The rising BRL: Brazil’s sovereign debt, sorry, wealth fund to the rescue

by Jonathan Wheatley for Financial Times, September 21, 2010.

No sooner had the FT gone to press on Monday evening with a report that Brazil was likely to use its sovereign wealth fund to fight the appreciation of its currency, the real, than the finance ministry announced it was preparing to do just that.

Here, with no further comment, is what Tony Volpon at Nomura had to say in a note to clients on Tuesday:

“Late yesterday, in another round of the by now tiring attempt to talk down BRL, the governing council of Brazil’s Sovereign Wealth Fund (“SWF”) approved its internal regulation and allows the start of its investment activities, specifically the buying of USD in the market. In the post meeting communiqué, the council makes the questionable statements that “there are no limits for the fund to buy foreign exchange”, and that “the investments will not affect the budget, since these are funds of the National treasury, and so do not constitute public spending”, an affirmation that carefully forgets to mention that this fund will have to overcome the huge negative carry of buying USD against the issuance of BRL debt paying rates at or above Selic”.

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Colombia: Striking back

by The Economist – Americas View, September 20th, 2010.

In response to a series of attacks by the FARC guerrillas that killed 40 Colombian police and soldiers, Juan Manuel Santos, the country’s new president, vowed to “intensify the offensive” against the group. He did not wait long before fulfilling his promise. Yesterday, fighter planes staged a pre-dawn air raid on a camp of the FARC’s 48th Front, the same unit blamed for a deadly attack near the Ecuadorean border on September 10th. The site was then stormed by 90 members of the police’s elite “Jungla” commandos. Estimates of the death toll vary: Óscar Naranjo, the national police chief, said that 27 FARC fighters were killed, but the head of the armed forces, Édgar Cely, put the total at up to 60. Among them was Sixto Antonio Cabana Guillén, a high-ranking leader of the group’s southern forces, who was one of its 50 members wanted in the United States on drug-trafficking charges.

Mr Santos ran for president only because his predecessor, Álvaro Uribe, was barred from seeking a third term by the Constitutional Court. So far, he is demonstrating the wisdom of term limits, by continuing Mr Uribe’s aggressive military campaign against the FARC but changing some tactics. (continue reading… )

Scandal Puts Bumps in Path of Brazil Leader’s Protégée

by Alexei Barrionuevo for The New York Times, September 21st, 2010.

Until last week, Dilma Rousseff, the candidate hand-picked by Brazil’s president to succeed him, appeared to be cruising to an easy first-round victory in an election next month that would make her the first woman to become president in the country’s history.

Riding the coattails of President Luiz Inácio Lula da Silva, who will probably go down as his country’s most popular president, Ms. Rousseff extended her lead in the polls enough that she seemed poised to capture a majority of votes in the Oct. 3 election and avoid a second round.

But then a political scandal involving Mr. da Silva’s chief of staff — who succeeded Ms. Rousseff in the post in April so that she could campaign — exploded onto the headlines here, suddenly threatening to push the election to a runoff and sully the da Silva government’s reputation. (continue reading… )