Brazil’s foreign policy and a dissident escape

Brazil’s foreign policy and a dissident escape. Itamaraty, as Brazil’s foreign ministry is known, prides itself on having Latin America’s most professional diplomats. But nobody in Brazil’s government comes out well from an extraordinary incident involving a Bolivian opposition politician that has cost the foreign minister, Antonio Patriota, his job.

Roger Pinto, an opposition senator, sought refuge in Brazil’s embassy in La Paz in May 2012 after he had accused ministers in Bolivia’s socialist government of involvement in drug-trafficking. He was in turn deluged with corruption charges, and claimed he was being politically persecuted. Brazil swiftly agreed to grant him asylum. But Evo Morales, Bolivia’s president, refused to grant Mr Pinto safe-conduct to leave the country. Brazil’s president, Dilma Rousseff, is reported to have ordered that no attempt be made to extract Mr Pinto without the consent of Mr Morales, an ally of the ruling Workers’ Party (PT).

But on August 23rd Brazil’s chargé d’affaires in La Paz, Eduardo Saboia, took matters into his own hands. Escorted by five Brazilian marines, he and Mr Pinto were driven to Brazil, a 22-hour journey. Mr Saboia said he feared for Mr Pinto’s mental health after 455 days of confinement in the embassy. Brazil’s opposition hailed him as a hero. Some in the PT muttered about extraditing Mr Pinto, even though he was granted asylum.

Ms Rousseff, too, was not amused. She ordered Mr Patriota, who claimed to have had no prior knowledge of Mr Saboia’s escapade, to swap jobs with Luiz Alberto Figueiredo, Brazil’s ambassador to the United Nations. Her lack of chemistry with Mr Patriota is well-known; but she likes Mr Figueiredo, who was in charge of last year’s Rio+20 environmental summit.

The change will have little effect on Brazil’s foreign policy, in which Ms Rousseff is less interested than her predecessor, Luiz Inácio Lula da Silva. The decisive voice in relations with Latin America was not Mr Patriota’s but that of Marco Aurélio Garcia, a PT official who has acted as presidential foreign-policy adviser to both Lula and Ms Rousseff.

This two-headed command is the nub of the problem. Many of Itamaraty’s diplomats quietly chafe at a foreign policy that under Mr Garcia’s sway has given priority to the PT’s friendships with the likes of Mr Morales and Venezuela’s Nicolas Maduro, rather than to what they see as Brazil’s long-term interest in supporting pluralist democracies in the region. Mr Saboia, who is now under investigation, chafed not so quietly.

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Brazil Growth Beats Forecast on Investment

 

Brazil growth beats forecast on investment on the second-quarter.Brazil’s economy expanded more than forecast by all analysts in the second quarter, as government stimulus propped up investment and a weaker real boosted the outlook for manufacturing.

Gross domestic product expanded 1.5 percent during the April to June period, or an annualized 6 percent, the national statistics agency said today. That was the most since the first quarter of 2010 and more than all 44 forecasts from analysts surveyed by Bloomberg, whose median estimate was 0.9 percent. GDP expanded 3.3 percent from the same quarter last year.

One real coins are produced at the Casa da Moeda, Brazil’s national mint, in Rio de Janeiro, on Aug. 28, 2013. Photographer: Dado Galdieri/Bloomberg

President Dilma Rousseff has slashed payroll taxes and boosted subsidized lending to companies in her bid to pull Latin America’s largest economy out of a two-year slowdown ahead of elections next year. Those efforts are being undermined by inflation that’s hovering near the 6.5 percent upper limit of the government’s target range and is forcing the central bank to raise borrowing costs. The real has declined more than any other major currency in the past three months, further pressuring prices.

“Growth is being pushed up by investments and last year we saw the economy driven by consumption,” Luciano Rostagno, chief strategist for Banco Mizuho do Brasil SA, said in a phone interview from Sao Paulo. “Now we have a better mix of growth. So yes, the measures had some positive effects on the economy, but the problem is inflation remains high.”

