Brazil's credit rating one notch above junk status (August 12, 2015)

Brazil's losing its battle to retain its credit rating. Moody's downgraded Brazil's government bond rating to one notch above junk status on Tuesday, citing weak economic growth and rising government spending, reports the Wall Street Journal. (See yesterday's post on the political implications.)

The downgrade put the rating agency in line with Standard & Poor’s Ratings, which also has Brazil’s rating one notch into investment-grade territory. However Moody's also changed its outlook to stable from negative, which could be considered positive according to the piece.

Brazilian President Dilma Rousseff and leading senators will introduce an agenda of market-friendly proposals this week called the "Brazil Agenda." A senior official in Rousseff's cabinet told Reuters that the "positive" dialogue with Senate President Renan Calheiros was designed to counter the aggressive opposition of the speaker of the lower chamber, Eduardo Cunha, since his recent defection to the other side of the floor. The final list of proposals should be ready today or tomorrow and many are likely to draw opposition within Rousseff's own Workers' Party. Among them are regulating outsourced labor, raising inheritance taxes and introducing paid services in Brazil's government-provided healthcare system.

In the meantime the Brazilian government's budget deficit reached a record breaking 8.1% of GDP -- one of the highest across emerging and developed economies and the highest in Brazil since the beginning of current data in 1995, reports the Latin American Herald Tribune.

The Brazilian investigation into a massive corruption scandal at the state-run oil firm Petrobras have detailed suspected wrongdoing on U.S. soil, reports the Wall Street Journal. New evidence purports to show two suspects working out the details of a bribe-for-contracts deal at a Manhattan hotel, adding to the international scope of an investigation that already spans four continents. The U.S. Justice Department and the Securities and Exchange Commission opened investigations last year into Petrobras, but this evidence could provide a "jurisdictional hook" for U.S. authorities explains a source in the piece.

News Briefs

• The New Yorker has a piece focusing on the unlikely leadership of Argentina and Colombia in transgender rights. "The Catholic Church, which historically has played an outsized role in shaping public policy in Latin America, still has a strong influence over marriage and reproductive regulations, but a confluence of circumstances has made trans advocacy uniquely viable in these same countries," explains Jonathan Blitzer. The piece focuses on the background to a Colombian government directive allowing citizens to change their gender on identity documents without first undergoing gender-reassignment surgery or obtaining permission from a medical professional. Such requirements are common around the world. The piece contrasts the advanced state of trans and gay legislation in several South American countries -- especially Argentina -- with the limited scope for reproductive rights (abortion) in most of the region.

• Daniel Ceballos, one of Venezuela's most prominent opposition leaders, will be released house arrest while he awaits trial, the government announced yesterday. The former mayor of the restive western city of San Cristobal is charged with "civil rebellion," and is being released for health reasons related to a 20-day hunger strike in June. The move provides hope for dozens of jailed critics of the administration, reports the Associated Press. In May, Ceballos won a primary from behind bars to run for a congressional seat, but elections officials later barred him from holding public office. The release of jailed opposition leader Leopoldo Lopez and Ceballos is key demand in ongoing high-level talks aimed at normalizing diplomatic relations between the U.S. and Venezuela, reports the AP. Ceballos' release to house arrest can be interpreted as a goodwill gesture and may minimize the opposition leader's power as a symbol of injustice.

• As if tumbling oil prices weren't enough of a threat to Venezuela's teetering economy,Bloomberg reports that 68 percent of the country's international reserves are in bullion -- a concerning fact considering that the precious metal has tumbled 15 percent from this year’s high in January as the global slump in commodities deepened. "The decline threatens to erode reserves the cash-strapped country relies on to pay its foreign debt. Venezuela, which gets more than 95 percent of its export revenue from oil, will see its hoard plunge by $1 billion if bullion prices don’t rebound."

