Brazil makes new tax cuts to revive economy

Brazil’s government on Monday unveiled a new round of temporary tax cuts worth about $1 billion to boost the struggling automotive sector and other industries in its latest attempt to restore a lost economic boom.

Investor jitters about the economy at home and abroad helped send Brazil’s currency to its weakest closing level in three years on Monday. But Finance Minister Guido Mantega said the measures should help revive an economy that has been stagnant since mid-2011, while also providing protection from the debt crisis in the euro zone.

“If the crisis gets worse, if they don’t fix the problems in Greece, it will be certainly difficult for us to reach a 4.5 percent growth rate this year,” Mantega told reporters.

“But Brazil is in a position to react to the crisis and keep growing – I wouldn’t say at 4.5 percent, but to grow more than the 2.7 percent we had last year.”

The measures included a reduction until August 31 in the IPI industrial tax on some automobiles as well as the IOF tax on financial transactions for individual borrowers. The central bank also agreed to free up some 18 billion reais ($8.8 billion) in bank deposit requirements to boost car financing.

In exchange, banks agreed to increase lending and sweeten terms for auto financing, including a higher number of loan installments, Mantega said.

The plan is expected to benefit some of the world’s largest automakers that have operations in the country, including Italy’s Fiat SpA, Germany’s Volkswagen AG and U.S.-based General Motors Co and Ford Motor Co.

Those companies saw their sales fall in Brazil in April from March as car inventories climbed to their highest level since the global financial crisis of 2008, according to the national automakers’ association, Anfavea.

“We want Brazil to remain among the largest players in the global auto industry,” Mantega said, noting that last year the country became the third largest auto market after China and the United States.

President Dilma Rousseff’s government has launched more than a half-dozen stimulus packages in recent months, but data released last week indicated the economy contracted in each of the first three months of the year. Economists slashed their economic growth forecasts for 2012 in a central bank poll published on Monday to 3.09 percent from 3.2 percent a week earlier.

Mantega said the government would forgo about 2.1 billion reais ($1.02 billion) in lost tax revenue as a result of the new measures. That represents a relatively small proportion of Brazil’s estimated $2.5 trillion gross domestic product.

Brazil was regarded until recently as one of the world’s most dynamic emerging market economies, with annual growth rates above 5 percent. But the excitement has vanished over the past year as high taxes and the increased cost of labor and other inputs made the country’s industries increasingly uncompetitive.

Rousseff’s options for stimulus are limited by her pursuit of ambitious budget targets and the need to control inflation, which ended 2011 at a seven-year high of 6.5 percent.

In exchange for the tax breaks, automakers committed to lowering prices on compact cars and refrain from firing workers, Mantega said.

Brazil’s state development bank BNDES also agreed to lower interest rates on credit lines for machinery and industrial equipment.


Rousseff on Monday contended that Brazil is “300 percent prepared” to face further financial contagion from the euro zone crisis. She noted her country’s high levels of foreign exchange reserves, strong banks and relatively low debt and unemployment levels compared favorably to the “serious problems” in the United States and Europe.

In a speech in Brazil’s south, Rousseff said the country was better prepared to face a crisis than it was in 2008 and 2009, the last time that global shockwaves tipped it into recession.

Central Bank President Alexandre Tombini delivered a similarly upbeat message earlier on Monday in a speech in Sao Paulo, saying the economy should accelerate throughout the year.

“Nobody has a crystal ball … but we’re stronger than we were in 2008,” Tombini said.

Still, some investors appear to believe that the party in Brazil is over. The real is one of the worst-performing major currencies against the U.S. dollar this year – down 8.8 percent in 2012 after losing 1.4 percent on Monday.

The weaker currency has been greeted as positive news by Rousseff and many industry leaders, who hope it will make Brazilian manufacturers more competitive abroad.

Andre Pereira Perfeito, an economist for Gradual Investimentos in Sao Paulo, said in a note to clients on Monday that exports had recently “jumped significantly,” but that nobody knows whether a weaker currency can solve Brazil’s problems.

Some multinational companies have postponed or canceled investment plans out of frustration with Brazil’s high business costs and less bullish growth outlook.

ArcelorMittal, the world’s largest steelmaker, has suspended a $1.5 billion Brazilian expansion plan for lack of demand, Valor Economico newspaper reported on Monday, quoting the head of the company’s local unit.

Source: 4 Traders

Brazil’s Perspective on the Global Economy

After emerging from the 2008 financial crisis relatively unscathed, Brazil’s inevitable entrance into the club of major global powers is increasingly accepted. Stewart M. Patrick, senior fellow and director of the International Institutions and Global Governance program at the Council on Foreign Relations, and Carlos Simonsen Leal of the Brazilian Getulio Vargas Foundation discuss Brazil’s perspective on global finance and international security. Simonsen says:

1. “Every sensible Brazilian” is worried about the actions of the U.S. Federal Reserve and European Central Bank. Brazil, having suffered through hyperinflation, believes their injection of liquidity into markets is “dangerous.”

