Tuesday, January 5, 2016

Negative outlook for Brazil in 2016 (Jan. 5, 2016)

The Economist's New Years cover was dedicated to the "political and economic disaster" faced by Brazil. The article reviews the well-known litany of woes facing the country, such as an economy predicted to shrink by as much as 3 percent next year, an ever-widening net of corruption investigations that seem to be implicating half of the political leadership, and  impeachment proceedings against President Dilma Rousseff. The Economist argues that only "hard choices" can put the country back on course, but that Rousseff lacks the "stomach" for them.

The piece is highly critical of pretty much all Brazilian policies and institutions, ranging from the (overly?) generous pension system to the constitution which enshrines job protection and state benefits to the "daft" political system that favors political fragmentation and tends to generate legislative gridlock.

The situation has Brazilians wondering how much worst it can get, according to the Wall Street Journal. The piece notes that the economy last year contracted by 3.7 percent and that inflation and unemployment are on the rise. 

The Rio Times, based on the Central Bank's first focus report of this year, has even more dismal numbers: inflation forecast of 6.87 percent and a 3.71 percent contraction in the national GDP.

But the WSJ points to potential silver-linings within the general disaster. 

The outlook is so dismal that Brazil could beat some expectations. The impeachment attempts will end this year -- one way or another -- and remove that element of uncertainty from national politics. While "even a small concession to orthodox budget management by incoming Finance Minister Nelson Barbosa could spark a rally. Investors fear the leftist economist will allow debt, deficits and inflation to rise," argues the piece. And the weaker real might make Brazilian assets more attractive for investors.

Brazil posted an annual trade surplus of $19.68 billion for 2015, which is good news, but relates to the poor economy, explains the Wall Street Journal in a separate piece. The weaker real this year made exports more competitive. 

Yet another Wall Street Journal piece focuses on former President Luiz Inácio Lula da Silva, who is being investigated for allegedly abusing his influence to help Brazilian construction giant Odebrecht SA obtain overseas contracts, allegations both he and the company deny. 

While neither Lula nor his hand-picked successor, Rousseff, have been implicated in the country's biggest corruption scandal -- a kickback scheme centered on state-run oil company Petrobras -- the wide-ranging inquiry has damaged the former president’s credibility and undermined the Workers' Party's right to hold the moral high ground in Brazilian politics, according to the WSJ.
Yesterday, Lula was summoned to testify as a witness for a lobbyist accused of paying bribes to alter legislation in favor of businesses, according to Reuters.

The string of high profile arrests over the past year in connection with the Petrobras corruption investigation might be bad news for investors wary of political upheaval, but it's prompting tears of gratitude among Brazilians who see it as a a sign that some of the country's institutions are functioning effectively, reports The Guardian. The piece looks at The Lava Jato (Car Wash) investigation, which has charged more than 70 political leaders, lobbyists and business leaders with bribery, tax evasion or misuse of public funds. 

In the meantime, Petrobras is not overcoming challenges that include a massive debt load, low oil prices, powerful unions, and an often-interventionist government, reports the Wall Street Journal.

