Political Risk Latin America Blog @PolRiskLatam

Colombia-Brazil: where’s the trade, hombre?

Posted in News and Articles, Political Risk by politicalrisklatam on August 4, 2011

by Naomi Mapstone for Financial Times – Beyond Brics, August 4th, 2011

For all the talk of south-south investment flows, some of Latin America’s strongest economies are finding it easier to access Chinese, American or European consumers than Brazilians.

Colombia, which shares a 1,950km Amazon border with Brazil, is a case in point.

Bilateral trade between the two nations has quadrupled since 2004, off a low base, largely thanks to Brazilian exports.

According to a new study by the Inter-American Development Bank, out on Thursday:

Despite all the dynamism of the last decade, bilateral trade in 2010 accounted for only 0.7% of the total trade of both countries, well below the already modest 20% share intraregional trade in Latin America.

The study’s lead author, Mauricio Mesquita, told beyondbrics the slow progress was due in large part to Brazil’s reluctance to lower tariffs. This year, as part of a 15-year tariff reduction deal, the average preferential tariff on Colombian exports to Brazil was 5.8 per cent, while Brazil’s was 2.4 per cent. Other factors – including a significant infrastructure deficit in the Amazon region and high logistics costs – have also contributed to the low level of trade between the two countries.

Stiff competition from Chinese manufacturers should also strengthen the case for boosting internal markets, the report notes. (continue reading… )


Rise of Consumer Credit in Chile and Brazil Leads to Big Debts and Lender Abuses

Posted in News and Articles, Political Risk by politicalrisklatam on July 25, 2011

by Alexei Barrionuevo for The New York Times, July 23rd, 2010.

For Ana María Silva, what began as purchases of perfume and two pairs of shoes spiraled into a credit card nightmare, as her debt multiplied tenfold in five years — and not all because of her spending.

Ms. Silva was among 418,000 clients in Chile who fell behind on their payments and had their debts repackaged by the retailer La Polar, which raised interest rates and extended loan terms without their knowledge. In early June, it came to light that executives at La Polar had been unilaterally renegotiating clients’ debts for more than six years. The news stunned Chileans and has become one of the biggest financial scandals of Chile’s 20-year economic boom.

“I share blame in this, but this company should have been more honorable and transparent,” said Ms. Silva, 30. “They were targeting people with more modest means. This became a vicious cycle that was never going to end.”

The scandal has underscored how South American countries — including Chile and Brazil, two of the region’s healthiest economies — are going through growing pains as the use of credit grows. The credit-fueled spending has driven extensive economic growth. But it has also opened the door to abuses, as credit issuers have used predatory techniques to lure customers, particularly young and less affluent ones, in countries where regulation is scant, annual interest charges can top 220 percent and consumers cannot seek bankruptcy protection, economists and consumer defense groups say. (continue reading… )

a María Silva, what began as purchases of perfume and two pairs of shoes spiraled into a credit card nightmare, as her debt multiplied tenfold in five years — and not all because of her spending.

Brazil: a modest proposal

Posted in News and Articles, Political Risk by politicalrisklatam on July 20, 2011

by Jonathan Wheatley for Financial Times – Beyond Brics, July 20th, 2011.

Banks have paid their staff in stock for years. Lots of companies do it, too. Even some public sector workers are on performance related pay. So why not go the whole hog and make entire populations, literally, stakeholders in their country’s future?

That, says Nuno Camara, Latin American strategist at Fortress, the New York-based private equity and hedge fund manager, is what Brazil should do if it wants popular backing for progressive reform.

Economists and analysts – even some politicians – have been arguing for years that what would really unlock Brazil’s enormous potential is a dose of serious reform: of its regressive and complex tax system, of its rigid and restrictive labour laws and, above all, of public spending, which eats up 40 per cent of GDP (comparable to many developed countries) for precious little return.

Trouble is, no politician worth the name would dream of actually pushing stuff like that, especially with Brazil buzzing along so nicely. That’s where Camara comes in.

“Brazilian civil servants and politicians should be paid in Bônus do Tesouro [treasury bonds] or stock in Vale and Petrobras,” he says. “This will align their interests and then we’ll see if anyone will continue to favour government intervention in those companies or infinite increases in the minimum wage.” (continue reading… )


Brazil’s new plan to beat poverty

Posted in News and Articles, Political Risk by politicalrisklatam on July 7, 2011

by Taylor Barnes, Correspondent, Sara Llana Miller, Staff writer  for The Christian Science Monitor, July 7th, 2011.