• Caracas Chronicles has an interesting piece on bachaqueros in Venezuela, people who buy regulated goods and resell them at black market prices. Spectacular price distortions "make waiting in line one of the most lucrative jobs this side of drug-dealing." Local mayors are proposing public shaming as a way of curbing the illicit activity, including making perpetrators wear orange jumpsuits and clean up town streets as punishment. Human rights NGO Provea has, however, pointed out that that local mayors have no legal power to impose such punitive actions, since, in fact, only the Judiciary does.

• The Mexican government announced Miguel Basanez, U.S.-based Mexican academic, as its new ambassador to Washington. Basanez is currently an adjunct professor at Tufts University's Fletcher School and will be filling a key diplomatic post that has been vacant for five months, since former Ambassador Eduardo Medina Mora was nominated to Mexico's Supreme Court, reports the Associated Press.

• The New York Times has a piece on the soaring gang violence in El Salvador, which has reached levels unseen since the 1980's civil war convulsed the country. A government strategy from the beginning of the year to combat gangs with military force has backfired, according to the piece and violence has intensified. The police are given free reign to shoot in "self-defense" as part of a crackdown intended on getting gangs out of slums, but "a growing number of voices are beginning to warn against the abuses as innocent people are caught up in the police sweeps and reports emerge that police are killing gang suspects." (See July 23rd's post on an El Faro investigation into a police massacre of 8 suspected gang members.)

• The U.S. has long pushed countries battling powerful drug cartels to pursue a strategy of killing or arresting their leaders, according to the New York Times. But in Mexico that has resulted in fragmented cartels and increased violence. "Like a hydra, it seems that each time the government cuts down a cartel, multiple other groups, sometimes even more vicious, spring up to take its place." The piece looks at the case of Chilapa, where two gangs are fighting for control of a route for smuggling marijuana and opium paste that goes through the town. They were able to come into power after the government decapitated the Beltrán Leyva cartel, which had previously dominated the region. (See May 22nd's and May 28th's briefs for details on the turf war between Los Rojos and Los Ardillos that led to an armed occupation of Chilapas.)

• Three quarters of Mexicans believe that corrupt officials helped drug cartel boss Joaquin "El Chapo" Guzmán escape from prison last month, reports The Guardian.

• A U.S. appeals court has ruled that a New York judge went too far in a recent decision favoring a second group of holdout investors in a longstanding debt dispute with Argentina, reports theAssociated Press. The court ordered U.S. District Judge Thomas Griesa to limit his scope to the group of hedge funds that initially sued Argentina after refusing to accept bond swaps.

• The Miami Herald has high hopes for the raising of the U.S. flag in the American Embassy in Havana this Friday, saying it marks the official end of the Cold War in the Caribbean. The piece quotes Geoff Thale at WOLA who says invitations to the flag raising ceremony at the Embassy and the Ambassador's residence are coveted. U.S. Secretary of State John Kerry will preside over the ceremonies and will meet with senior Cuban officials on his one day trip, but neither Raul nor Fidel Castro are expected to attend.

• More than 11,000 people had been evacuated yesterday from parts of Argentina’s Buenos Aires province after heavy weekend rains caused rivers to rise precipitously, reports the Wall Street Journal.

• Five workers at a contracting company died Tuesday when machinery they were using cut through a Pemex gas pipeline, causing an explosion and fire, reports the Wall Street Journal.

• The Puerto Rico Aqueduct and Sewer Authority, which provides water to about 97% of the island’s residents, said it would attempt to sell $750 million in bonds, in a filing that comes less than two weeks after the broke U.S. commonwealth defaulted on a $58 million payment to investors amid plans to renegotiate more of the island's $72 billion debt, reports the Wall Street Journal.

• The Associated Press has photography showing the plight of Haitian descendants fleeing the Dominican Republic, thousands of whom have set up camp just over the border. The growing encampments, which lack water, electricity or other services, are starting to resemble the squalid settlements that emerged following the devastating January 2010 earthquake, though they remain far smaller, reports the AP.