2. The exchange rates of the Chinese renminbi and the overvaluation of the real relative to the dollar are sources of concern for Brazil. “We are not protectionist at heart,” argues Simonsen, “but if everyone is playing a game where they don’t mind about liquidity and they want to devalue their currencies, we are not going to risk inflation.”

3. Brazil is opening many new embassies and consulates. It is motivated not only by commercial diplomacy (cultivating broader markets for Brazilian exports), but also by a desire to have a benign influence on relations among countries. “After all, Brazil is a country that hasn’t had a war in 150 years. Not many countries can say that.”

4. Brazil is a strong supporter of democracy, and has many common interests with democracies. “We’d like to see democracy everywhere,” says Simonsen.

5. Brazilians are divided about joining the United Nations Security Council. Opponents worry that it may be too costly, or that it’s too early–or perhaps that if the time comes for Brazil to join the body, it will be because the Security Council is no longer powerful. For now, the Group of Twenty’s elevation to the premier forum for global economic coordination has satisfied some Brazilian aspirations to flex its muscles around the world.

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Embraer and Hawker prepare for new dogfight

Brazil’s Embraer and US rival Hawker Beechcraft are set to rejoin hostilities in their fight over a politically charged contract to provide the US Air Force with light attack aircraft.

Embraer, the world’s third largest commercial aircraft builder, said late Tuesday that it was preparing to file a new bid to win back the contract to supply the aircraft for use in Afghanistan, which it won last year only to see it abruptly cancelled earlier this year.

The Air Force restarted the competition last week with an amended request for proposals that included a condition Embraer said would favour the bidder that can prove their combat aircraft has more past operational experience.

“We have six operational customers that are utilising the aircraft as a light combat aircraft,” said Luis Carlos Aguiar, the head of Embraer’s defence and security division.

The new bidding process will be closely watched by Brazil’s government.

After a suit from Hawker contesting the process, the Air Force decided to re-tender the contract, citing problems with its own internal documentation.

The cancellation followed lobbying by Republican politicians against awarding the contract to Embraer and Sierra Nevada, its US partner. They complained it would amount to sending jobs offshore.

The dispute comes as Brazil is preparing billions of dollars of military contracts including an eventual order for jet fighters that Boeing of the US is contesting against Sweden’s Gripen and France’s Dassault.

Although small by US military standards, the air force light attack contract – worth an initial $355m for 20 aircraft, rising to possibly $1bn – would be a showcase deal for Embraer.

Not only would it represent Brazil’s first chance to produce attack aircraft for the world’s most powerful air force but it would also open the door to other members of the North Atlantic Treaty Organisation for Embraer’s growing range of aircraft and defence systems.

Mr Aguiar said the new process would not take into account previous “fly-offs” – live trials of the candidate aircraft done with the US Air Force.

But it would take into account each contender’s record as a military trainer and combat aircraft. Both aircraft, Embraer’s Super Tucano and Hawker Beechcraft’s AT-6, started life as trainers.

The AT-6, however, is still at the prototype stage while the Super Tucano has been used in combat operations in Colombia and is being sold to air forces around the world.

Hawker Beechcraft, which recently filed for bankruptcy, complained on Tuesday about rules allowing “antiquated” ejector seats in the bidding but said it was otherwise still studying the request for proposal.

The companies must submit their new proposals in the coming weeks after which the US Air Force will choose a new winner in 2013. The first aircraft will arrive in Afghanistan in late 2014.

Source: Financial Times


Brazil Journalists Visit Boeing

As Boeing continues to build its presence in Brazil, the company last week hosted a group of six economic and political reporters from Brazil’s largest newspapers and web portals.

The visit included briefings from Boeing Defense Space & Security, Commercial Airplanes and the U.S. Government. The journalists were briefed on the company’s current growth and investment activities in Brazil, its F-X2 campaign for combat aircraft and the appointment of a Boeing Brazil president.

“Economic drivers around the world are changing and accelerating our international growth strategy,” said Dennis Muilenburg, BDS President and CEO, during a meeting with the journalists in St. Louis. “Our goal is to reach 30 percent in international sales and sustain it, that’s one reason we’re investing in Brazil. We are confident in our Super Hornet offering and technology release package to Brazil, and our ability to deliver. Our interests in Brazil, however, go beyond the F-X2 competition. We see Brazil as a long-term partner as we engage and collaborate with Brazilian industry and invest in R&D, students and education.”

The tour began with briefings at Boeing’s facility in Arlington, Va., followed by a visit to the U.S. State Dept., where they met with Principal Deputy Assistant Secretary Tom Kelly. The main topic during the meeting with Kelly was technology transfer of the Super Hornet to Brazil.

