Brazil

BNDES, IDB set up US$2.4 billion line of credit, offer US$750 million for clean energy projects

The Brazilian National Development Bank (BNDES) and the Inter-American Development Bank (IDB) announced a US$2.4 billion joint line of credit to finance sustainability projects in Brazil on 16 December 2016 (Valor, BNDES). The first operation will be a sustainable energy financing program of US$750 million from BNDES to Brazilian companies, with the Brazilian federal government as a guarantor. These energy infrastructure funds will focus on increasing the share of alternative renewable energy in the national energy matrix and energy efficiency. The funds will have a four-year term and an interest rate determined by the IDB’s ordinary loans. BNDES emphasized that the energy projects stemming from this financing will help Brazil to reach its greenhouse gas reduction goals laid out by the U.N.'s Paris Accord on Climate Change. Between January and October 2016, BNDES had already disbursed US$20.6 billion in financing.

Brazilian economy contracts 0.48 percent in October 2016

According to data from the Brazilian Central Bank disclosed on 15 December 2016, the Brazilian economy contracted 0.48 percent in October 2016 (Valor, UOL). The drop comes after a milder contraction of 0.08 percent in September 2016. The IBC-Br, an index of economic activity that estimates Brazilian GDP growth by taxes from the agricultural, industrial, and service sectors, has registered a 4.82 percent contraction since the beginning of 2016 and a 5.09 percent contraction in the past twelve months (both ended October 2016). Finance Minister Henrique Meirelles noted on 14 December 2016 that the economic situation remains difficult, but that he is not disappointed by the pace of economic recovery. 

Petrobras confirms US$5 billion loan from China Development Bank

The state oil firm Petrobras reported on 16 December 2016 that it signed a financing agreement with the China Development Bank (CDB) for a ten year loan of US$5 billion (Valor, Globo G1). The financing is the result of a US$10 billion agreement announced on 26 February 2016 between Petrobras and CDB. Per the agreement, Petrobras will provide a total volume of 100,000 barrels of oil per day to China National United Oil Corporation, China Zhenhua Oil, and Chemchina Petrochemical over the term of the loan, in lieu of making interest and principal payments. The company also signed agreements with these three firms.

 

The agreement is questionable on Petrobras’ end. At an average price of US$50 per barrel of crude oil, Petrobras would effectively pay a 36.5 percent interest rate based on economic cost. However, Petrobras is the most indebted company in the world, with over US$100 billion in long-term debt as of 30 September 2016 and scaling efforts to shed non-core assets to reduce its leverage (Globo G1). As such, their credit options were limited in February 2016, and the US$10 billion agreement with CDB enabled them to raise funds in February without issuing equity, when their stock price was at its nadir (Globo G1). Shares of the firm rebounded in 2016, increasing 266 percent from a low of US$2.71 in February to US$9.91 on 20 December 2016, as the Brazilian stock market rallied in anticipation of Dilma Rousseff’s impeachment and the price of Brent crude oil rebounded from a low of around US$35 in February to the mid-US$50s in December 2016 (Google Finance).

Public Ministry denounces Lula, others in Operação Lava Jato

The Brazilian Federal Public Ministry on 15 December 2016 denounced former President Lula on corruption and money laundering charges related to the Petrobras corruption scandal (Folha de S. Paulo, Valor). The crimes involve US$22.4 million in eight contracts between the state oil firm and Odebrecht, a major construction firm that has admitted to its involvement regarding bribes and cartel activity in the scandal. Lula stands accused of accepting US$3.7 million worth of land, used for the headquarters of his Instituto Lula in São Paulo, and a penthouse addition to his apartment in São Bernardo do Campo (SP) valued at US$150,000. The Ministry also cited Marcelo Odebrecht, Lula’s wife, and others on money laundering.

