In the midst of the great turbulence in the Brazilian financial markets – with the strong devaluation of the real and the fall of the stock indices – the result of the pre-sal auction, disclosed on June 7, 2018, almost goes unnoticed.

For those who do not know exactly what “pre-sal” is, I refer to this article (in Italian), which clearly describes its potential:

The government auctioned 4 areas, of which the most coveted was that of Uirapuru (located near to Santos).

The auction was attended by 16 major oil companies, most foreign: a record, demonstrating the renewed interest in the potential extraction of pre-sal.

The auction mechanism foresees a fixed “subscription bonus”: the consortium wins by committing itself to delivering the highest percentage of extracted oil to the Brazilian government, discounted production costs.

In the case of the Uirapuru area, the “bonus” was 2.65 billion reais (about 700 million dollars) and the starting point was a percentage of 22.18% of production: the winning consortium, formed by Exxon , Statoil and Petrogal offered 75.49%, signifying the exceptional potential of this area.

Petrobras, which was part of the losing consortium (having offered “only” 72.05%), exercised the right of preference (established by a law of 2017) and became part of the winning consortium with a 30% stake .

The “Dois Irmaos” area, of lesser importance, went to a consortium formed by Petrobras, BP and Statoil.

The “Tres Marias” area, the smaller of those offered, went to a consortium formed by Petrobras, Shell and Chevron (at its debut in Brazil).

For the fourth area (Itaimbezinho) there were no offers.

It is estimated that, thanks to the oil that will be delivered by the winning consortia, the extra income for the government will amount to about 40 billion reais.


This article has been initially published by Update Brazil and can be found here.

Guatemala and Israel’s friendship goes back a long way. Guatemala was one of the first countries to recognize Israel as a sovereign state; Israel supported Guatemala’s first steps in the U.N. and was an ally to the Guatemalan government during the three-decade-long civil war, and specifically during a very critical moment for the Central American country in the 1970s when Jimmy Carter’s administration sentenced a military blockage. 


Despite the harsh violations of human rights done by the Guatemalan Armed Forces during the civil war, without Israel’s provision of weapons, Guatemala’s story today could have been very different if the communist guerrilla had taken control.

Guatemala opening an embassy in Jerusalem just one day after the U.S. is not only an act of consistency between the Israel-Guatemala diplomatic relations, but also another act from a seemingly ‘desperate to be liked by Trump’ Jimmy Morales.

Trump’s decision to move the U.S. Embassy from Tel Aviv to Jerusalem was an idea of his, but a proposal Ambassador David Friedman had put on the table before even being selected as the Head of the Diplomatic Mission. Morales was the first Head of State following the decision back in December 2017, and Trump congratulated him personally during meetings held in early February.

Lately Cuba has faced a serious, almost unbelievable change: Raul Castro, brother of more famous Fidel Castro, announced a start of the elections to the presidency of the Council of State, meaning that people could choose the second person of power after Raul himself, since he officially remains the First Secretary of Cuban Communist Party until 2021, as he claims. This position was taken up by Raul’s First Deputy in the State Council and Government, Miguel Mario Diaz-Canel Bermudez, the first President of Cuba to be born after the Cuban Revolution of 1953-1959.

Undoubtedly, the newly elected Head of State is absolutely faithful to the principles of the revolution, otherwise he wouldn’t have earned Castro’s trust. Still, we can already see that his rule is about to bring changes to the habitual state structure of Cuba. In this article you will see, what tendencies have come along with the Castro family, and what are analysts’ forecasts for island’s future.

Fidel Castro’s reforms

First thing we should consider when talking about Castro’s regime is that he didn’t let the opposition act. He established a great amount of revolutionary field courts whose duty was to prosecute the opposition representatives, especially those who strongly supported Batista, the former Cuban ruler which was overthrown during the revolution. He even conducted demonstrative executions in Havana and provinces. He also closed and banned lost of casinos and brothels owned and held by American mafia.

Second thing is the agricultural revolution. Castro realized that Cuba has very fertile soil, which has much more potential than it was used for. He started a process of industrialized farming development, 40% of the lands went to the state sector, whereas all the rest went to peasants. At the same time 90% of private enterprises were nationalized.