Brazil just launched a new, multibillion-dollar program to aid the 16 million Brazilians still living in extreme poverty. The program is the latest in an effort across Latin America to stamp out poverty.

With a monthly stipend that she receives from the Brazilian government, Clemilda dos Santos can now keep the refrigerator stocked for her 10 kids, but life for the family is still precarious. At the top of a red clay hill in Japeri, the town with the lowest human development index in the state of Rio, the one-bedroom home she shares with her whole family still floods with rainwater. Her kids need winter coats.

In the past decade, Brazil has been touted for lifting 25 million people out of poverty, thanks to macroeconomic stability, high commodities prices, and a much hailed social program called Bolsa Familia that gives families monthly cash for families that adhere to conditions such as keeping kids in classrooms. But as the nation continues to rise – it became majority middle class in 2008, according to the Rio-based Getúlio Vargas Foundation– leaders say they are determined to do more, arguing that packed homes and uncloaked children have no place in today’s economic landscape.

Now Brazil has launched another multibillion-dollar antipoverty plan, called Brazil Without Misery, to reach the remaining 16 million Brazilians still living in extreme poverty. Expanding upon Bolsa Familia, it will increase cash transfers, improve public services, and create new job opportunities for the poor. Brazil’s new President Dilma Rousseff, who took office in January, says her aim is to eliminate extreme poverty within four years. (continue reading… )

Be Careful What You Wish For

Posted in News and Articles, Political Risk by politicalrisklatam on July 6, 2011

by Vander Giordano & Eduardo Gomide for Kroll Tendencias, July 2011.

Foreign firms bidding on infrastructure projects or buying up local companies in Brazil are understandably keen to get in on the country’s economic boom. But two projects gone awry provide a cautionary tale of the considerable risks that accompany potential rewards in Brazil.

In November 2009, The Economist noted that “Brazil has been democratic before, it has had economic growth before, and it has had low inflation before. But it has never before sustained all three at the same time. If current trends hold (which is a big if), Brazil, with a population of 192 million and growing fast, could be one of the world’s five biggest economies by the middle of this century, along with China, America, India and Japan.”

Predictably, Brazilians have embraced the optimistic scenario. They have concluded that it is Brazil’s time to shine. The media has reported extensively on how Brazil is finally tapping into opportunities in a changing world economy and fulfilling all the potential of its large population, fertile lands, vast mineral resources, and now huge deepwater oil reserves discovered in the last decade.

However, economic growth and prosperity – Brazil’s GDP grew 7.5% in 2010 – also bring the risks associated with excessive optimism and a gold-rush mentality. On top of the “big if” listed above, investors and companies need to pay careful attention to details when it comes to where they put their money. A consideration of just two areas – the potential pitfalls of Brazil’s rapidly growing infrastructure sector and compliance issues arising from new environmental legislation – show that a lack of such care can be costly. (continue reading… )

Exclusive: Embraer CEO sees risk from oil, euro zone

Posted in News and Articles, Political Risk by politicalrisklatam on June 21, 2011

by Cesar Bianconi for Reuters, June 20th, 2011.

Strong oil prices and the euro zone crisis threaten to cut short the recovery of an increasingly competitive aircraft manufacturing industry, the head of Brazil’s jet builder Embraer (ERJ.N)(EMBR3.SA) told Reuters on the eve of the Paris Air Show.

Frederico Curado also said in an interview late on Sunday that one of Embraer’s main clients, JetBlue Airways Corp (JBLU.O), could significantly cut its orders.

His comments could reinforce concerns that the impact of high oil prices on the aviation industry is beginning to spread to suppliers and aircraft manufacturers.

“The industry was recovering nicely and then the issue of the Arab countries and the oil price hike hit,” Curado said, adding that the Greek debt situation also weighed on the industry outlook.

With airline profits expected to fall from $16 billion in 2010 to around $4 billion this year, their appetite for new aircraft could fall, Curado said.

“The viability (of airlines) is again at risk.”

Embraer, one of Brazil’s flagship exporters, itself could see a substantial fall in orders. JetBlue, the U.S. low-cost airline, is “unlikely” to exercise its options for 100 jets, Curado said. (continue reading… )

Rousseff’s New Cabinet Picks Tasked with Handling Coalition

Posted in News and Articles, Political Risk by politicalrisklatam on June 15, 2011

by Roque Planas For Americas Society/Council of the Americas, June 14, 2011.