Raising Forecasts

Following the release of today’s report in Rio de Janeiro, Bradesco BBI raised its forecast for growth this year to 2.6 percent from 2.2 percent, citing the benefits of a weaker real and payroll tax breaks for industry. Goldman Sachs Group Inc. played down the performance, saying leading indicators suggest growth will be virtually flat in the third quarter.

Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, rose four basis points, or 0.04 percentage point, to 10.45 percent at 1:38 p.m. local time. The real, which has declined 11 percent in the past three months, weakened 0.8 percent to 2.3791 perU.S. dollar.

The worst is over for Brazil, and improving international conditions bode well for growth of 4 percent in 2014 and beyond, Finance Minister Guido Mantega told reporters today in Sao Paulo. Mantega held the government’s 2.5 percent forecast for 2013, adding that second-quarter growth won’t pressure inflation.

Investment Rates

Today’s GDP data beat analysts’ median forecast for the first time since the last quarter of 2011. Investment, which declined last year as Brazil expanded at a quarter of the 3.5 percent pace of the global economy, continued to recover, jumping 3.6 percent in the second quarter. Despite the rebound, Brazil still has one of the lowest investment rates of major emerging markets at 18.6 percent of GDP.

“I don’t think in coming months there will be a reversal in the march of investments, which was the biggest stimulator of the economy,” Mantega said in a conference call. “The conditions that brought about that investment increase will remain: very large reduction of investment costs, reduction of taxes, low cost of financing, and conditions to expand investment in coming years.”

Agriculture rose 3.9 percent, while a weaker real helped industry expand 2 percent and exports jump 6.9 percent.

Rousseff’s government has said manufacturers will get a boost from the weaker real, after a commodities-fueled rally in the currency over the past decade eroded industry’s competitiveness and opened up a flood of imports.

Currency Slide

In the near-term, the slide in the currency is challenging the central bank’s ability to curtail inflation, which has remained above the 4.5 percent midpoint of the target range since Rousseff took office in January 2011, reaching a 20-month high (BZPIIPCY) of 6.7 percent in June. Price increases subsided to 6.27 percent in July as food prices declined. Inflation contributed to a slowdown in household spending, Mantega said.

To curb volatility in the foreign exchange market, the central bank this month announced a $60 billion intervention program.

Spending restraint by the government could also help ease price pressures, though that may prove more difficult with Rousseff gearing up for an expected re-election run and the government targeting 4 percent growth, said Daniel Snowden, emerging-markets analyst at Informa Global Markets. Analysts surveyed last week by the central bank forecast growth of 2.2 percent this year and 2.4 percent in 2014.

‘Go Big’

“If they go big, that will help boost growth, but 4 percent is a lot, especially considering the global backdrop is not massively helpful,” Snowden said by phone from London.

With private banks restricting credit in the first half of 2013, public lenders stepped up their efforts, disbursing at six times the rate of their private counterparts. Brazil’s development bank BNDES lent a record 88 billion reais ($37 billion) over that period, with about two-thirds going to infrastructure and industry. That will continue as lending balloons to as much as 190 billion reais this year, BNDES president Luciano Coutinho said Aug. 14.

The government plans three electricity auctions this year to draw 100 billion reais in investments and also will auction rights to develop Brazil’s biggest oil discovery in October.

Industry confidence, as measured by the national industry confederation known as CNI, fell to its lowest level in four years in July, before rebounding in August. Consumer confidence, as measured by the Getulio Vargas Foundation, did the same. Mantega said the pick-up in growth in the second quarter will help boost confidence.

“The second quarter was a bright spot,” Carlos Kawall, chief economist at Banco J. Safra SA, said by phone from Sao Paulo before today’s report. “Third quarter will for sure be weaker, but we have no evidence so far that that the economy has collapsed.”

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Brazilian Middle Class Lives Longer

Brazilian middle class lives longer, at list it is what looks like, when the increasing population is under the lights. Brazil’s population will surpass 200 million this year for the first time, and will continue rising longer than previously estimated as members of the nation’s expanding middle class live longer than their parents.

According to the report published by the national statistics agency, the population will peak at 228.4 million in 2042 before stabilizing at about 218 million in 2060.