These and many other actions prevented the US from influencing Cuba. US government realized that Cuba’s new administration is about to stay for a long time, so they attempted to exert pressure on Castro and his family by entering quotas on sugar purchase. This was just the beginning of an impending economic blockade.

At the same time Cuba’s relationships with USSR were getting stronger than ever. In 1960 they signed a loan agreement for Cuba, equivalent to 100 million US dollars. Why did the Soviet Union need it? Only to exert even more pressure on USA. They immediately started to supply military equipment to the island, ostensibly to help Cubans repulse potential attacks from the US, but in reality, with their own intentions. This sooner led to the famous Cuban Missile Crisis, being the tensest moment in the Cold War.

From the economic point of view, Castro took actions in favor of industrialization, concentrated in the hands of the State. With the help of USSR, Cuba quickly obtained all the required equipment, oil and loans, while selling sugar, nickel, tobacco and rum back to the Soviets. By the 1970s Cuba reached economic stability, increasing their GDP to 4% per year. Metallurgy and light industry developed, the unemployment rate fell to a historically low level. In 1976 a Constitution was adopted, finally fixing the communist way of State government.

What should Cubans expect from Diaz-Canel

Analysts believe that new Head of State will follow a course of moderate market reforms that Raul started. Still, despite the statement of Cuba’s new government on GDP growth of 1.5% per year, the UN economic commission for Latin American countries and in the Caribbean, the real growth was of 0.5%.

In any case, any process that is about to occur will not be a big surprise for the population, since all his actions are yet strictly controlled by Raul and his entourage. However, US couldn’t stay aside of this situation. The Helms-Burton Act of 1996 included a point where it is stated that one of the demands for the economic blockage annulment was Castro family’s abandonment of power. Three weeks ago, the US representative in the UN raised a question of restarting the US-Cuba economic relationships. However, two days later, on Summit of the Americas in Lima, Peru, which was ignored both by Donald Trump and Raul Castro, US Vice-President Mike Pence returned to the traditional criticism of Cuba, pointing out the violation of Human Rights in Cuba.

To sum up, looks like the tendency of USA’s pressure on Cuban government is far from the end. This adds additional severe conditions for Diaz-Canel’s administrations, while increasing the population’s expectations. The closest crucial moment to happen is Raul’s total resignation in 2021, again, as he claims. From that moment he will have to fulfill those expectations while being considered a totally independent leader of possibly successful independent State of Cuba. We will see where it will lead us to.


M.I.G. studies International Relations at the Hebrew University of Jerusalem. 

This week’s edition of Explaining Brazil will discuss a highly charged issue that transcends our borders: the Venezuela crisis.

Approximately 70,000 Venezuelans had crossed into Brazil by February this year, amid rumors that Brazil might close its border (something that the government has vehemently denied). Boa Vista, whose population is now 10 percent Venezuelan, is struggling to provide adequate shelter, employment, and healthcare services. And Brazil’s central government seems unsure of what to do, flip-flopping between moving all Venezuelan migrants to one location or dispersing them throughout the country.

For this episode, we’re hosting Rosario Hernandez, a political analyst from Venezuela and member of the Young Diplomats. She discusses just how bad things are – and what the future may hold for her country.

The podcast is available on SoundCloud and on Apple Podcasts.

On this podcast:

Gustavo Ribeiro has extensive experience covering Brazilian politics and international affairs. His work has been featured across Brazilian and French media outlets, including Veja, Época, Folha de São Paulo, Médiapart and Radio France Internationale. He is the recipient of multiple awards, including the Abril Prize for outstanding political journalism. He holds a master’s degree in Political Science and Latin American studies from Panthéon-Sorbonne University in Paris.

Ciara Long is a journalist based in Rio de Janeiro and a contributing writer for The Brazilian Report. Her work has been featured in PRI, CBC News, and World Politics Review, among others.

Rosario Hernandez is a political analyst from Venezuela and a member of Young Diplomats. She grew up with the challenges of the 21st century. She studied journalism, holds an M.A in Political Science, and a diploma in Political Marketing. She specializes in the changing political landscapes of South America and the Middle East.

