The First Hundred Days
“The Hundred Days” offers an interesting historical contrast—it can signal catastrophic failure or a new start. Napoleon regained control of France for a hundred days from March to July 1815 only to meet his Waterloo; Franklin D. Roosevelt inaugurated a new era in American government from March to July 1933 with a whirlwind of legislation in the depths of the depression. What about Jair Bolsonaro, who passed the hundred-day mark earlier this month? “There were high expectations for the new administration in January,” said Getúlio Vargas Foundation economist Silvia Matos at a seminar reviewing Bolsonaro’s first hundred days in office. “It is perhaps inevitable that some of those expectations have been dampened.” Experts point to a number of areas where the government has come up short, but they are at pains to add that all is not lost. Said Manoel Pires, an economist at the Brazilian Economic Research Institute (IBRE), “The government is not communicating well when it comes to its most important proposal, the pension reform. They should be telling the public that pension reform is a question of fairness; instead, the public perceives it as an exchange of favors between the executive and Congress.” Not only that, but the administration has proven ham handed even when it comes to the old-fashioned patronage game. “The administration has surprised everyone with its willingness to abandon the old quid pro quo politics, associating it with corruption,” said IBRE economist Armando Castelar. The problem is that the administration has been left without a strategy. “Since power abhors a vacuum, Congress itself has stepped in,” said political scientist Carlos Pereira, of the Brazilian School of Public Administration (EBAPE). “Congress is passing its own agenda, such as the mandatory spending bill enhancing congressional authority over the budget.” The administration’s inertia, meanwhile, is impacting economic expectations. In this week’s Central Bank sounding of economists, the experts pulled down their 2019 growth forecast for the eighth week in a row, this time to just 1.71%. As recently as January, economists were forecasting 2.5%. Of course, all is not lost. Castelar points to “a talented, and united, economic team.” Most experts agree the administration’s economic proposals, including pension and tax reforms and an aggressive privatization agenda, are far-reaching, bold and innovative. Implementing that vision will be a question of organization, and leadership.
State of the Economy
Government, truckers hammer out deal to avoid renewed strike.
Brazil’s government and representatives of independent truckers this week hammered out an accord that will avoid a planned strike. The government agreed to tie diesel fuel price hikes to minimum freight rates while also beefing up enforcement of freight rate compliance. The government also pledged to streamline bureaucracy for independent truckers and increase spending on highway maintenance. Truckers had originally threatened an April 29 nationwide strike similar to the one which paralyzed Brazil’s economy in May of last year. Following announcement of the new package, leaders of the 11 independent truckers’ associations canceled the job action. The associations represent more than one million truckers. (see more)
Current account deficit remains low, investment continues robust.
Brazil registered a modest current account deficit in March of $494 million, down from $1.1 billion in February. The 12-month deficit remained manageable at $13.7 billion. Current account performance improved on rising trade flows, with Brazil posting a March trade surplus of $4.5 billion. Overseas travel expenditure by Brazilians fell in March while profit and dividend remittances were steady. Foreign direct investment remained robust at $6.8 billion for the month, with investors cheered by prospects for long-term growth in domestic sales and exportas. Twelve-month FDI was $88.5 billion. (see more)
Government unveils pension reform report as bill advances in Congress.
Fiscal savings from a proposed pension reform will be greater than originally expected, according to a report this week from the Economy Ministry. The report put savings from the proposal over a ten-year period at R$1.236 trillion, up from the original forecast of R$1.16 trillion. The bill is seen as necessary to stem a growing fiscal crisis. Savings will come through higher payroll taxes, delayed retirement and more stringent rules for government employees and workers claiming disabilities. The government’s proposal advanced, albeit slowly, in the Chamber of Deputies this week. The Committee on Constitution, Justice and Citizenship approved the bill by a lopsided margin of 48 to 18. The bill will now be examined by a Select Committee. That committee was empaneled Thursday, with leadership considered favorable to the bill’s passage. (see more)
State of Business
- Brazil’s banks made more money in 2018 than ever before, according to the Central Bank’s annual Financial Stability Report. Profits reached R$98.5 billion, up 17.4% from 2017 and representing the highest figure since the Real currency was introduced in 1994. Banks were able to improve profitability by taking greater care in lending. Provisioning against non-performing loans dropped from R$85 billion in 2017 to R$65 billion last year. Banks have also gained from digitalization of operations.
