Brazil Tribune » Economy

BRAZIL’S GOL CUTS FLIGHTS TO RESTORE OPERATING PROFIT

braziltribune — Tue, 26 Mar 2013 20:25:06 +0000

Gol Linhas Aereas Inteligentes SA is cutting back flights to return to profitability, the Brazilian airline said on Tuesday as it reported a steep quarterly loss. Gol posted a fourth-quarter net loss of 447 million reais ($222 mln), according to a securities filing, compared with a year-earlier profit of 54 million reais. The airline is still struggling to establish operating profitability after it expanded just as Brazil's air traffic market was cooling and a drop in the nation's currency, the real, drove up fuel and fleet costs. Gol lost 210.1 million reais in the fourth quarter before interest, taxes, depreciation and amortization, compared with a profit of 90.4 million reais a year earlier. The airline said it expected to report an operating profit for the first quarter, improving from a year earlier. Gol said it planned to reduce flights by between 8 percent and 10 percent in the first half of 2013 from a year earlier and by about 7 percent in the full year from all of 2012. With that, the airline is aiming to boost revenue per seat, an industry gauge of profitability known as RASK, by at least 10 percent. Reuters

This week in print: Canada’s aborigines, the Brazilian economy, nationalisations in Bolivia and Argentine energy

braziltribune — Fri, 18 Jan 2013 04:42:41 +0000

PROTESTS by indigenous groups are par for the course in Latin American countries like Bolivia and Peru. But at the northern end of the American continent, Canada's First Nations have their own gripes. This week's issue of The Economist checks in on the relationship between the country's government and its native peoples. It also includes stories on the Brazilian economy, nationalised utilities in Bolivia and Argentine energy policy.

Simpler procurement system is taking over government contracts

braziltribune — Fri, 28 Dec 2012 14:10:01 +0000

By Caio Junqueira and André Borges | Brasília The exception has become the rule. When it was created in 2011, through a law “smuggled” in an executive order (MP), the Differentiated Hiring Regime (RDC) had as its specific goal to accelerate hiring for the construction projects of the 2014 World Cup and 2016 Olympics. Included in the law that created the Secretariat of Civil Aviation, the RDC promised to speed up construction of airports and other facilities linked to sports events. It was only the beginning. After a couple of well-reviewed experiments in airports by the government, the RDC started to dominate the main federal purchases, putting the future of the Procurement Law (8,666) at risk. From World Cup to Olympics works, the RDC started since July to involve the projects listed in the Growth Acceleration Program (PAC). In October, it was the regime's turn to be extended to the education area. This month, Congress approved its application on health purchases. The weight of government investments that migrated to under the RDC umbrella gives a clear idea of the relevance that regime started to have for the government. It also reflects how law 8,666 is being abandoned. A Valor survey shows that adding up the planned budget for the next few years involving PAC, the World Cup and the Olympics, there are R$700 billion in investments. Of that total, R$526 billion are linked to PAC money, already excluding transfers for the My House My Life housing program for low-income families, which don't fit into that category, since they are directly negotiated by state-owned bank Caixa Econômica Federal. Up to R$80 billion have been set aside for investments in health next year. In education, R$50 billion more are expected to be invested. Despite the government's heavy bet on the RDC, the regime is far from being unanimously supported, starting with the path chosen to its creation. The method is questionable: To include the so-called “smuggled” amendments to executive orders. Those amendments are usually included in the MP when they're being negotiated in Congress and most of time they have no relationship with the MP's main object. The immediate effect of that trick is that the discussion about the pros and cons ends up losing importance. When the RDC was instituted, there was some controversy by the opposition on the method adopted. Since 2011, the government tried to impose the tool in every new MP until it finally managed to obtain approval in the MP 527, which created the Secretariat of Civil Aviation. After being approved in the Chamber of Deputies and in the Senate, it became law on August 4th of last year. Since then, the government started to use the same strategy to extend the RDC to other areas. In none of those cases the original MP dealt with the issue at stake. Also, in no other case there was a huge mobilization against the change in the allied base or in the government's opposition. The only reaction to that procedure ended up appearing from the hands of a first-term federal deputy, Fábio Trad. He's also a member of the PMDB group “Democratic Affirmation,” formed to try to recover the party's image and end its reputation as just interested in being in power, by proposing an agenda to the country. He's the brother of the reelected mayor of Mato Grosso do Sul capital Campo Grande, Nelson Trad Filho (PMDB). Based on 135 draft laws currently being studied at the Chamber and with the goal of reformulating the Procurement Law, Mr. Trad presented last week a replacement for the RDC legislation that tries to balance it with the Procurement Law. In drafting the text, it had the monitoring of the Brazilian Institute of Infrastructure Judicial Studies (Ibeji), linked to PUC-SP, a university. “From RDC, what I absorbed the most was the concept of agility in the process and the simplification of procedures, and the issue of sustainability. From the Procurement Law, I kept the criminalization of inappropriate uses of funds, the social clauses; we reinforced the principle of impartiality, efficiency, morality and included proportionality and reasonability.” But one essential point in the RDC was excluded from the law designed to replace it: The integrated hiring process. That tool allows the same suppliers to be responsible for the basic and execution engineering plans. According to Law 8,666, a new tender has to be launched for each step in the construction project. “Integrated hiring didn't convince us that its agility would surpass the resource misappropriation risk it offered. Generally, our logic is that the virtues of 8,666 and the RDC are much more advantageous to public administration and to society than only the RDC, because the system has failures. There's an excessive simplification that compromises the honesty of the process.” He expects the project to be approved by the Constitution and Justice Committee in 2013, after which it would follow to a vote in the Chamber. “The rule is still that it's 8,666, but the RDC is on its way to supplant that system. What we propose is blocking that loss of prestige for the 8,666 with a new procurement model,” Mr. Trad said, adding he considers the Procurement Law too positive to be withdrawn without wider debate. In parallel to the political discussions, the RDC also fosters some judicial questions. Augusto dal Pozzo, vice president at Ibeji, cites the case of the confidential budget. The government argues that by not previously reporting the price of a work, he manages to avoid conspiracies between rivals and fuel more competition. “That's one of the judicial aberrations of the RDC. The Constitution says everything must be publicized. The amounts are basic information that everybody should know,” Mr. Pozzo criticizes. “Besides, nothing stops two companies from agreeing on their proposals. That argument is empty and makes absolutely no sense.” Ibeji's vice president also calls attention to eventual risks from integrated hiring. “How are we handing to the same company in charge of the construction work the responsibility for the developing its engineering studies?” Mr. Pozzo asks. “The government picked a path, an easier path for hiring public works, but it doesn't mean it's the best. The RDC contracts started to be signed now and soon we'll start to see the problems. We're legitimizing bad planning.” For the government, the criticism didn't stick. Last month, Infraero published another tender under RDC to hire expansion and renovation work at the Confins International Airport (in Minas Gerais). At the National Department of Transportation Infrastructure (DNIT), the RDC is the new mantra to fix the current effort to hire renovation and maintenance work of federal highways. Meanwhile, more and more are being left over to fall under Law 8,666 only minor work.