This podcast was edited by Peter Clare, University College London (Diploma in sub-titling, translating). Peter has radio work experience with the BBC, the University of Brasilia and the University of Campinas.


This article is part of a series launched by our partner, The Brazilian Report and was originally published here.

New trade agreements between Brazil and Israel are in the works, with new deals bestowing scientific and defense technologies on Brazil. In late February, the Brazilian Senate website announced that Israel would be offering guidance and technology to help with water sustainability, with a particular focus on desalinization technologies.

A few days later, Israel’s Minister of Science and Technology Ofir Akunis confirmed that defense technology would be another part of this deal. “We are among the ‘top 10’ in space and satellite technology, and we know there is a lot of interest in Brazil in this area,” he told Valor.

Akunis traveled to Brasília in early March on his first official visit, meeting with Brazil’s science minister Gilberto Kassab. The two ministers, along with director of the Israeli Space Agency Leo Vinovezky, visited Brazil’s National Center for Monitoring and Alerting Natural Disasters (CEMADEN), the National Institute for Space Research (INPE) and Embraer.

Jayme Blay, president of the Brazil-Israel Chamber of Commerce and Industry (CAMBICI), told The Brazilian Report that he believes the two countries have “complementary economies”, with new agreements bringing benefits to both parties.

“Israel exports technology, and Brazil benefits twice over, as much with the products developed there in the country as with those that are exporter. On the other hand, Israel tries to buy more Brazilian products to favor trade,” he said.

“Israel is strong in technology, but we are not growing coffee or producing meat,” Yossi Shelley, Israel’s ambassador to Brazil, told The Brazilian Report. “And now, those things are being brought here in good quantities. It’s a win-win.”

Shelley confirmed to The Brazilian Report that agreements have been signed between the two governments in relation to satellite technology, as well as defense technology including certain types of missiles, radars and high-tech surveillance cameras.

Brazil has historically imported weapons from Israel. According to the Stockholm International Institute for Peace Research, Brazil is Israel’s fifth largest weapons importer. This looks set to continue, as governments have now signed a security agreement recently developed under the supervision of Brazilian defense minister Raul Jungmann.

“In the last few years, Brazil has purchased a lot of surveillance equipment from Israel on account of the World Cup and the Olympics,” Maurício Santoro, an international relations professor at Rio de Janeiro state university (UERJ), explained to The Brazilian Report. “And of course, the demand may continue with the federal intervention in Rio.”

Meanwhile on March 14, CAMBICI representatives met with Dr. Ami Appelbaum, chief scientist at Israel’s Ministry of Economics and Industry and chairman of the Israel Innovation Authority. During the meeting, Appelbaum presented agribusiness, health, and cybersecurity as potential areas of collaboration between Brazil and Israel.

‘Friendlier relations’

The final agreements have now been signed by all parties involved, according to Blay, who says that this is a sign of a changing relationship between the two countries. “For fifteen years, [Brazil’s] governments had a negative attitude towards Israel,” he said. “This new government has changed its position. The position became friendlier.”

Shelley echoed Blay’s sentiments, describing current relations between Brazil and Israel as “the best that I remember”.

Diplomatic relations between the two countries have been shaky in recent years. In August 2016, Israel appointed Dani Dayen, a businessman and politician who was a key leadership figure in some violent Israeli settlement movements in Palestinian territories. Brazil refused to accept Dayen’s nomination, fearing it could destabilize its consistent two-state approach to Israeli and Palestinian territories and would serve as a recognition of Israel’s sovereignty.

At the time, a spokesperson for the Israeli foreign ministry responded by calling Brazil a “diplomatic dwarf.”

While Brazil counts itself among the nations that played a key role in founding the Israeli state, it has also maintained consistent diplomatic and trade relations with Arab nations. But it has historically supported a two-state approach, participating in peace missions in Egypt and Lebanon in the effort to reduce tensions with the Israeli military in the region.

Certain decisions have made Brazil unpopular with Israel. It reaffirmed its recognition of Palestine as a state as recently as 2010, and supported a UN resolution between 1975 and 1991 that designated Zionism as racism. Additionally, it has attempted to interact with countries that Israel labels enemies – such as recent attempts to mediate talks between Turkey and Iran on a nuclear power plant program.