As Brazilian women enter the workforce in larger numbers, they’re waiting longer to start families and giving birth to fewer children. The country’s fertility rate has declined sharply since the 1970s, when women on average had more than four children, to 1.77 births per woman currently, below the U.S. rate of two per woman in 2009. In 2034, the rate will fall to 1.5 and stay at that level through 2060, the study found.

At the same time, life expectancy has grown to an average 71.3 years for men and 78.5 years for women. By 2041, both men and women will be living beyond the age of 80, according to the study, which was based on census data

The central bank has regularly highlighted the economic benefits reaped from Brazil’s so-called demographic bonus, whereby more people enter the workforce each year than leave it, making it easier for governments and families to save. As the population ages, and

greater access to medical care allows Brazilians to live as long as wealthier populations in Europe, the opposite takes place, as demands for health care and pensions strain budgets.

Brazil’s population will reach 201 million this year, the study found. In 2008, it was forecast to surpass 200 million in 2015.

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LATAM Airlines struggles with Argentina, Brazil headwinds

LATAM Airlines Group SA, which created Latin America’s largest air carrier just over a year ago, is battling storms outside its home country, with its Argentine domestic operations uncertain and Brazil’s weak economy dragging on its earnings.

LATAM , which was formed when Chile’s LAN took over Brazil’s TAM in 2012, said on Wednesday it was weighing legal action after Argentina ordered it to vacate its hangar at Buenos Aires’ domestic Aeroparque airport within ten days..

Without the use of the hangar, it would be impossible to maintain LAN’s short- and medium-range fleet within Argentina, putting in danger its entire domestic operation, a company spokesman in Buenos Aires said.

News of Argentina’s order coincided with the release of LATAM’s second-quarter results, which disappointed the market with a wider-than-expected loss.

The group reported a loss of $330 million in the three months to June late on Tuesday, wider than analysts’ expectations for a $276 million loss.

On Wednesday, LATAM’s shares slid 6 percent, extending a fall in which its market value has fallen by more than half since the merger was completed in June 2012.

However, the quarter is traditionally the weakest, and the loss was narrower than $449 million a year ago, according to company figures revised to reflect the merger.

Compounding its woes, on Tuesday the airline’s cargo unit LAN Cargo became the ninth to be convicted after a Canadian investigation into cargo price-fixing, which resulted in a fine of $938,000.

LATAM’s problems are a far cry from the record of the Chilean flagship airline that was once a darling of the market, considered a model of efficiency and one of the few to hold investment grade debt.

“I think the only way the shares will head back up is when the company begins to deliver effectively,” said Pablo Alvarez, an analyst at Banco Penta in Santiago.

ARGENTINE ISSUES

The Argentine decision is the latest salvo in a long-running political spat that has seen LATAM’s regional ambitions collide with Argentina’s increasingly protectionist policies.

The latest decision, handed down by Argentina’s National Airport Agency on Tuesday night, affects domestic flights out of Aeroparque airport.

The decision was part of a wider set of actions against LATAM Airlines in Argentina, said Roberto Alvo, vice president for strategic planning and development.

“Even though it’s early to evaluate the impact of the measure, we believe the decision is illegitimate, and we will evaluate taking every legal action necessary to (uphold) our contract,” Alvo said.

He added that LAN’s international operations from Argentina would not be affected.

In recent years Argentine President Cristina Fernandez has introduced protectionist trade policies, currency controls and heavy regulation that initially played well with her core Peronist support base but have made the country an outcast in international markets.

In 2012, LAN Argentina had about 32 percent of domestic market share to state-owned Aerolineas Argentinas’ 66.5 percent. Around 2.3 million passengers flew with LAN Argentina last year, according to LATAM data.

BRAZILIAN ISSUES

Brazil’s slumping economy and real currency have become an increasing headache for the airline. Domestic operations there make up over one-third of the airline’s total passenger operations.

LAN has been cutting costs and reducing flights at TAM as it attempts to convince investors it can do the same for the merged group as when it was the Chilean flagship airline and boasted double-digit margins.

In the second quarter of 2013 LATAM’s operating margin was 1.3 percent, and the company said it was targeting a margin of between 4 percent and 6 percent for the full year 2013.

