Brazil

Judging by media reports and official statements, this year’s Summer Olympics in Rio de Janeiro were a flop well before the August 5 opening ceremony. But if history is any guide, the games stand a reasonable chance of being seeing as satisfactory by the time the estimated 10,000 participating athletes return home. Whether it’s the Olympics in Athens, Beijing, London and Sochi or the soccer World Cup in South Africa and Brazil, a disaster-to-success reversal has been the standard narrative of all recent major global sporting events.

The Rio Olympics, the first to take place in South America, may yet turn out to be a special case. With the threat of a terrorist attack seen as a real possibility after the July 21 arrests of 10 Brazilians identified by local authorities as sympathisers of the so-called Islamic State, the only catastrophes that can be discarded are hurricanes, earthquakes and tsunamis, which are rare on the Atlantic coast of South America. Read more

Gabriel Zucman, author of The Hidden Wealth of Nations, estimates that 8 per cent of global wealth, or $7.6tn, is deposited in jurisdictions commonly known as tax havens. This includes the financial assets of individuals and companies who seek not to pay tax, or pay less tax, in their home countries. James Henry, an economist, lawyer and investigative journalist, estimates the value of unreported financial assets at between $21tn and $32tn.

In a democratic social contract, the financing of states requires every citizen to pay taxes according to their ability to do so. So it is necessary to curb the use of artificial mechanisms to avoid due taxes. One such mechanisms is “aggressive tax planning”, which explores gaps between different national tax laws and embraces legal and accounting manoeuvres for profit or asset shifting towards jurisdictions with favourable taxation and little tax transparency. Certain jurisdictions allow the concealment of the beneficial owner of profits and incomes, undermining the actions of tax authorities. Read more

Brazil’s economy and politics have long been playing with fire. Now the rest of the world risks getting burnt by waiting for the crisis to be addressed domestically. The country could learn a lot from Spain’s 2012 rescue package from the International Monetary Fund.

Brazil’s is one of the largest emerging market economies, close to the size of Germany’s. Its GDP is $3.2tn in purchasing power parity terms. It is the largest economy in South America, with huge knock-on effects on other countries in the region. It is also very financially open, making up nearly 7 per cent of the MSCI Emerging Markets equities index; its weight is even bigger in EM debt markets. Read more

After watching a carnival parade in São Paulo this month, Henrique Meirelles, former president Lula’s central banker, endorsed what “academic studies have shown”. He was referring to the way that each samba school puts out 4,000 people to deliver a world-class show for (almost) no pay. In “a model of organisation”, as Meirelles put it, a full year’s work flares up in just one hour, the time it takes for a samba school to parade.

Samba schools are schools of management, to Brazilians at least, but they also hold a larger secret. Like many people in emerging markets, Brazilians are oriented towards groups. They are deeply distrustful of people they are unfamiliar with. The World Values Survey, a global network of social scientists, found that the share of Brazilians who trust people they meet for the first time is only about one fifth of that of Americans. Read more

Recent political and economic developments have done little to make the case for investing in Brazil. A gargantuan corruption scandal involving Petrobras, the state-controlled oil company, has ensnared politicians and CEOs alike, ravaging confidence and investment in an economy already reeling from low commodity prices.

The economy is contracting at a 4.5 per cent annual rate, twice that seen during the global financial crisis. Unemployment has leapt to 7.5 per cent and inflation has surpassed 10 per cent. President Dilma Rousseff’s popularity rating has plummeted to 12 per cent, barely a year after a narrow re-election victory. Read more

Impeachment procedures against Dilma Rousseff, the president of Brazil, are finally under way.

On three occasions last year, the country was shaken by some of the largest popular protests in its history. But that was not enough to instill any sense of urgency into Rousseff’s administration. On the contrary, with each passing week, more and more people became convinced that the president had completely lost the ability and judgement needed to overcome the obstacles that hamper her administration, our politics and our economy. Opinions polls show that 65 per cent of Brazilians support impeachment, while 62 per cent wish the president to resign. Read more

For much of the early 2000s, Brazil, Russia, India, and China (the Brics) were seen not just as “the engine of new demand growth and spending power,” as Goldman Sachs researchers put it in 2003, but also as the likely begetters of a new international order, in which the US – and the west more generally – would play a much less significant role.