However, trade deals have remained largely unaffected by diplomatic tiffs: bilateral trade surpassed 1 billion USD in the years running up to 2016, boosted by Israel’s standing as the only country outside of South America to enjoy free trade deals with Mercosur.

Nor have geopolitical disputes hindered relations significantly in the past. Despite recognizing the Palestinian state in 2010, Lula visited Israel in the same year, becoming the first Brazilian head of state to do so. Meanwhile, Brazilian imports of Israeli aviation components and Israel’s imports of Brazilian foods have remained strong throughout hiccups – so much so that Israeli Prime Minister Benjamin Netanyahu may visit Brazil this June.

According to Santoro, Brazil’s powerful – and growing – evangelical caucus could be a factor in how relations between the two countries have eased in recent years.

“Brazilian evangelical politicians have sought out closeness with Israel,” UERJ’s Santoro explained. “Many of them take trips to Israel and are photographed bathing in the River Jordan, visiting Jerusalem. This is an important element, in the way that this religious group thinks about international relations in Brazil.”

“This could even have an impact on Brazilian diplomacy. This group is getting stronger, and so they are seeking more control with policy,” Santoro continued. “They could end up bringing Brazil’s foreign policy closer to Israel, and further away from Arab countries.”

This article, written by Ciara Long was originally published by The Brazilian Report and is available here.

Fleeing the economic collapse that has been destroying Venezuela since 2015, Esmeralda,
21, quit nursing school and left for Brazil with hopes of pursuing her education, finding a job, and providing for her family.

In her suitcase, Esmeralda packed her scrubs and books. Yet in Roraima,
Brazil’s northernmost state, her work uniform became something different altogether: a
short, tight dress and heels. Without many job opportunities, and facing discrimination from
Brazilian employers, Esmeralda is one of the hundreds of Venezuelan women who have been
pushed into sex work to make ends meet.

“My family doesn’t know I work like this, it would bring them shame. I didn’t study to have
this life,” she says, after hopping out of a client’s vehicle. Shame – and fear – are common
feelings among women like Esmeralda, especially when they have families waiting for them
in their home country. To avoid exposing her identity, Esmeralda chose not to disclose her

“I’m pregnant, and I don’t know what I’m going to do moving forward,” says Maria, a 36-yearold
former hairdresser who declines to give her last name. “[The baby is] my husband’s,” she
then explains, as if trying to set the record straight.

Maria has mailed food to her three kids, who are 14, 18, and 21 years old, and her husband,
all of whom are still living in Venezuela. She hasn’t told them how she earns the money to pay
for the goods she sends them. Some of Maria’s income still stems from her former trade: in
cities located on the outskirts of Boa Vista, she gives manicures and haircuts to her fellow
sex workers.

Since Venezuela’s economic collapse began in 2015, hundreds of thousands of Venezuelan
migrants have crossed the Brazilian border. According to data from the International
Monetary Fund, Venezuela has the world’s worst economic growth. Inflation rates should
spiral to 13,000 percent this year, and its currency has lost 99 percent of its value since
2012. As Matt O’Brien wrote for The Independent in 2016: “Venezuela is the answer to what
would happen if an economically illiterate drug cartel took over a country.”
Despite the migration free-flow that has been occurring for more than two years, it is only
now that the Brazilian government has decided to act on the migration crisis in northern
Brazil. President Michel Temer recently declared a “state of social calamity” and will send
resources to help the state government deal with the situation. Justice Minister Raul
Jungmann announced that 200 military troops will act on the border “not to forbid their
entry in Brazil, but to give some order to this process.”

Risky bussiness

In 2017 alone, more than 70,000 Venezuelan nationals have passed through Roraima –
especially now that Colombia has imposed barriers at its border. Over the past 45 days,
18,000 Venezuelans have applied for a Brazilian visa.

Around 40,000 of these refugees have stayed in Boa Vista, the state capital. Roraima is
isolated from other states by vast stretches of treacherous rainforest. A plane ticket to São
Paulo, for instance, usually costs over 1,000 BRL – more than the country’s minimum wage.
The sheer lack of options forces many Venezuelans to settle in Boa Vista, and they now
amount to over ten percent of the city’s population.