Brazil sends committee to assist 37 citizens trapped at Venezuelan border

A delegation from the Brazilian state of Roraima was sent to the Venezuelan border on 19 December 2016 to assist 37 Brazilian citizens who were trapped in Venezuela. The Brazilians, the majority of whom hailed from Roraima and Amazonas states, were stuck at the border city of Santa Elena de Uiarén following President Nicolás Maduro's extension of the border closure between Venezuela and Brazil until 2 January 2017 (El Nacional). According to Claudio Bezerra, Brazilian Vice Consul in Santa Elena de Uiarén, the Brazilians requested help due to cash and food shortages after Maduro ordered the 100-bolívar bill taken out of circulation (El Universal). The Brazilian Foreign Relations Ministry announced later on 19 December that the Venezuela-Brazil border will be opened once per day for Brazilians to cross back into Brazil, but did not state how long the border would stay open per day (O Globo).

Bolivian, Colombian, and Brazilian prosecutors join in LaMia crash investigation

Attorney Generals from Colombia and Brazil arrived in Santa Cruz, Bolivia on 7 December 2016 to meet with Bolivian Attorney General Ramiro Guerrero investigate the circumstances of the LaMia crash. The commission of attorneys decided to arrest the airline's General Manager, Gustavo Vargas Gamboa, after raiding the company's offices (Los Tiempos). The LaMia plane crash took place on 28 November and left 71 dead near Medellín, Colombia. Among the dead were members of the Brazilian soccer club Chapecoense. In Bolivia, attorneys are investigating the crimes of breach of duty and threats against security from a means of transport. Several of the accused also include Celia C., a Bolivian aviation authority employee who noticed irregularities in the flight, but failed to report them to her superiors. In Colombia, officials have also initiated charges against airport operators for culpable homicide (La Razón).

Brazil's Senate approves spending cap constitutional amendment

The Senate approved on 13 December 2016 a constitutional amendment that will limit the growth of the federal budget to the previous year’s rate of inflation for the next 20 years, effecting a spending freeze at the federal level (Folha de S. Paulo, Globo G1). Healthcare and education, the two areas that receive largest shares (which are fixed by federal law) of federal spending after social security (Previdência), are also subject to the spending cap. The amendment passed with 53 votes in favor, less than expected but more than the necessary 49 (three-fifths majority of the 81 senators). The measure had previously been approved by the Chamber of Deputies and in a first-round, preliminary vote in the Senate. The measure now moves to President Michel Temer to be signed. However, the government has noted the amendment will only be effective if the social security reform bill currently contested in Congress is passed as well.

The amendment has been met with controversy: while the current administration sees the measure as critical to controlling spending and bringing Brazil back into good international financial standing, many see the measure as regressive or simply “kicking the can down the road.” Polling by Datafolha on 13 December 2016 showed that 60 percent of Brazilians are against the amendment, and protests erupted throughout the country surrounding the vote (Folha de S. Paulo). The austerity measure intends to reign in government spending so that public debt level does not continue to increase (it is currently 70 percent of GDP, much higher than the 45 percent average of countries at the same state of development as Brazil). The amendment provides optionality for the sitting President to revise the baseline of the measures in its tenth year, which would be 2025. However, opponents of the amendment in both Congress and the constituency believe it will block necessary investment in education and infrastructure, while others find it mathematically improbable that the federal government will be able to adhere to the measure’s provisions for more than a few years.

Maduro orders 72-hour closure of border with Brazil

Venezuelan President Nicolás Maduro, on 13 December 2016, ordered a 72-hour closure of the Venezuela-Brazil border to combat smuggling of paper bills into Brazil. According to Brazil's Roraima state Venezuelan consulate representative José Martínez the border crossing from Pacaraima to Santa Elena de Uairén in southern Venezuela would close from 13 to 15 December (Globo). Maduro ordered a temporary shutdown of the border with Brazil after closing the border with Colombia for 72 hours starting on 12 December, citing activity from "cash mafias" that seek to destabilize the Venezuelan economy (Infobae). 