Today, the idea that the Brics could lead the way to this new order seems more distant than ever. Read more

Reform is a pressing need across emerging markets, especially as global demand remains weak and rising US interest rates threaten to increase funding costs. For countries to revive growth, they will need to create a more favourable environment for business. Politicians in many countries acknowledge this and have put structural economic reforms at the heart of their governing agenda.

But everywhere the outlook for reform is heavily dependent on political leadership and the larger political economy: where leadership and popular support for reform is strong – as in India – the outlook is positive; but where politicians are more interested in power than leadership – such as in Turkey and South Africa – the prospects for positive change are dim. Read more

Brazil is undergoing its most severe recession in decades, with GDP expected to contract more than 3 per cent this year. Policy adjustments and the fallout from the Petrobras corruption scandal have eroded confidence and resulted in a collapse of investment, while the deterioration of fiscal accounts in the last few years has cost the country its investment grade rating. Not surprisingly, the Brazilian real has depreciated dramatically over the past year, losing about half of its value against the US dollar.

However, amid all the gloom, the depreciation of the real also provides a silver lining, as it is supporting the recovery of the trade balance and stimulating growth through increased net exports. Much of this positive effect has so far been overshadowed by weak commodity prices. However, when looking at quantities, an adjustment is clearly under way which should help Brazil restore its external balance. Read more

Few would disagree that Brazil is going through a deep crisis. In 2002-2010, per capita income grew 2.7 per cent a year. In 2011-2013 it slowed to 1.8 per cent a year and in 2014-2015 it will contract a staggering 2.3 per cent a year. Unfortunately, projections suggest it is unlikely to recover to the level of 2013 before 2022.

There are disagreements, however, on the causes of this crisis. For many, it is above all political. For them, the economy requires first a solution to Brazil’s political nightmare and, then, adjustments rather than actual reforms to get back on track and regain the confidence of investors. Read more

Education policymakers worldwide often make a pilgrimage of sorts to Finland and Singapore to learn about their high performing education systems. These states consistently do well in PISA tests, which are organised by the OECD every three years to measure and compare the competencies of 15-year-olds worldwide. There is no doubt that their achievements are impressive, but there is more to be said for examining places that are rapidly improving rather than those that are already highly effective. This week, CfBT Education Trust published a report exploring school reform in five world cities including three in emerging markets, where there has been rapid improvement in recent years.

Despite enormous diversity, the report has identified seven common trends that link educational success in each of these places. Strong leadership, commitment to reform and collaboration between schools are among the factors that have driven up standards. These cities have used education to break the link between poverty and attainment in a way that has not be done before and which could have profound implications for social mobility and their social and economic structures. Innovation and creativity have set new standards in these cities which could be applied in emerging markets across the world. Read more

The crisis that has paralysed Brazil’s politics this year and thrown its economy into what is set to be its longest recession since the 1930s has reached new lows. Revelations by Brazilian and Swiss authorities about Swiss bank accounts held by Eduardo Cunha, a Rio de Janeiro congressman and president of the Chamber of Deputies, have complicated opposition efforts to impeach the discredited president, Dilma Rousseff.

Last week, Brazil’s Supreme Court suspended its deliberation of procedures instigated by Cunha as the gatekeeper of Congress to begin Rousseff’s impeachment on the grounds of illegally tampering with the 2014 federal budget and in connection with a massive corruption scandal under federal investigation, involving national oil company Petrobras, construction companies and politicians of all major parties. Read more

Stopping the downward spiral of Brazil’s economy will take a bitter combination of tax increases and spending cuts. But highly negative reactions to the latest set of such measures announced in Brasília on Monday suggest that the government of president Dilma Rousseff no longer has the credibility needed to be able to contain the crisis it brought upon the nation through miscalculation, mismanagement and an astounding incapacity to govern.

The measures – centred on the recreation of a tax on banking transactions that was shelved just three weeks ago after being rejected by the business community, the public and vice-president Michel Temer – have little chance of being implemented by such a discredited president and government. Read more

By Márcio G. P. Garcia, Lucas Maynard and Rafael Fonseca

The deterioration of the Brazilian economic situation in the last few months is quite impressive. Looking through a few of the recent economic indicators, the only ones that are pointing up are the ones that you would like to see going down: inflation, unemployment, delinquency rates, interest rate and public debt.