Keeping a coherent governing coalition together in Brazil is not easy. The country boasts 27 officially inscribed political parties, making it difficult for any one to come out on top. With the resignation of her Chief-of-Staff Antonio Palocci over allegations of ethics violations, Dilma Rousseff’s job of keeping the 15 parties in her coalition on the same page just got harder. The task now falls to Gleisi Hoffmann and Ideli Salvatti, whose diplomatic skills have yet to be tested on such a scale.

A towering political figure, Palocci began his political career as a far leftist and helped found the governing Workers Party (PT) in 1980. As he ascended politically, however, he grew closer to Brazil’s private sector, first as treasury minister under the Luiz Inácio “Lula” da Silva administration and then as a congressman from 2006 to 2010. Palocci became one of the few major PT figures to weather the “mensalão” scandal of 2005, in which high-ranking PT officials were accused of paying monthly salaries to minor legislators to support the Lula administration’s congressional agenda. But Palocci resigned on June 7, after the A Folha de São Paulo revealed he had multiplied his assets 20 times and purchased luxury properties between 2006 and 2010 through his consultancy.

Losing Palocci created a vacuum. According to The Economist, the president recruited Palocci into her administration “to act as the political enforcer to keep Rousseff’s unwieldy coalition in line.” He accomplished that goal partly by usurping the role of congressional liaison. So when Rousseff accepted his resignation, she also accepted that of Luiz Sérgio, head of Institutional Relations, the ministry charged with coordinating relations between the executive and Congress. He was widely considered ineffective at managing the differences among the governing coalition.  (continue reading… )

Dilma’s popularity survives crisis

Posted in News and Articles, Political Risk by politicalrisklatam on June 13, 2011

by Joe Leahy for Financial Times – Beyond Brics, June 13th, 2011.

Dilma Rousseff’s spring-cleaning of her fledgling government seems to have done her popularity little harm, if any.

Last week, the president lost her most important minister, Antonio Palocci, to an ethics scandal and was forced to replace him with a first-time senator, Gleisi Hoffman.

Now she has replaced her institutional affairs minister Luiz Sergio Oliveira with Ideli Salvatti, an experienced hand from her Workers’ Party (PT).

In spite of the infighting and the bad publicity surrounding Mr Palocci, who was accused of rapidly accumulating wealth while serving as a congressman, Ms Rousseff remains one of the most popular presidents in Brazilian history. (continue reading… )

Brasil Foods – doomed by inflation?

Posted in News and Articles, Political Risk by politicalrisklatam on June 13, 2011

by Samantha Pearson for Financial Times – Beyond Brics, June 10th, 2011.

It’s almost unthinkable.

The world’s biggest poultry exporter, Brasil Foods, could soon be history if Brazil’s competition commission decides to block the $3.8bn merger that created the company two years ago.

Late on Wednesday, Carlos Ragazzo, a director of Brazil’s CADE antitrust agency, voted against the deal, adding: “It’s rare in antitrust analyses around the world to find a transaction in which the probability of damage to the consumer and the market is so evident.”

In theory, the company sells such a vast share of the chickens and frozen meals in Brazil’s supermarkets that it could get away with charging higher prices.

What is not so evident is why it took two years to come to such a supposedly obvious conclusion. (continue reading… )


Ousted Palocci takes his job as member of Petrobras administration council

Posted in News and Articles, Political Risk by politicalrisklatam on June 9, 2011

by Merco Press News, June 9th, 2011.

Antonio Palocci, who on Tuesday stepped down as President Dilma Rousseff’s chief of staff over questions about his personal finances, will be taking a seat at Petrobras Administration Council, confirmed Brazil’s oil giant president Sergio Gabrielli.

“He is a highly competent man and his resignation from government is not linked at all with his nomination to the corporation”, said Gabrielli who revealed Palocci was elected to the post during an ordinary general assembly of the corporation’s shareholders.

“Petrobras councillors are elected during the once a year ordinary general assembly and spend one year in the job. Former minister Palocci is most competent and qualified and the fact he resigned from government is not linked to his mandate”, said CEO Gabrielli.

“The job belongs to the person elected, and it is not a post for a minister or former minister” he emphasized. (continue reading… )