Public Ministry indicts Lula, son for influence peddling and money laundering

The Federal Public Ministry (MPF) indicted former President Lula da Silva and his son Luiz Cláudio Lula da Silva on charges of influence peddling, money laundering, and criminal organization on 9 December 2016 (Globo G1). The MPF made the announcement after investigations pointed to the involvement of Lula, his son, and the owners of a consulting firm in irregular transactions made by the federal government to purchase 36 Gripen military jets. According to the MPF, the crimes were committed between 2013 and 2015, after Lula’s mandate as president. The MPF suspects that Lula promised to use his influence in the federal government to benefit automotive clients of consulting firm M&M by way of government purchases. In return, Mauro Marcondes and Cristina Mautoni, owners of M&M, agreed to pay US$747,836 to Lula's son’s business, LFT Marketing Esportivo (Folha de S. Paulo). The indictment was made as a part of Operação Zelotes, a probe into corruption in federal, state, and municipal governments.

Odebrecht executive cites Temer, dozens of other politicians for bribery and illicit campaign funds in plea deal

Cláudio Melo Filho, former Vice President of Investor Relations at Odebrecht, the embattled construction firm under investigation for its involvement in bribery and cartel activity in Operação Lava Jato, cited dozens of politicians in a testimony as a part of a plea deal on 9 December 2016 (Folha de S. Paulo, Valor). Melo Filho said the company paid politicians to influence the passage of a bill that would provide tax concessions to producers of ethanol and the chemicals industry, allowing Odebrecht to save on taxes. The list of politicians includes President Michel Temer, to whom Melo Filho said the firm paid nearly US$3 million in bribes and illicit campaign funds, Chief of Staff Eliseu Padilha (US$1.2 million), Geddel Vieira Lima (minister under both Temer and Lula, US$1.75 million), former President of the Chamber of Deputies Eduardo Cunha (US$3.4 million), current Chamber President Rodrigo Maia (US$178,000), Senate President Renan Calheiros (US$1.8 million), Senator and leader of Temer’s government in Congress Romero Jucá (US$5.7 million), and Jaques Wagner (minister under Dilma Rousseff, US$6.1 million). Melo Filho stated Romero Jucá may be considered the front man for the solicitations. Many of the politicians have denied the accusations, including Temer (Valor). 

The accusations will have significant consequences for the Temer administration, which took power after the opening of the impeachment process of Dilma Rousseff in May 2016, finalized in August 2016. The Temer administration began with low public support, and polls from 7 December show a sharp decrease in support for the new administration. Datafolha, Folha de S. Paulo’s polling service, revealed that 63 percent of Brazilians want Temer to resign so the country may hold a direct presidential election. Temer would need to resign by 31 December 2016 for this to be possible under Brazilian law. Datafolha reported that 51 percent disapprove of the administration, up from 31 percent in July 2016. The testimony also comes as new economic data from the Brazilian Central Bank has continued to revise down growth projections given at the start of the new administration’s mandate. With low support and mounting evidence of corruption, on top of weak economic growth and fragmented support in Congress, the administration’s mandate has become even more complicated.

Brazilian vehicle production rises 21.8 percent in November, sales fall

According to statistics published on 6 December 2016 by Anfavea, the Brazilian association of auto manufacturers, vehicle production rose by 21.8 percent in Brazil in November 2016 when compared to November 2015 (Globo G1, Valor). The 213,000 vehicles produced in November also represented a 22.4 percent increase in production over October 2016. Year-to-date, however, national vehicle production has fallen 14.6 percent compared to 2015, and according to Anfavea President Antonio Megale, the 5.5 percent production drop forecasted for 2016 will not be reached. Vehicle sales in Brazil have fallen 21.8 percent year-to-date, and while the domestic market has faltered, producers have attempted to boost exports, with November 2016 registering the best export numbers since August 2013. However, the auto industry continues struggle to maintain employment levels: in the past twelve months, 2,200 employees have been temporarily laid off and 5,200 are under employment protection programs that limit work hours (Valor).