Despite an economic policy U-turn in the second Dilma Roussef´s government, represented by the substitution of the heterodox Finance Minister Guido Mantega by the University of Chicago-trained Joaquim Levy and by the Brazilian Central Bank’s much tougher monetary policy stance, the government has not been able to contain a deterioration in the expectations. The confidence indicators are at their lowest level in history, indicating that not only is the situation dire, but also there is no likelihood of it getting any better in the short term. Read more

For much of the past two decades, Brazil and Mexico seemed at times to be on a collision course. Diplomats from Latin America’s two largest nations were often preoccupied, if not obsessed, with a competition for an elusive role as regional leaders and players in the post-Cold War shifting global scene. The 2013 battle for the post of director general at the World Trade Organization, won by Brazilian diplomat Roberto Azevêdo over Mexican Herminio Blanco, a former trade minister, left plenty of hurt feelings. Ironically, the dispute for influence also led to convergence. The 2011 creation of the Community of Latin American and Caribbean Nations (CELAC), proposed by Mexico to affirm its Latin American identity and counter a perceived Brazilian effort to separate it from the region, was warmly embraced in Brasília as a way project leadership by promoting formats that excluded the US. Read more

To many South American leaders, Chinese Premier Li Keqiang’s visit this week couldn’t come at a better time, and from a better country. China has been busy with Latin America, surpassing the United States as South America’s leading export destination outside of the region, according to the China-Latin America Economic Bulletin.

What is more, the ink is barely dry on big loan agreements to Venezuela and Ecuador, or a major China-Latin America cooperation plan signed in January that pledges to increase trade by $500bn and investment by $250bn and to cooperate on science and technology, trade, and environmental protection. Read more

Brazil’s economy – as beyondbrics readers know – is in serious trouble, and the unorthodox policies of the country’s embattled president, Dilma Rousseff, have been major contributors to the Brazilian real’s sharp depreciation. But as an analyst who has a long-held negative view on the Brazilian real, it is interesting to ask – at this moment – whether we might be missing something now that investor sentiment has caught up with our bearish stance on the currency.

In short, given the real’s steep drop since 2011, has Brazil’s currency hit a bottom? Read more

I have just returned from abroad. It felt like déjà vu from a distant past. Explaining Brazil has become complex again. “I read about corruption accusations, popular protests, deficits and crises; what is happening in Brazil?” I was asked by an important investor. The answer inevitably tends to be long and full of Buts and Ifs.

Nevertheless, I will make an effort to summarize it here in a straightforward way. Brazil did not invest enough during the favorable commodity cycle. Policymakers did not recognize the end of the cycle in time. When they did, they tried to go back to a past that no longer existed. Now, Brazil must adjust everything at once to avoid a worse crisis. But markets are dynamic: with the recent depreciation of the real, there are already investors looking for opportunities. That is the reason Brazilian assets rebounded lately. Read more

Blink and you missed it. The day after the US Federal Reserve appeared on Wednesday to put back the date of its long-awaiting interest rate rise, analysts at Bank of America Merrill Lynch wrote to clients: “Emerging market currencies temporarily halted their losing streak with a dovish Federal Open Market Committee sending the USD lower.”

“Temporarily” is right. The Brazilian real closed at about R$3.21 to the dollar on Wednesday from its open of R$3.24, a rare day’s gain in a two-month slide. But on Thursday it was back on course, falling quickly beyond R$3.30 before recovering a bit, an intraday move of nearly 3 per cent. In less dramatic manner, the Turkish lira, Russian rouble and South African rand all resumed their downward slides, too. Read more

It was a cathartic weekend for Brazilians, as more than a million people took to the streets to show their discontent with the government in scenes not seen since the mass demonstrations that preceded the impeachment of President Fernando Collor de Mello more than a decade ago.

Sadly, any idea that such a “cleansing of the soul” (as they sometimes say in Brazil) would be followed by a fresh optimistic start on Monday quickly evaporated as the central bank’s weekly round of consensus forecasts showed no end to the deepening gloom. Read more