But though it is a state capital, Boa Vista is by no means a dynamic urban center – and
employment is lacking, with formal opportunities scarcer than many other cities in
Brazil. Unemployment rates have surpassed 11 percent, the highest of the state’s history.
The few available jobs often impose degrading work conditions. Aware of the desperation of
migrants, many Brazilian employers offer salaries far below normal rates, and for long hours.
The same happens in the sex work industry.

Since the 1990s, when gold miners started to occupy the region, the Caimbé district has
gained notoriety for its brothels and street prostitution. But since 2015, those activities have
intensified. Previously, sexual services were sold in the Caimbé district of Boa Vista for an
average of 100 BRL – that is, until the arrival of the Spanish-speaking call girls.
As the numbers of foreign women working in the streets have surged, the average price has
fallen to 80 BRL – a number that has become these women’s nickname: the ochenta(eighty, in
Spanish). The epithet has turned into a song, Xote das Ochenta, a ballad about a mean-spirited
man bargaining to lower a Venezuelan sex worker’s rate.

But in addition to payment problems, the ochenta are often forced to deal with violence.
Several of them are controlled by pimps, who lurk around the women disguised as coffee or
chocolate vendors. Whenever a man enquires about rates, the pimps approach to sell a treat
– but they are actually controlling how much the woman is charging for her services. Last
year, three men were arrested by the Federal Police for pimping and extorting women.
Nor are the clients any less dangerous.

Back in December, a Venezuelan woman was raped, stabbed and abandoned in a roadway
outside of Boa Vista. Yet despite the severity of the attack, she survived – and told the police
that the man attacked her after she refused to have sexual relations without a condom. The
suspect was identified, but he has not been arrested.

To avoid a similar fate, other girls have a security system. Whenever one of them hops into
the car of a client, the others use a rock to write the car’s license plate on the wall. “If she’s
away for too long, we call the cops,” explains Maria.

For many of the ochentas, like Michele and Valencia, the daily routine starts as early as 7 a.m.
The two 20-year-old friends arrived in Boa Vista two weeks ago, from the Venezuelan city of
Maracay. Their clients start coming soon after, looking for sex before going off to work. They
come back during lunchtime, and then again from 5 p.m. until the early hours of the next day.
Michele, a former nurse, is nostalgic about her days in Venezuela. “I loved my work helping
women to give birth. I had always dreamt of being a nurse,” she said as she headed towards
her next client’s car.


This article, written by Eliane Rocha was originally published by The Brazilian Report and is available here.

This was expected, and  a positive year is about to end for the motor vehicle market in Brazil. Anfavea’s start-of-year forecast to produce 2.41 million vehicles in 2017 has already been substantially exceeded (2.48 million vehicles were produced from January to November) and the year is expected to close with a growth of 25/30%.

A strong contribution to this performance came from exports (700 thousand vehicles from January to November), up 53% compared to the same period of 2016. According to Anfavea president, Antonio Megale, this result should be consolidated in 2018 thanks to the commercial agreement Brazil-Colombia that should be signed in the coming weeks.

The figure for new registrations was also positive, which in the period January-November 2017 exceeded the threshold of 2 million and grew by 9.8% compared to the same period of 2016.

However, the sector is still far from recovering production levels that justify the installed capacity in the country. In Brazil there are 31 manufacturing companies with 67 industrial units and an installed capacity equivalent to an annual production of 5 million vehicles. Considering that the production of 2017 should be around 2.7 million vehicles, there is a idle production capacity of almost 2.5 million vehicles, which is a major problem for companies.

A more detailed analysis will be carried out in February, when the final data for 2017 will be available.

Let’s see some historical series:

auto production

(source: Anfavea)

In 2013 the sector reached its all-time high, with 3.71 million vehicles produced. A growth that would have led to production close to 5 million vehicles was planned for the following years, which is why many companies have decided to expand production (GM, FCA, Hyundai, Man, Toyota, Nissan and Volkswagen) or inaugurate its presence in Brazil (Chery, BMW, Audi, Mercedes and Jaguar / Rover).