State of Minas Gerais declares fiscal crisis

Minas Gerais Governor Fernando Pimentel (PT) issued a decree of financial disaster on 5 December 2016, and called for the state legislative assembly to respond quickly (Folha de S. Paulo, Estado de Minas Gerais). The decree, if approved by the Assembly, would allow for the state of Minas Gerais to be flexible with its Law of Fiscal Responsibility under atypical conditions, allowing the state to not meet its stated fiscal goals. The state government has noted that without approval it will not be able to pay salaries or service its debt. Pimentel, in his message, attributed the situation to international and national economic crises. Minas Gerais became the third Brazilian state in 2016 to issue such a decree, following Rio de Janeiro in early November and Rio Grande do Sul on 22 November. 

Brazil among worst in world in education evaluation

According to the OECD-produced Pisa report on education released on 6 December 2016, the performance of Brazilian students has stagnated, putting Brazil at 65th out of 70 countries and territories evaluated (Folha de S. Paulo, Istoé). This triennial report focuses on the ability of fifteen and sixteen-year-old students in mathematics, reading, and science. Brazil saw improvements in student performance across all categories from 2000 to 2009. Between 2009 and 2015, the average Brazilian student’s Pisa mathematics score fell from 391 to 377 points, whereas the average for OECD countries is 490. More than 70 percent of Brazilian students failed to reach a Level of 2 (on a scale of 1 to 6), the level which the OECD considers adequate. The country saw similar trends for reading and sciences, which both saw smaller declines from 2009 to 2015 and over half of students not reaching Level 2 in those areas. Education Executive Secretary Maria Helena Guimarães called the results worrisome, while Movimento Todos Pela Educação President Priscila Cruz noted that without tackling problems surrounding teacher pay, Brazil will not improve its education.

Andrade Gutierrez admits to cartel behavior in World Cup stadium construction

Governmental antitrust organization Cade announced a leniency deal with construction firm Andrade Gutierrez Engenharia S.A., along with executives and former executives, on 6 December 2016 (Valor, Globo G1). Through the deal, the firm and other signees have admitted to participation in cartel activity in the construction of stadiums for the 2014 World Cup, hosted by Brazil. The deal, closed in October 2016 in conjunction with the Federal Public Ministry of Rio de Janeiro, is another part of the Operação Lava Jato, an investigation into corruption related to contracts at state oil firm Petrobras. Cade believes at least five bidding processes were the targets of the cartel, including bids for Arena Pernambuco, in Recife, and the renovation of Maracanã in Rio de Janeiro. It suspects the involvement of major firms OAS, Camargo Corrêa, Queiroz Galvão, and Odebrecht as well. Andrade Gutierrez has recently signed leniency deals with Cade related to other cartel behavior linked to PAC Favelas in Rio de Janeiro and the bidding process for the Usina Hidrelétrica de Belo Monte.

ANAC to auction operating concessions for four national airports in 2017

The Agência Nacional de Aviação Civil (ANAC) made public on 1 December 2016 a notice that it will auction separately operating concessions for airports in Fortaleza, Salvador, Porto Alegre, and Florianópolis (O Globo, Valor). The auction will take place on 16 March 2017 on the São Paulo Stock Exchange (BM&FBovespa). The Federal Government expects to bring in at least US$838 million from the transactions, with total investment from future operators estimated to be around US$1.9 billion. Infraero, which currently manages the airports, will not bid. Concession terms will be between 25 and 30 years with five-year extensions available, and future operators' plans must include investment in upgrading and expanding current terminals (Diário Catarinense). The sale, which represents a combined 11.6 percent of passengers in Brazil, is part of the Federal Government's plan to privatize its airports over the next several years and broader plan to attract private investment to public infrastructure upgrades.

