The president of Petrobras, Graça Foster, said that recent discoveries and relevant achievements from Africa in the energy sector increased the interest of the Brazilian oil company in the continent. She attended last week’s seminar on “Investing in Africa:Opportunities, Challenges and Tools for Economic Cooperation”, organized by the National Bank for Social and Economic Development (Banco Nacional de Desenvolvimento Economico e Social - BNDES) in Rio de Janeiro.

Foster said that “from the future’s point of view, Africa constitutes an exceptional new market and there is a great opportunity not only to Petrobras, but for other companies to invest in this new market.”

According to Foster, the company sees potential to increase economic partnership with some African countries in the production of ethanol through the production of cane sugar, which can be carried out as soon as they set the rules of the Regulatory Framework for Oil and Energy.

Today Petrobras operates in seven African countries, and produces about 58,000 barrels per day in Nigeria, two thousand in Angola as well as developing a series of investments related to biofuels production, importation of liquefied natural gas, among others.

The government announced a change in the readjustment calculation for savings accounts.  The new norm is only valid for new savings accounts.  In other words, deposits made after the 4th of May.  The Presidential Decree will be published in the Official Gazette this Friday.

 

The new rules are as follows:

 

When the Selic is above 8.5%, the savings account readjustment remains unchanged (0.5%/month over TR – Reference Rate);

When the Selic is less than or equal to 8.5%, savings accounts will be readjusted by 70% of the basic interest rate over TR.

 

A Presidential Decree is valid for 120, from the day it is published in the Official Gazette.  However, parliamentary recess days do not count towards this total.  It is worth noting that Congress goes into recess on July 18 and returns on August 1.  Thus, the Presidential Decree will complete its 120 days in mid-August.  The trend, therefore, is that the voting on the savings accounts Presidential Decree will be concluded by Congress, without changes, before the parliamentary recess.

 

To be approved by the House, a Presidential Decree needs at least the support of a simple majority of the House (half of those present), as long as at least 257 representatives (the absolute majority) are present on the House floor.  In the Senate, it requires more than half the votes, as long as at least 41 senators are present (absolute majority).

 

President Dilma has enough support in the House and Senate to approve the change to the calculations for savings accounts.  Her base in the House adds up to 370 votes, and 61 in the Senate.  Moreover, other factors contribute to the approval of the decree.  Firstly, the government is not altering existing savings accounts.  Secondly, the government, before sending the Presidential Decree to Congress, discussed the measure with parties in the allied base, union representatives and businessmen.  Thirdly, the government efficiently communicated with public opinion.  It placed the change to savings accounts as an essential condition to keep reducing interest rates in the country.

 

In few moments in the history of the country it was possible to to see such harmony between business interests and unions. The monetary tsunami in Europe, mentioned by President Dilma Rousseff, is causing the devaluation of the dollar and reducing the competitiveness of Brazilian products.

 

Given this scenario, business representatives and trade unions have urged the Government to take measures to protect local industry and preserve jobs. Interests converge with those of the government. In particular, after the result of the GDP in 2011 (2.7%), below expectations and the order of President Dilma is to fight for a growth of around 4% in 2012.

 

The expansion of the payroll tax relief to more sectors of the industry should happen within two weeks, as promised by the Minister of Finance, Guido Mantega, to the entrepreneurs. He also demonstrated more flexibility in relation to the tax over company revenue, which will replace the 20% contribution made to the INSS.

 

The National Confederation of Industry (CNI) wants more, the taxation of all foreign capital entering the country, the full exemption from the wage bill of enterprises, reduction of taxes on inputs used in production, and the requirement for use of national contents in bidding processes and with the participation of foreign companies (according to the CNI, biddings in the energy sector are happening with the importation of Chinese components).

 

In addition to the payroll tax relief, the government will release decree to change theanti-dumping legislation. It will be charged a fee of the product under investigation, while the Department of Commercial Defense (DECOM) analyzes the process. The idea is to require the adoption of provisional surcharge against the product under investigation within 120 days.

 

According to press reports, the government initiated discussions with financial institutions to improve the credit lines of working capital for construction. The sector is important in the hiring of labor and it is also vital to achieving the goals of the housing program “My Home My Life”.

 

The Government is working to reduce the banking spread and reduce costs and expand working capital lines of public banks. It is also studying a restructuring of the credit lines of the National Development Bank (BNDES) focused on areas most affected by the appreciation of the real currency.

 

The government will reduce interest rates of the “Revitaliza” program, which provides credit lines to the modernization and expansion of production capacity and financing of exports in sectors such as textiles, footwear and leather, auto and capital goods. The Investment Support Program (PSI), aimed at the acquisition of capital goods and financing of exports, will also become less expensive.