A fundamental reason that pushed companies to invest in Brazil was the “Inovar-Auto” program, introduced at the beginning of 2013 by the Dilma government and aimed at encouraging productive investments in the automotive sector, imposing a surcharge on imported vehicles. . The “Inovar-Auto” program has recently been declared illegal by the WTO and ends in the last quarter of 2017: it remains to be seen whether and how the new government will replace it, bearing in mind that without the surcharge on imported vehicles it will be difficult to incentivize companies to make new investments in Brazil.



import export

As can be seen from the above graph (source: Anfavea), in 2011 the quantity of imported vehicles reached the record value of 857 thousand units (or 23.6% of the market). The subsequent fall in imports is due to three factors:

– the introduction of the “Inovar-Auto” program, which has increased the prices of vehicles imported to the consumer

– the onset of the economic crisis, starting in 2014

– the devaluation of the real, starting from the beginning of 2015

Exports, specularly, have increased with the onset of the devaluation of the real and with the stipulation of international agreements, mainly with Argentina and Mexico.


Truck production fell from 2013 to 2016, with a decrease of almost 75%.

The economic crisis, accompanied by the effects of the Lava-Jato operation, has virtually blocked the large public infrastructure works and the civil construction market, which are two major sources of truck purchases.

2017 should be an excellent year for agricultural production, which should stimulate the purchase of new vehicles (even if there is a very large fleet of vehicles that are used very heavily).

Source : Mauro Mantica : Bra

Brazil : Updated Economic Indicators : On 1/12, the IBGE announced the results for the 3rd quarter of GDP.

Unfortunately they are not very comforting, even if they confirm a positive trend for the third consecutive quarter. GDP grew by 0.1% compared to the second quarter, curbed by the unfavorable seasonality of the agri-food sector (-3.0%).

Considering the first 9 months of the year instead, the 2017 GDP grew by 0.6% compared to the same interval of 2016; in this case the contribution of the agri-food sector was fundamental, with a growth of 14.5% in the period, which offset the negative sign recorded by all the other sectors. That is to say, Brazil continues to be extremely dependent on the performance of crops and on the prices of food commodities.

On the political front, it is increasingly likely that the “mini pension reform” will be put to the vote in the coming weeks (before or after Parliament’s closure), even if it is still difficult to predict the outcome of the vote. Also in this case, as for the labor reform, to obtain the majority of votes the Government will carry out the usual “purchasing campaign” (vote vs. parliamentary amendments or ad-hoc financial allocations).

However, analysts’ attention is increasingly focused on the 2018 presidential campaign.

Luciano Huck (announcer of  TV Rede Globo), that the polls gave a level of approval to 60%, has renounced a possible candidacy.

During the executive assembly in early December, the PSDB will elect Geraldo Alckmin as president of the party, in an extreme attempt to regroup the ranks of an increasingly divided and confused party. It is possible, reaching unanimity on his name, that on this occasion he is launched as a candidate of the party for 2018. The path of Alckmin to consolidate his candidacy and to rally the support of the other central parties, however, is very impervious.

Let’s see some updated data:

GDP (Value added at market prices)

2012 2013 2014 2015 2016 2017 2018
GDP – real growth (%) 1,8% 2,7% 0,1% -3,9% -3,5% 0,89% 2,60%

The IBGE has revised the 2016 growth figure, from -3.6% to -3.5%.

The 2017 GDP forecast is growing slightly, now close to 1%. For 2018 the forecast for a more substantial growth is consolidated and several analysts even see close to 3%. To give more optimism is the good data on investments, which in the third quarter has entered the positive field (+ 1.6%) after 15 consecutive falls.


Inflation and real/dollar exchange 

2012 2013 2014 2015 2016 2017 2018
IPCA (IBGE – %) 5,80% 5,90% 6,40% 10,67% 6,29% 3,03% 4,02%


The 2017 and 2018 inflation forecasts remain unchanged.

2012 2013 2014 2015 2016 2017 2018
Exchange rate R$/US$ (end of the period) 2,04 2,34 2,66 3,90 3,25 3,20 3,29

The real / dollar exchange rate forecasts are also stable, today at 3.22.

