Economic Challenges Today, but Corner Turned in 2016? Also: New Anti-Corruption Law

 

Economic Snapshot for Latin America
Focus Economics; January 20
“Looking forward, 2015 is expected to be another disappointing year for the largest economy in South America. Low commodity prices are expected to weigh on export revenues and the country is experiencing a severe drought in agricultural areas. In an effort to bolster confidence, newly-appointed Finance Minister Joaquim Levy has targeted a 1.2% primary surplus for 2015 and announced tax hikes and spending cuts.”

Corporate bonds: Emerging bubble
Financial Times; February 15
“As recently as late November, [a medium-sized Brazilian bank called Banco Pine] had bonds trading at $1.06 on the dollar… by the end of last month, it was trading at 94 cents on the dollar… [This] recent sharp and sudden movement in Pine’s bond price — which has since partially recovered — also underline what many fear is inherent instability in one of emerging markets’ biggest and youngest asset classes.”

Azul, Brazilian Airline Started by JetBlue Founder, Delays I.P.O Plans Again
New York Times; January 16
“Since Azul filed for the I.P.O. on Dec. 1, the São Paulo stock market has dropped 6 percent, and the currency has been volatile, further increasing risks for foreign investors… In Brazil, the two main recent drivers of growth — commodity exports and consumer demand — have been weakening and the economy is expected to grow less than 0.5 percent this year.”

Mobius Says Brazil’s Economy Will Recover in 2016 Amid Reforms
Bloomberg Business; February 9
“According to Mark Mobius, the executive chairman of Templeton Emerging Markets Group, the nation’s gross domestic product will increase as much as 4 percent next year after growing 0.3 percent in 2015… [He] also said that a potential rebound in raw materials next year would also boost the Brazilian economy.”

The World in 2050: Will The Shift in Global Economic Power Continue?
PWC: February 1
Though Brazil’s economy has recently seen underperformance amongst drought and corruption scandals, a new PricewaterhouseCoopers study predicts its GDP will nearly double in size between 2015-2030 and then nearly double again by 2050. Thus, the study expects it to become the 6th largest economy in the world by 2030 and the 5th largest by 2050.

GDPrankingsPPP_2014to2050

GDP at PPP rankings in 2014, projected to 2030 and 2050. Source: IMF WEO database (October 2014) for 2014 estimates, PwC projections for 2030 and 2050.

The State of the State: New Legislation & Shifting Strategies

Brazil’s Congress hands president setback in fiscal push
Reuters; February 11
“Brazil’s Congress passed legislation on Tuesday that limits the president’s ability to reduce pork-barrel spending passed by lawmakers, a setback for President Dilma Rousseff’s efforts to fight a fiscal deficit. The bill forces the government to get congressional approval before cutting spending items added to the national budget by lawmakers for projects in their districts, effectively obliging the executive to spend the money approved by Congress.”

Is Brazil’s New Finance Minister the Key to Re-establishing the Country’s Prominence?
Forbes; February 12
“Finance Minister Levy… has been brave enough to not just introduce an orthodox fiscal adjustment from within a so-called popular government, but he has gone further in announcing complex structural updates, including changes to labor rights such as unemployment insurance and the minimum salary… Levy’s approach goes to the heart of the problem as he has introduced short-term economies, which will boost reserves and lead to a new cycle of spending in the future.”

Brazilian Government to Beef-up Exports; Develop Overseas Markets
Yibada; February 15
“Brazil’s Ministry of Development, Industry and Foreign Trade (MDIC) announced plans to increase the country’s exports, including new markets for Brazilian products around the globe… imports during the first week in February fell by 18 percent, mainly from a reduction of imports of vehicles and parts, fuel and lubricants and mechanical equipment.”

Focus: Implications of Petrobras Scandal

Has Petrobras Stock Finally Bottomed Out?
Forbes; February 15
“…new CEO Aldemir Bendine, ex-president of Banco do Brasil, [has hinted that he] might spin off some of Petrobras’ assets to recapitalize. If Bendine sells assets, the market believes Petrobras shares will rise quickly… Still, Petrobras will remain a volatile trade. It will not follow oils fortunes should oil prices start to rise. That’s because the new board of directors said that the corruption scandal cost the company a minimum of $3 billion.”

Petrobras Link to Sete Could Cause BTG, Satander Losses
Bloomberg; January 12
“The accusation of corruption increases concern that national development bank BNDES will further postpone the often-delayed disbursement of a 10 billion-real ($3.5 billion) loan that Sete Brasil needs to avoid default… Without the loan, Sete Brasil investors and creditors — which also include Banco Itau BBA SA and Banco Bradesco SA — are at greater risk of losing as much as $7.4 billion in capital and outstanding loans made to Sete Brasil, said the four people.”

Brazil’s new anti-corruption law: What you need to know
Inside Counsel; February 12
“Unlike the [U.S. Foreign Corrupt Practices Act], Brazil’s Anti-Corruption Law is not limited to acts involving foreign officials; it prohibits bribery of both local and foreign government officials. Another key difference concerns the element of intent. The FCPA requires the government to prove that the defendants intended to engage in illegal conduct. The Anti-Corruption Law, in contrast, imposes strict liability for offenders. As a result, Brazilian authorities do not need to show that a person or company intended to violate the law—the fact that a bribe was paid to a public official is sufficient to establish liability.”

Curated by Perry Nunes, Geoskope Junior Associate