News Briefs

  • Last week Rousseff signed the 2016 budget bill into law, but vetoed over 40 items, including a provision that would have raised stipends for Brazil's flagship Bolsa Familia anti-poverty program. the increase would have jeopardized the viability of the program, reports EFE.
  • Women in Brazil are woefully underrepresented in political power -- a fact which is representative of their situation in society in general, argues a piece in The Guardian. Women's rights have been in Brazilian headlines in recent months (see Nov. 9th's post). Another Guardian piece looks at an initiative to challenge gender norms among young boys as a step towards tackling gender inequality.
  • The little-known Zika virus is causing panic in Brazil, where the mosquito-spread disease has caused thousands of cases of brain damage in babies who are born with unusually small heads, reports the New York Times. In recent weeks the spread of the virus is slowing down, but still growing, reports the Wall Street Journal.
  • Diplomatic tensions between Brazil and Israel are running high after Israel's nomination of a pro-settlement hard-liner as its next ambassador to Brazil, and Brazil's delay in approving the appointment reports the Wall Street Journal. Brazil could face diplomatic downgrading from Israel if it does not accept the nomination of the Argentine-born Dani Dayan, a former head of the Jewish settlement movement, reports The Guardian. The piece reviews the recent unravelling of relations between the two countries.
  • A commission set up to review Haiti's contested October presidential elections said yesterday that the widespread irregularities it detected were largely due to incompetence, not fraud as the opposition alleges, reports the Associated Press. (See yesterday's briefs.) But now the head of the country's much maligned Provisional Electoral Council (CEP) says it's too late to organize a run-off election in time for the Feb. 7 constitutionally mandated deadline to handover power to a new president. In the midst of a growing political crisis, a transitional government seems likely, reports the Miami Herald.
  • Venezuela's opposition National Assembly is set to swear in today amid street demonstrations and political showmanship. (See yesterday's post and this Associated Press article.) The Wall Street Journal quotes WOLA Venezuela expert David Smilde who says "this will be a very unpredictable situation that could turn violent ... This government has no experience sharing power and the opposition has very little experience controlling any branch of authority." The latest: President Nicolás Maduro eliminated the National Assembly's control over nomination and removal of central bank directors through a legal reform announced yesterday. The opposition criticizes the move as an attempt to limit its power, reports Reuters.
  • The U.S. is concerned that the Venezuelan government is is trying to obstruct the actions of the country's National Assembly, which convenes today with a newly elected opposition super-majority. President Nicolas Maduro responded saying that Venezuela would "not accept imperialism," reports Reuters. (See yesterday's post.)
  • The recently approved U.S. budget for this year lowers security aid funding for Mexico by about a quarter. The amount approved is about $146 million, the lowest amount since 2011. A piece in the Huffington Post makes the case that it's related to human rights concerns and a lack of faith in Mexico's military. This comes after the U.S. State Department reduced security aid funding in October for failure to meet human rights objectives. (See Oct. 19th's post.)
  • The murder of the newly sworn in mayor of a city in Mexico's Morelo state last weekend was meant as a warning to other officials to reject state police control of local cops and let cartels co-opt low-paid local officers, according to the state governor. Gov. Graco Ramirez blamed Mayor Gisela Mota's death on the Rojos gang, which has been fighting a bloody turf battle with the Guerreros Unidos gang across the neighboring state of Guerrero in southern Mexico, reports the Associated Press. (See yesterday's briefs.)
  • U.S. authorities took 121 people into custody over the weekend reports Reuters, part of a move to deport families who entered the country illegally after May of 2014. (See yesterday's briefs.) The operation was criticized by the ACLU, which condemned the actions and said the deportation policies were rigged against families as a scare-tactic to deter Central American families seeking to flee violence in their home countries. Pro-migrant groups said the operation, which mostly targeted Central Americans fleeing violence who were refused US asylum, would drive undocumented immigrants deeper underground, reports The Guardian.
  • El Salvador's murder rate rose by 70 percent last year, bumping the homicide rate to the highest ever at 104 per 100,000 inhabitants, and putting the country in line to "beat" Honduras as the world's murder capital, reports the Associated Press. And this year is off to a bloody start already -- officials reported at least 29 deaths on the first day of the year, reports the Associated Press in another story.
  • As a counterpoint to the Cubans leaving the island (see yesterday's briefs), a quieter group is returning. The growing number of "repatriados" are taking advantage of relaxed immigration rules and seek to use money saved abroad to finance business enterprises in the new Cuba, reports the Washington Post.
  • Virginia Gov. Terry McAuliffe is touring Cuba -- pitching state products ranging from pork to roofing, but also a university exchange deal, reports the Washington Post.
  • A U.S. federal judge identified the former president of Panama, Ricardo Martinelli, as one of several alleged co-conspirators in a bribery scheme that helped SAP to sell millions of dollars in software to Panama, reports Reuters.
  • U.S. VP Joe Biden will attend the swearing in of new Guatemalan president Jimmy Morales next week, reports AFP.
  • And Colombian President Juan Manuel Santos is slated to visit the White House for an "official working visit" in February, reports Reuters.
  • Chileans have been shocked by confessions of soldiers involved in severe human rights violations committed during the country's  bloody 1973-1990 dictatorship, reports the Associated Press.
  • Uruguay is the exception to the rule in Latin America when in comes to abortion. While women in El Salvador can face jail-time for miscarrying, in Uruguay legal abortion since 2012 has contributed to the lowest rate of maternal death in Latin America, reports The Guardian in a piece that reviews abortion policies around the world.

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