 

The Central Bank is also perfectly aligned with the government. It will reduce, in the next meetings of the Monetary Policy Committee, the basic interest rate (Selic) to 9% per year.

 

Moreover, there is strong pressure for the adoption of the Senate draft resolution bill (PRS 72/11), which standardizes the rates of VAT in interstate operations with goods imported from abroad. The issue will be the subject of public hearings this week in the Senate.

 

There are three possibilities for the PMDB to follow with regards to the 2010 succession: 1. Its own candidacy; 2. Coalition with the PT; 3. Alliance with the PSDB.  Which of these will be chosen is as yet a great unknown

 

Two important events last week blew the PMDB ship towards the first option.

 

José Sarney (PMDB-AM) announced his decision to run for the Senate chairmanship, which caused a bad feeling within the PT. Party leader in the Senate, Ideli Salvatti (SC), stated that there “is no possibility” of the PMDB chairing the Senate and the House. Therefore, as a countermeasure, part of the PT bench is leaning towards boycotting Michel Temer’s election for the House chairmanship.

 

In other words, it is possible that the relationship between the two parties will be upset, depending on the result of the elections for the command of both Houses.

 

José Serra’s decision to nominate Geraldo Alckmin for the State Development Department caused Aécio Neves discomfort, who is his direct adversary for the PSDB nomination in 2010. With this gesture, Serra will maintain control of the party within the state and further bankroll himself within the party.

 

Neves was also upset by declarations made by the DEM president, Representative Rodrigo Maia (RJ), and by the Mayor of São Paulo, Gilberto Kassab, that the party’s destiny in 2010 will be conducted by Serra.

 

Without mentioning that Serra was considered the big winner of the municipal elections and that Aécio Neves came away from the elections frayed around the edges having not been successful in electing Márcio Lacerda as Mayor of Belo Horizonte in first-round voting and was one of the major champions of Alckmin’s candidacy for the São Paulo City Hall.  The love affair between the PMDB and the Governor of Minas Gerais is well known. The party dreams of having a strong name to run for the Planalto Palace.

 

The upset in the relationship between the PT and the PMDB, and Serra’s strengthening in relation to the PMDB, may bring the PMDB and Neves even closer together.

The government might announce measures to restrict the effects of the international crisis over the economy. One of the sectors that will benefit from the possible announcement is the civil construction. Also, the National Habitation Plan will be launched.

Arguably the year of 2008 saw a lot of sizzling in the continent. Brazil made a series of mistakes in foreign policy. The dispute with the Ecuadorian administration, which decided to inexplicably default on its indebtednesses, only took place due to Brazil’s lax stance toward other countries in the region, the Bolivian situation being the most typical of them all. Following this situation, Paraguay defied Brazil and literally put the continent’s leader on a tight corner. On the other hand, the country achieved an important victory through its leadership in times of economic crisis and by showing how other countries in the region are to collaborate with each other.

 

Brazil’s foreign policy is widely known for suffering of split personality. On the one hand, decisions on continental matters are rife with ideologies birthed by the mind of Marco Aurélio Garcia. On the other hand, the Itamaraty sees the outdated views of Samuel Pinheiro somewhat shadow some proper decisions of Celso Amorim. The bottom line is that the lack of strategy of our foreign policy has the country acting only to solve emergency issues or “putting down fires”. It is a well known fact that those who only fight fires little or no time to plan ahead.

The effects of the international credit crisis has provoked an exodus of US$ 4.397 billion in Brazil from the 1st of October to the 24th. This number is the difference between the amount of dollars entering the nation and the amount leaving; just last week, there was an exit of US$ 646 million.

 

The data is part of the monetary flux that monitors the movement of dollars both entering and exiting Brazil and was divulged this Wednesday by the Central Bank. For the entire year of 2008, the monetary flux registers a positive gain of US$ 12.791 billion. The result of US$ 45 billion entering and US$ 32.214 exiting the nation.

The House of Representatives approved last night the MP 442/08, which gives the Central Bank the power to accept the credit portfolios of banks facing difficulties with liquidity as guarantees of loans. The BC is also authorized to lend directly from the nation’s international reserves (around 200 billion dollars) to banks that finance exporting companies. The measure is now being analyzed by the Senate.

 

The text was approved with changes. The reporter, Representative Rodrigo Rocha Loures (PMDB-PR), highlighted four of the seventy-four amendments presented. One of the changes is that the BC has to send every trimester a report to the Congress including: the total value for the trimester and the value accumulated for the year of the loans; the financial conditions of the applied measures (discount and spread, for example); the accumulated value – annually and Quarterly – of credit (paid on time or late); and an explanation of the impact these operations described in the BC’s results.

 

This information will be debated at the Biannual meeting that occurs between lawmakers and the president of the BC, as outlined by the Fiscal Responsibility Law (Complementary Law 101/00).