- Moving, a major real estate sales site, has opened a new channel. Called Moving Leilões, the site will make available information about properties put up for sale by governments and banks via auctions. The new site was unveiled during the recent Brazilian Real Estate Summit in São Paulo.
- Who’s buying and who’s selling in Brazil this week? The Brazilian subsidiary of French energy giant Total made its first foray into alternative energies. The company purchased the Terra Santa wind power farm in the Northeast state of Rio Grande do Norte. Terra Santa produces 92 megawatts of power. Financial terms of the deal were not disclosed. The Brazilian subsidiary of international consulting firm Accenture announced the purchase of Brazilian advertising agency Droga5 as part of an expansion and diversification drive. The companies did not disclose financial details of the operation.
- Who’s investing in Brazil this week? Klabin, the huge Brazilian paper and pulp manufacturer, announced one of the largest expansion investments of the decade, saying it will pour R$9.1 billion into its Puma II processing plant in Ortigueira, Paraná. The plant produces paper products for industrial and consumer packaging. The investments will be spread out over five years. Brazilian supermarket owners SFA announced a R$500 million investment in a new chain to be called Novo. The Novo stores will combine retail and wholesale elements. The company expects to open 15 to 20 stores, beginning in the state of Pernambuco. Swiss food packaging giant Nestlé announced a R$300 million investment in gourmet coffees for its Brazilian unit. The investment is part of a global strategy to increase gourmet coffee sales.
- Travelers will be seeing some new names among food purveyors at Brazilian airports. British chain SSP has won concessions for restaurant and snack sites at three major Brazilian airports, in São Paulo, Rio de Janeiro and Salvador. Among the new brand names are Factory Bar & Kitchen, Upper Crust and Jamie’s Deli.
- Brazil’s electronic payments market is showing signs of hot competition. Safrapay, a major competitor, this week announced it will eliminate fees for most store owners wishing to obtain cash against accounts receivable. Another major competitor, Rede, took the same step earlier this month. Others in the market may be forced to follow suit. Store owners may have been pleased, but investors weren’t. Share prices for most Brazilian electronic-payments companies declined following the Rede announcement.
- Brazil’s National Anti-Trust Council (CADE) this week announced an investigation into four major banks (Bradesco, CEF, Santander and Banco do Brasil) on allegations the banks are prohibiting their own account holders from paying monthly credit card bills issued by financial startup Nubank. The banks have 30 days in which to present a defense. The case is seen as a test of regulatory flexibility for financial startups.
U.S. Dollar: The Brazilian Real closed at R$3.96 to the dollar, down 0.8% on the week and 12% year-on-year. The Real declined in the short term on worries about rising inflation. The Real briefly declined to R$4.00 against the dollar but bounced back on Central Bank comments calling for an orderly market. The Central Bank has intervened in the market frequently in recent weeks. (see more)
Stocks: The Ibovespa index closed at 95,901 points, gaining 2.6% on the week and 11% on the year. Investors were cheered by a congressional committee vote favoring a sweeping pension reform seen as necessary for long-term fiscal stability. (see more)
Interest Rates: The benchmark January 2021 contract closed at 7.08%, up slightly from 7.06% the previous week on signs of rekindled inflation. (see more)
- Friday, April 26, Brazilian Central Bank release of monthly banking data, Brasília
- Tuesday, April 30, Brazilian Central Bank release of monthly fiscal data, Brasília
- Tuesday, April 30, Brazilian Census Bureau (IBGE) release of monthly jobs data, Rio de Janeiro
- Wednesday, May 1, Labor Day national holiday
- Thursday, May 2, Economy Ministry release of monthly foreign trade data, Brasília