“Technology transfer is the key component in the F-X2 competition,” said Joe McAndrew, regional director, International Business Development for Europe, Israel and Americas. “Brazil wants to have access to technology so it can further develop its defense industry and the U.S. Government is very supportive of the F/A-18E/F Super Hornet campaign in Brazil, having provided unprecedented approval of the sale and technology transfer of the Super Hornet to Brazil.”

While in the Washington, D.C., area, the reporters also visited the new Cyber Engagement Center, where they learned about Boeing’s cyber solutions and products.

“I’ve always known Boeing for its commercial and military aircraft, but I had no idea the company has such diversified portfolio of products such as cyber solutions,” said Adriano Ceolin, reporter of IG, a Brazilian news portal. “This has been a great experience. The media tour was very informative and I hope to be able to come back and learn about other Boeing products.”

The agenda for the Brazilian journalists also included a visit to Naval Air Station Oceana, Va., where they met with U.S. Navy pilots and got a close look at the Super Hornet. In St Louis the reporters toured the F/A-18 production line and flew in the simulator.

The group also visited the Seattle area, where they spent the day touring Boeing’s Everett, Wash., final assembly factory and the Customer Experience Center.

They were briefed on Boeing’s partnership efforts in Brazil, including current and future biofuel opportunities and about the rapidly growing commercial aviation market in Latin America, which calls for more than 2,500 new airplanes valued at $250 billion over the next 20 years – more than 40 percent of which will be for Brazilian carriers.


Brazil Coffee Discount Steady as Trade at a ‘Standstill’

The discount buyers are getting on coffee from Brazil, the world’s largest producer, held steady this week on “standstill” trading after prices in New York resumed their slide, according to Flavour Coffee.

Fine cup beans for May and June shipment are trading at a discount of 8 cents a pound to the price on ICE Futures U.S. in New York, data from Rio de Janeiro-based broker showed. Buyers of good cup beans for shipment in June and July are getting a discount of 15 cents a pound to the exchange price, according to the data. Both were unchanged from last week.

Arabica coffee fell as much as 4 percent in New York yesterday as fears of a frost in Brazil eased. Coffee areas will be free of frost for the next 10 days, forecaster Somar Meteorologia said on May 2. A frost alert for Parana, Sao Paulo and Minas Gerais, Brazil’s largest arabica-producing state, was issued by government’s Meteorology Institute, known as Inmet, on May 1, sending prices up as much as 2.8 percent.

With “weaker ICE performances, business went to a complete standstill as producers somewhat were able to keep their offers unchanged,” Flavour Coffee said in a weekly report e-mailed yesterday.

Temperatures in major coffee areas stayed at 8 degrees to 12 degrees Celsius (46 to 54 degrees Fahrenheit), far from freeze levels, Flavour Coffee said. Freezing in Brazilian growing regions can damage trees bearing the following year’s crop. The last major frosts happened in 1994 and in 1975, sending prices up in 1997 and to a record in 1977.

Robusta Premium

Conillons, as Brazilian robusta coffee is known, are trading at a premium of 4 cents a pound to the price on NYSE Liffe in London for May, June and July shipments, up from 3 cents a pound last week, data from the broker show.

“Arrivals of new crop keep improving with producers focused on harvesting and drying procedures,” Flavour Coffee said. “Surprisingly prices are firmer, with reasonable demand for both new and current crop,” according to the report.

Harvesting of the 2012-13 robusta crop has started in Rondonia and Espirito Santo, the main growing states, according to Cepea, a University of Sao Paulo research group.

Arabica coffee is grown mainly in Latin America and is favored for specialty drinks such as those made by Starbucks Corp. (SBUX) Robusta beans are grown mainly in Asia and parts ofAfrica and are used in instant drinks and espresso.

Robusta coffee for July delivery rose 0.5 percent to $1,984 a ton by 10:30 a.m on NYSE Liffe in London. Arabica coffee for July delivery rose 0.4 percent to $1.765 a pound on ICE.

Source: Bloomberg

Brazil To Hold Second Transmission Auction Of 2012 In June

Brazil plans to auction licenses for six power-transmission projects in June, including a lot that failed to attract bidders in an auction last month, electricity regulator Aneel said Wednesday.

Brazil will auction off rights to build 678 kilometers of transmission lines, as well as build four electric substations. The projects are located in the Brazilian states of Rio Grande do Sul, Parana, Mato Grosso do Sul, Minas Gerais and Bahia.

The winner will be determined by whomever accepts the lowest annual revenue from the projects. Winners will have up to 24 months to get the projects up and running, and Aneel expects total investment to reach 920.8 million Brazilian reais ($480 million).

Brazil’s government-controlled utility Eletrobras swept the auction last month, taking all three lots that were bid on. The fourth lot, a 90-kilometer transmission line, received no bidders. The lot details were revised by Aneel after another study and the revised project will be included in next month’s auction, the regulator said on its website.

Source: The Wall Street Journal