Senate President Renan Calheiros to face Supreme Court for corruption

The Brazilian Supreme Court voted on 1 December 2016 to review the corruption case of Senate President Renan Calheiros (PMDB-AL) (Folha de S. Paulo, Globo G1). Calheiros initially stood accused of illegally allocating pension public funds between 2004 and 2006 to a daughter he had with journalist Mônica Veloso, when he served as Chief of Staff under the Lula administration. The Supreme Court ministers also investigated a 2013 claim that Calheiros presented falsified documents to the Senate in 2007 to pay into his daughter's pension fund. However, the Court discarded this claim. According to Brazil's General Attorney's Office, Calheiros also used half of his monthly cabinet stipend between January and July 2005 to pay a car rental shop that subsequently made larger loans to the Senator. Calheiros could face two to twelve years in prison if convicted on the remaining corruption charges. 

Odebrecht strikes leniency deal in Petrobras scandal

Odebrecht, one of the largest construction firms implicated by Operação Lava Jato in the Petrobras corruption scandal, reached a leniency deal (essentially a plea bargain) with prosecutors on 1 December 2016 (Folha, Valor). The accompanying fine is ~US$1.9 billion, which Odebrecht will pay in annual increments over twenty years. Inclusive of interest payments over this period, the actual amount paid by the company will surpass US$2.4 billion. The company will pay the majority of the fine to the Brazilian Ministry of Justice, with smaller portions going to the Ministry's American and Swiss counterparts. Operação Lava Jato expected to begin reaching plea deals with almost 80 executives and former employees of Odebrecht, including former President Marcelo Odebrecht, as soon as 1 December 2016 in Brasília. Supreme Court Minister Teori Zavascki, who oversees the Lava Jato operation for the Court, must approve these plea bargains before they may be finalized, meaning that attorneys must find the testimonies or evidence presented by the defendants to be valuable in the case. 

Brazilian economy contracts 0.8 percent in third quarter of 2016

According to information divulged by the Instituto Brasileiro de Geografia e Estatística (IBGE) on 30 November 2016, the Brazilian GDP contracted 0.8 percent in the third quarter of 2016, marking the seventh consecutive quarter of contraction (Valor, Globo G1). Consulting firms and financial institutions questioned by Valor forecasted a contraction of 0.9 percent on average. For the past twelve months, the economy has contracted by 4.4 percent. Agricultural and fishing (primary) sectors and industry fell the most at 1.4 and 1.3 percent, respectively. For the seventh consecutive quarter, family consumption declined 0.6 percent in the third quarter of 2016. 

Petrobras shares open up big after OPEC deal

Petrobras common shares opened up around 8 percent on 30 November 2016 after OPEC reached a deal to control oil production (Folhainvest). Brent Crude oil and WTI Crude oil prices both opened up over 7 percent, causing major oil companies around the world to see gains. Petrobras subsequently led a charge by the Ibovespa (São Paulo Stock Exchange), which opened up over 2 percent. The jump comes a day after President Michel Temer enacted a law removing requirements for the state-owned oil firm to participate in certain percentages of contracts in the Pre-Salt Oil Basin off of the coast of the states of São Paulo and Rio (Veja).

Lava Jato coordinator criticizes "intimidation law" approved by Chamber of Deputies

Federal attorney Deltan Dallagnol, who coordinates the Operação Lava Jato task force investigating the Petrobras corruption scandal, criticized on 30 November 2016 the Chamber of Deputies' decision to include a provision for judges and members of the Public Ministry to face crimes of responsibility in their new packet of anti-corruption laws (Valor, Estadão). The approved amendment holds that judges and Public Ministry members may answer for abuse of authority if they begin proceedings without any indication of a crime having been committed. Dallagnol called the amendment a "law of intimidation." Judges may already answer for crimes in at least eight situations, among them expressing an opinion about a pending judgment, with penalties ranging from six months to two years in prison and fines.