Category: Brazil

Brazil’s new Finance Minister Guido Mantega named Carlos Kawall treasury secretary to oversee government debt sales as he sought to calm investors by unveiling part of his new team. Bernard Appy became deputy finance minister, a post he held from 2003-2005. Financial markets are concerned the new minister will boost spending and provoke inflation ahead of coming elections and the new appointments may soothe these worries. Mantega also promised to keep spending in check and aim for the same fiscal targets as his predecessor. Former Finance Minister Antonio Palocci and his top officials resigned this week because of a bribery and corruption scandal. Mantega got another boost today when the central bank lowered its 2006 inflation forecast to 3.7 percent compared with a target for the year of 4.5 percent.

Brazilian markets rebounded Wednesday after newly-appointed Finance Minister Guido Mantega reassured investors he would stick to his predecessor’s conservative economic policies. The currency rebounded 0.5 percent and the stock market rose just over 2 percent after Mantega said he would continue to target low inflation. Mantega took over following the resignation of Antonio Palocci amidst bribery and corruption allegations that have plagued the government since last June. Opposition politicians have sworn to keep up the pressure on the government. Mantega was quoted yesterday as saying interest rates in Brazil were too high, fuelling speculation he would pressure the central bank to lower them and risk inflation accelerating. President Luiz Inacio Lula da Silva also said in a speech Wednesday that keeping inflation in check would continue to be a priority.

Italian car-maker Fiat has said it is to increase investment in Brazil by around $1 billion over the next three years. Fiat will spend the money at its local plant to develop new cars and technology in the face of increased competition from Volkswagen and General Motors, in particular in the small autos market which is benefiting from Brazil’s economic recovery. Fiat also wants to keep up with the technology of ethanol-consuming cars, popular in a country that has pioneered this fuel as a cost-effective alternative to gas. Almost 70% of cars produced in Brazil can run on ethanol, gasoline or a mixture of the two.

Brazil’s newly appointed finance minister, Guido Mantega, has sent a clear message to the markets regarding the country’s interest rates. Speaking in a television interview yesterday, Tuesday, he said that Brazil needed “more civilized interest rates”. Brazil’s benchmark lending rate is one of the highest in the world, at 16.5%. Mantega also said that the real was overvalued. Brazil is in flux in the wake of a series of high-profile resignations following Antonio Palocci’s decision on Monday to step down as finance minister. This followed repeated allegations of his involvement in the bribery and corruption scandal that has plagued the government since last June. Monday also saw the departure of Palocci’s second-in-command at the finance ministry, Murilo Portugal, as well as the head of state-owned Caixa Economica Federal, Jorge Mattoso, who has been charged with violating bank secrecy laws. Meanwhile, Joaquim Levy, Brazil’s treasury secretary, has confirmed that he will be leaving government to take up a post at the Inter-American Development Bank. And reports are circulating that high-ranking officials at the Central Bank may also step down. Markets have so far reacted nervously to the appointment of Mantega and the departure of many of the front-line architects of Brazil’s economic recovery. Yesterday morning, Tuesday, the currency had fallen by almost 3% against the US dollar and stocks had dropped by 1%.

Brazil’s finance minister, Antonio Palocci, finally tendered his resignation yesterday, Monday, after mounting pressure on him to go. He becomes the highest-profile casualty of the bribery and corruption scandal that has plagued Brazilian politics since last June. Palocci, who helped to coordinate Luiz Inácio Lula da Silva’s presidential campaign in 2002, was responsible for moving the leftist PT party towards the center and ultimately into power. Appointed finance minister in 2003 and regarded as one of the main architects of Brazil’s economic recovery, Palocci has been accused of involvement in illegal campaign financing while mayor of Ribeirão Preto in São Paulo state. Despite allegations of wrongdoing, he has enjoyed the full support and backing of President Luiz Inácio Lula da Silva. Meanwhile, ratings agency Standard & Poor’s has said that Palocci’s departure will not hurt the country’s ratings: “The sovereign ratings reflect a broad view of Brazil and its government. Finance Minister Palocci’s policies embodied prudence but, in our view, this was government policy and not the minister’s personal strategy.” A possible replacement for Palocci is Guido Mantega, president of state development bank BNDES.

Société Générale has bought the controlling stake in Brazilian consumer credit firm Banco Pecunia. The French bank acquired 70% of Pecunia while Portugal’s Tecnicredito bought the remaining 30%. SocGen sees great potential in Brazil’s growing consumer credit market and targeted Pecunia for its broad reach: the company distributes locally via 1,200 retail outlets and 1,800 car dealerships.

Brazilian authorities have arrested the head of Credit Suisse’s private banking unit in São Paulo, Peter Schaffner, and have confiscated the passports of another six bank executives, as part of an ongoing investigation into money-laundering activities. The Zurich-based bank has stressed that it is cooperating fully with authorities.

Tele Norte Leste Participações (Telemar), Brazil’s largest telephony company, has begun the sale of $1 billion worth of debenture bonds. If successfully completed, this will be the largest such bond offering in Brazil to be made by a non-financial corporate issuer. The local market bonds, which mature in 2011 and 2013 will be used to reduce the company’s debt costs.

Brazil’s Treasury Secretary for the Ministry of Finance, Joaquim Levy, one of president Luis Inácio Lula da Silva’s big hitters, is widely expected to be leaving government to take up the post of vice-president at the Inter-American Development Bank (IADB). Levy, who took over responsibility for international issuance from the Central Bank two years ago, is widely praised for having altered the country’s international debt profile significantly as a result of several deft deals. It is thought he will announce his resignation at the upcoming annual meeting of the IADB board of governors to be held in Belo Horizonte from April 3-5. Levy will replace outgoing Brazilian economist João Sayad. Levy has been part of government since 2000 and has been at the finance ministry as Treasury Secretary since 2003. Earlier in his career he worked at the International Monetary Fund (IMF).

Brazilians increased their spending in January, with retail sales month on month up 2.35%, representing a year-on-year increase of 6.54%. This is the first surge in sales in almost five months, perhaps indicating that the continuous cuts in interest rates in recent months are having the desired effect. The next interest rate review by the Central Bank is on April 19, when the Bank is expected to lower rates by around three quarters of a percentage point.