The euro is today quoted at around 3.81 reais, as a month ago.


Interest rate

2012 2013 2014 2015 2016 2017 2018
Nominal Interest rate (end of the períod) 7,30% 10,00% 11,80% 14,87% 13,75% 7,00% 7,00%
Real interest (deflactor: IPCA) 2,50% 2,10% 4,20% 2,60% 6,91% 3,97% 2,98%


The discount rate (SELIC) forecasts  for 2017 and 2018, estimated at 7%, are unchanged. In the last session of 2017 (which will close tomorrow, 6 December), Copom is expected to reduce the Selic by another 0.5% (at 7,0%), closing the downturn cycle started in 2016.

Although not predicted by the average of the Central Bank Focus forecasts, there is already talk of a further 0.5% drop in the Selic in the February 2018 Copom meeting: the 6.5% level should then remain until the end of 2018, except for unforeseen disturbances on the markets.


The Brazilian stock market (Bovespa)

Weeks of highs and lows for the stock market, under the banner of uncertainty related to the approval of pension reform.

As a month ago, the Bovespa index hovers around 74 thousand points, but has reached a minimum of 71 thousand at the end of November.

For more information on the performance of the Bovespa in 2017, please read the post:


Mauro Mantica

With 251 votes in favor and 233 against, in the evening of 25 October 2017, the Brazilian Chamber of Deputies decided to dismiss the denunciations of obstruction of justice and criminal organization against the President of the Republic, Michel Temer.

Protesters calling for the ousting of Temer.

As in the case of the first complaint, filed in August, these will not be analyzed by the Supreme Tribunal Federal (STF) at least until Temer is in office (January 2019).

Temer saves, but at what price?

With this victory, Temer is likely to arrive until the end of the presidential term (end 2018), unless new and well-founded denunciations.

But at what price and under what political conditions? In order to obtain the consent of the majority of congressmen against the allegations, the government not only had to shell out billions of reais but virtually had to delegate to Parliament the management of the reform agenda and the conversion of some important decree-law into law. Despite this, the number of congressmen (251) who voted in favor of filing new complaints is lower than in August (263) and does not even represent the absolute majority of votes, since the House is made up of 513 deputies .

With this result, Temer‘s political force has been reduced: having received the presidency without being elected, with less than one year in front of the mandate, three complaints and only 4% approval in the polls, Temer can not ignore Parliament’s consent and the support of its chairman, Rodrigo Maia.

Rodrigo Maia strengthens

The President of the Chamber of Deputies was very skilled in handling the negotiations that preceded the vote on the two charges against Temer. With a weakened president, Maia is almost like a “prime minister” (a non-existent figure in Brazilian presidencialism), promoting the discussion and approval of fundamental laws and reforms for Brazil.

It remains to be seen whether Temer, released from “Damocles’ sword” of denunciations, will “bring into line” Maia and recover part of the credibility and power lost.

32.1 billion reais went away …

… in concessions and amendments to meet the demands of congressmen and carry favour with them in view of the vote. This is almost 19% of the state deficit expected for 2017.

As journalist Vera Magalhães brilliantly (and tragicomically) wrote yesterday, “the forecast of the result by which the Chamber of Deputies will file complaints against Michel Temer oscillates like stock exchange quotes, which depends on the price change of commodities, in this case the deputies. “

Games for the upcoming elections are open

It is known, and not only in Brazil, that the primary objective of the politicians in office is their own re-election. Considering that almost half of the Brazilian congressmen are being investigated for corruption-related crimes and public opinion is not exactly alongside them, there is a climate of strong concern in Brasilia.

In this situation, no one is interested, one year before the elections, to vote in favor of necessary but unpopular laws or reforms.

And now Maia appears as a “small-coaster ferryman”, capable of forming a parliamentary majority for urgent measures in the economic area and tackling delicate issues such as tax reform and pensions; but also to speed up the vote of popular (or rather, populist) law projects  in areas of public safety and health.

And now?

After the filing of the denunciations is likely a tightening of the battle between executive and legislative power, an “arm-wrestling” to decide on the agenda of reforms. Times are very tight, and there is a risk that reforms will be delegated to the government that will emerge from the polls in October 2018.