“We see no fundamental reason to think about not being able to come back to the previous LAN margins,” Alvo said on a conference call on Wednesday.

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Brazil’s OGX expected to return oilfield to government

OGX Petroleo e Gas SA , the oil company of Brazilian tycoon Eike Batista’s tottering EBX Group, will likely return its only producing field to the Brazilian government, a source directly involved in the matter said on Tuesday.

The source told Reuters that OGX is expected to return the offshore Tubarão Azul oil field to the government next year because its declining output will not cover the cost of the equipment needed to continue operating.

Tubarão Azul is OGX’s only field in production and its failure to produce oil at the levels that were originally expected was one of the factors that set off the decline of the EBX group of companies.

“We expect Tubarão Azul will stop producing in mid-2014 because of the cost of the platform there,” said the source who asked not to be named due to the sensitivity of the matter. The source said OGX’s poor financial situation precluded the leasing of a less costly platform.

“Production is low and I don’t think they can survive at that level. Everything points to them wanting to return the field,” the source added.

Reuters was unable to immediately contact representatives of OGX by telephone.

Debt-ridden Batista is accelerating the breakup of his energy, port and mining empire, ceding control to new investors as some of the companies he founded scramble for fresh capital.

 

OGX sold a 40 percent stake in two of its most promising blocks to Malaysian state oil company Petroliam Nasional, or Petronas for $850 million in May.

With cash holdings plunging and Batista’s own fortune largely earmarked to guarantee Grupo EBX’s estimated $11 billion in debt, the companies in his group face the choice of trimming capital spending or reducing their size to stay afloat.

After declaring several oil field prospects non-commercial, OGX has been looking for partners to pick up some of the large costs of ramping up output at several offshore fields.

At the beginning of July, the company said it would not invest any more in increasing the output of Tubarão Azul and that production could halt next year.

In a filing earlier this month, OGX said Tubarão Azul produced just 900 boepd in July, hurt by damage to underwater centrifugal pumps. The field produced 9,700 boepd in June.

Last week, the Rio de Janeiro-based company posted a loss of 4.7 billion reais ($2 billion) in the quarter, compared with a shortfall of 398.7 million reais a year earlier.

A press spokesperson for Brazil’s oil regulator ANP said the agency expected a decision on the future of the field soon. If returned to ANP, the field would be put up for auction again.

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Brazil’s Anima Educação hires Itaú for IPO-sources

Anima Educação SA, a Brazilian education company, hired investment banks Itaú BBA and Bank of America Merrill Lynch to advise on an initial public offering, two people with direct knowledge of the situation said on Friday.

Anima, which owns three universities located in the cities of Belo Horizonte and Santos, in southeastern Brazil, wants to sell shares to investors to expand and strengthen its capital position, said one of the sources, who declined to be identified because the process is private. Anima was founded in 2003.

The company’s decision to sell shares in an IPO coincides with efforts by players in Brazil’s thriving education sector to bring in investors to help fund expansion and acquire smaller rivals. Kroton Educacional SA and Abril Educação SA are companies in the sector that have won over investors amid President Dilma Rousseff’s vow to work closely with private companies to boost education coverage and quality.

Investors have seen such an association as a boon for profits and the guarantee for moderate regulation amid a tumble in the country’s equity market this year. Shares of education companies have gained about 7 percent this year, compared with a 13 percent drop in the benchmark Bovespa stock index.

Recife, Brazil-based Ser Educacional might also pursue an IPO before the end of this quarter, sources with knowledge of the situation told Thomson Reuters’ IFR. According to the IFR report, the investment banking units of Grupo BTG Pactual SA , Credit Suisse Group, Goldman Sachs Group Inc and Banco Santander SA were hired to manage the deal.

Itaú BBA is the investment-banking unit of Itaú Unibanco Holding SA, Brazil’s largest bank by market value. Bank of America Merrill Lynch is the investment bank of Bank of America Corp.

A Itaú spokesman declined to comment on the mandate. The media offices of Bank of America Merrill Lynch and Anima did not answer phone calls after working hours. (Reporting by Guillermo Parra-Bernal and Natalia Gómez; Additional reporting by Aluísio Alves; Editing by Ken Wills

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