 

The national monetary aid comes in the following form: a bank having difficulty capturing money on the market, but has a low risk credit portfolios, can “sell it” to the BC with the agreement to repurchase it, as a loaning operation known as rediscount. The credit portfolios are composed of values that the bank have the right to receive, in the form of legal and individual debts.

 

From the value of this credit, the provision (value to cover the debt should the credit not be honored) will be deducted. What remains will have a discount (percentage variable according to the credit’s evaluation) applied to it.

 

Additionally, the BC will be able to accept a physical guarantee (property, for example) or financial one given by the controlling stock holder of a united company or other bank.

 

The text approved by the House of Representatives also stipulates that there are transparent rules and not discrimination for the acceptance of actions in a rediscount operation.

 

In November, the House of Representatives should vote a second MP against the crisis: 443/08, which authorizes the BC and Caixa to purchase banks having difficulties.

Brazil was slow in reacting to the worsening of the North American crisis. Not with regards to decisions, but in gestures and declarations, in other words “vocal administration”. Brazil, as the rest of the world, expected things to improve following the approval of the North American rescue package. However, what followed was a panic reaction and the Brazilian currency was attacked. Curiously, while the dollar skyrocketed, between September 1 and October 6, Brazil accumulated an ingress of dollars with a net positive balance of over 3 billion.

 

Only after the two meltdowns of the Stock exchange on Monday, Mantega and Meirelles appeared together to come the markets down. The episode opened up a margin for various interpretations. Henrique Meirelles, as president of the Central Bank, has a delimited margin of public action. He cannot speak about expenditure cutbacks or anticipate monetary or exchange-rate policy decisions.

 

When he was president of the American Chamber of Commerce in São Paulo, Meirelles heard Pedro Malan, who at the time was FHC’s minister, state that one doesn’t ask a political person about exchange policy. His attitudes are motive for action and not for public discussion.

 

With Meirelles taking care of the “back-office”, it is up to Guido Mantega take action to calm the market down in relation to economic issues: revenue collection, expenditure, growth, etc. Mantega did not act, as the Castilians say, with “protagonism”.  For some, he lacks the necessary charisma to be a Minister in times of crisis. Lula’s candidate Dilma Rousseff also disappeared.  She had nothing to say.  She probably felt it better not to commit herself to anything. Focusing her attention on the consolidation of her candidacy, she acted aloof up to the weekend, when she said what she really didn’t have to say about help for companies that suffered losses due to the skyrocketing dollar. “The government has no intention of socializing any losses and has not been approached by any company in this sense”, she stated.

 

The spokesperson role was left to Lula. Firstly, he stated that the crisis would not cross the Atlantic. Then, that it was global. Further ahead, that we may have to make cutbacks. Without a qualified spokesperson to address the market and society, now and then, the President transforms himself into a “Minister of Finance”.

 

It’s clear that the government lacks a figure like Antonio Palocci, who transmits security to the market, companies and economic agents.  In fair weather sailing, it’s easy to be the Minister of Finance of a country that is raking it in, has abundant reserves, a healthy financial system, plenty of credit from BNDES (and other public and private institutions), food and energy self-sufficiency and a president with enormous popularity and support from labor union and business leaderships, amongst other advantages. Most importantly, in a world that was doing very well.

 

With the crisis, besides the technical competence of the team, there is a psychological component that moves market decisions. Thus, the currency was attacked at a moment in which reserves were extremely high, the foreign exchange balance positive and also the capability of raising some US$ 50 billion from the IMF. When the situation gets complicated, the minister’s “protagonism” becomes fundamental. Not only as far as decisions are concerned, but most importantly, as far as attitudes and dialogue with society and the market are concerned.

The FED-Treasury-Congress package against the US financial crisis will have a strong impact on the economy. Put together during the early hours of Friday, it has already produced its first effect: even though the market is still at the bottom of the barrel, it has begun to move towards the exit.  The main consequences will be as follows:

 

FOR THE WORLD	FOR BRAZIL
Two or three semesters of negative US GDP	2.5% GDP in 2009
Drop in Chinese growth from 11% to 8%	4.7% inflation under control due to a slowing down of the economy, but above the 4.5% target
Recession in Latin America and India	Main victims of an expensive dollar due to stock exchange losses – export companies
Bankruptcy of Russian banks	Civil Construction –negative impact during second semester of 2009/ first of 2010
Second semester/2008 and the whole of 2009 worse than forecast here

 
Welcome! Latin America is becoming consistently more important for the world. As the region becomes more stable, the world sees Latin America as a potential business area. In order to understand te potential Latin America has to offer, the world must understand the unique dynamics that the local politics function. This blog already exists in Portuguese since 2005 and is widely read. I believe it can be an important instrument to understand this amazing region. Suggestions, criticisms and opinions are welcome. + learn more

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