Rating agencies have already stated that the failure to reform pensions could lead to a downgrade of Brazil’s credit risk (today BB for S & P and Fitch, Ba2 for Moody’s), but the biggest risk is to stop the already timid economic recovery.

But who would be willing to take this responsibility and pay the political price? The most predictable scenario is the approval of “mini-reforms” (pensions and taxation), that will address only targeted issues, such as the increase in retirement age and the contribution period.

Article previously published on the excellent  “Update Brazil” and is available here.

Mauro Mantica

The decision to take no further action on the complaints against Temer has virtually started the election campaign for the presidential elections of October 2018.

The polls for a moment look at a ballot between Lula and Bolsonaro, but the journey is still very long and hardly this “odd couple” will have the strength to come to the final end (also because on Lula is weighing the sentence to nine and a half years of prison imposed by Judge Sergio Moro).

Among the most recent novelties in the presidential race, appeared the candidature – still unofficial – of João Dionisio Amoêdo, the Partido Novo founder ( Amoêdo is an engineer, business manager and, most recently, a partner of the BBA bank.

On the economic front, on 25/10/2017 at the Copom meeting, Banco Central decided to further decrease the discount rate (SELIC), bringing it to 7.5% per annum. This is the lowest value in 4 years.

The growth of public debt continues, in September reached 73.9% of GDP. This is a relatively modest level when compared with the debt of other western countries, but growing strongly due to the continuing imbalance in public accounts (mainly due to the social security deficit).

The auction for oil exploration “pre-sal” was successful. The National Petroleum Agency (ANP) estimates royalties revenue ranging from US$ 120 to US$ 180 billion between 2022 (start date of oil production) and 2054.

Let’s see some updated data:

GDP (Value added at market prices)

2012 2013 2014 2015 2016 2017 2018
GDP – real growth (%) 1,8% 2,7% 0,1% -3,9% -3,6% 0,73% 2,50%


Growth forecasts for GDP growth 2017 are stable; slightly increased for 2018.

The market had already taken over the political crisis linked to the denunciations against Temer and this month no new signs of accelerating economic growth emerged.


Inflation and real/dollar exchange 

2012 2013 2014 2015 2016 2017 2018
IPCA (IBGE – %) 5,80% 5,90% 6,40% 10,67% 6,29% 3,08% 4,02%

The inflation forecast 2017 is slightly up, back above the minimum threshold (3%) scheduled for 2017 by the Brazilian Banco Central. Stable forecasts for 2018, around 4%.

2012 2013 2014 2015 2016 2017 2018
Exchange rate R$/US$ (end of the period) 2,04 2,34 2,66 3,90 3,25 3,19 3,30

Real / dollar exchange rate forecasts have increased. in recent days the exchange rate has marked rather substantial fluctuations. The year-end change is expected at R $ 3.19, although today the dollar is quoted at 3.27, against 3.17 a month ago.

The dollar is thus recovering thanks to the good performance of the US economy, the signs of continuity in the Fed’s government and the prolongation of the “quantitative easing” announced by the ECB.

The euro is now around 3.81 reais, up from 3.73 in the beginning of October.


Interest rate

2012 2013 2014 2015 2016 2017 2018
Nominal Interest rate (end of the períod) 7,30% 10,00% 11,80% 14,87% 13,75% 7,00% 7,00%
Real interest (deflactor: IPCA) 2,50% 2,10% 4,20% 2,60% 6,91% 3,92% 2,98%

The forecasts for the discount rate (SELIC) at the end of 2017 and 2018 remained unchanged at 7%. In the last 2017 session (December 5th), Copom should reduce Selic’s other 0.5%, closing down the rebound cycle that began in 2016.

With inflation under control and economic growth in progress, for 2018 the market does not foresee further downturns.


The Brazilian stock market (Bovespa)

Still a fluctuating month for the Brazilian stock market, which still stands close to the historic 76,000 points. Today Ibovespa is around 74,300 points.

The next post, scheduled for 20/11/2017, will look more closely at Bovespa’s performance over the past 12 months.

Article written by Mauro Mantica and published on “Update Brazil”. Available here.