of coalitions for the 2018 general elections. In this sense, it’s important to recall that Finance Minister Henrique Meirelles presided at the Central Bank (BC) during the two administrations of Luiz Inácio Lula da Silva.

Ahead of the BC between 2003 and 2010, Mr. Meirelles took measures that stopped Brazil from falling deeper into crisis during the 2008/2009 financial crisis, and helped the government’s performance enough so Mr. Lula could elect his successor to the Planalto Palace in 2010. Dilma Rousseff won the election with the support of a highly popular former president.

“2017 will be important for the 2018 election. The economy again will be decisive in choosing the president who will govern Brazil from 2019 to 2022,” warn in a report on Brazil UBS analyst and strategists Ronaldo Patah, Soledad Lopez, Donald McLauchlan and Michael Bolliger.

The group admits it is becoming increasingly difficult to forecast the election’s results and stress they were often surprised. In 2016 alone, they say, the UK voted to leave the European Union (Brexit), the Colombian Peace referendum was rejected and the US presidential vote yielded an unexpected result. UBS recalls that most recent referendums reflected a wish to change the status quo and a rightward turn in politics.

“In Brazil, this rupture already happened with the impeachment of President Dilma Rousseff. Thus we can say the stakes are high for the next 12 months because the government’s performance in terms of achieving reform and the economic scenarios of 2018 are a necessary condition, although it could be insufficient, for coalition parties to elect the next president.”

UBS expects Mr. Temer to remain in power until 2018, based on the supposition that he was not involved in the Petrobras scandal that triggered the political crisis in 2015.

Analysts believe the government is very skilled politically and will negotiate pension reform wisely with Congress. As for the economy, UBS believes the proposed reforms have the ability to not only stabilize the public debt as a share of GDP but also to increase the country’s GDP in the upcoming years.

“While the spending cap will increase budget discipline, pension reform will open a path to stabilizing public spending as a share of GDP over the next five years. We expect the reform to impose a minimum age [of retirement] of 65 and decouple social benefits from the minimum wage.”

Source: Valor International

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This year will be unique. 2017 inherits the scorched earth of a recession and political turmoil in 2016 and lays the ground for the new administration to be elected in 2018, and is born with a key mission: producing positive enough economic results to offset the distrust of institutions caused by the reality laid bare […]

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Brazil forecast to post R$43bn trade surplus in 2017

29.12.2016

Brazil is forecast to post another trade surplus in 2017. Twenty-two experts consulted by ValorData forecast an average surplus of R$43.5 billion that if confirmed will represent a R$100 billion surplus in two years that will help keep the foreign account deficit under control next year. The good results this year and optimistic expectations for 2017 are due to the widespread rise in the price of Brazil’s main commodity exports. Iron showed the most surprising behavior, rising 86% this year. Five of the eight top agricultural commodities produced by Brazil ended the year at higher levels than last year, because of supply and demand fundamentals that should continue having an effect in 2017. Sugar is one example, having finished the year at the highest price in New York since 2012.

Source: Valor International

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Brazil is forecast to post another trade surplus in 2017. Twenty-two experts consulted by ValorData forecast an average surplus of R$43.5 billion that if confirmed will represent a R$100 billion surplus in two years that will help keep the foreign account deficit under control next year. The good results this year and optimistic expectations for […]

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Real rallies after Brazil approves key spending cap bill

13.12.2016

The Brazilian real rose on Tuesday, reversing earlier losses against the dollar, after lawmakers approved a controversial austerity bill aimed at freezing budget spending in real terms for up to 20 years.

In an important boost for centrist president Michel Temer, the country’s senate passed the constitutional amendment with 53 votes in favour and 16 against, easily achieving the two thirds majority needed for the main text of the new law to pass, reports Joe Leahy in São Paulo.

“It will represent a meaningful structural change in Brazil’s fiscal policy,” Itaú Unibanco said earlier of the reform, known as the “expenses ceiling amendment”.

The bill is part of a gamble by Mr Temer to pass important economic reforms and try to end a deep recession in Brazil before the 2018 presidential elections.

He is also hurrying into congress a reform to the pension system that would raise the minimum age of retirement from an average of about 53 years to 65 years old in a bid to plug a social security spending deficit that is sapping the budget.

News of the spending cap approval helped push the real 0.4 per cent higher to R$3.329 per greenback. The currency had been down by as much as 0.8 per cent against the buck earlier in the day.

A blowout in fiscal spending by successive governments has cost Brazil its investment grade credit rating and is threatening to scare investors away unless Mr Temer can show he can bring it under control.

His administration has been rocked by corruption scandals in recent weeks but has managed to retain its strong majority in congress, enabling the passage of the expenses ceiling bill.

Source: Financial Times

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The Brazilian real rose on Tuesday, reversing earlier losses against the dollar, after lawmakers approved a controversial austerity bill aimed at freezing budget spending in real terms for up to 20 years. In an important boost for centrist president Michel Temer, the country’s senate passed the constitutional amendment with 53 votes in favour and 16 […]

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Brazil becomes leading destination of Chinese investment

21.11.2016

Brazil has become the leading destination for Chinese deals in emerging markets this year, according to a Dealogic survey commissioned by Valor. The Chinese have spent $11.9 billion in the year to November with six deals, over twice the total of transactions made in 2015. Brazil also ranks third in global terms, after the US ($60.6 billion so far this year) and Switzerland ($48.8 billion). Chinese investment in Brazil has focused on energy and public utilities, followed by the chemicals industry.

Source: Valor International

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Brazil has become the leading destination for Chinese deals in emerging markets this year, according to a Dealogic survey commissioned by Valor. The Chinese have spent $11.9 billion in the year to November with six deals, over twice the total of transactions made in 2015. Brazil also ranks third in global terms, after the US […]

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