Brazil and the new global order

braziltribune — Fri, 28 Dec 2012 14:05:19 +0000

By Valor International For a long time now, the decadence of the “American Empire” has been spoken of, a hypothesis that became more visible in this century thanks to the consequences of the 2007/2008 financial crisis and the emergence of economic powers such as China. Losing no time, US intellectuals pored over the issue not only to understand it, but also to indicate paths that will help the US maintain its hegemony. One of these efforts has been undertaken by two of the main think tanks: the Center for a New American Security (CNAS) and the German Marshall Fund of the United States (GMF). Both entities created a project they named Swing States to examine how the US and its European allies can get closer to four emerging countries to strengthen international order. In a study entitled “Global Swing States: Brazil, India, Indonesia, Turkey and the Future of International Order,” Daniel M. Kliman and Richard Fontaine defend the thesis that these four emerging nations are significant enough to decisively influence the current world order’s trajectory. What they suggest is that the US government, along with its European allies, put these countries at the top of their foreign policy lists. Why Brazil, India, Indonesia and Turkey? The explanation: the four have a large and growing economy – together, their GDP measured by purchasing-power parity (PPP) is nearly $8 trillion – strategic location in their regions and commitment to democratic institutions. To Messrs. Kliman and Fonaine, their approach in the world order is more fluid and open than China’s and Russia’s. “(...)Lastly, all are increasingly influential at the regional and global level, and although they desire changes to the international order, they do not seek to scrap it,” they say. The international order that the US assembled in the postwar era is now facing several challenges. One of them is the decadence of the multilateral credit system, affected by the weakening of institutions such as the IMF and the World Bank (IBRD). Another is the stagnation of multilateral trade negotiations. There are also doubts surrounding the emergence of China as an economic and political power. Messrs. Kliman and Fontaine also mention as challenges to the world order Iran and North Korea’s nuclear ambitions, along with the lack of stamina in the democracies of some regions of the planet – according to Freedom House, the percentage of democratic countries fell to 60% in 2011 from 64% in 2006. In this context, affected by the current global crisis, whose epicenter was in the world’s richest economies, the US and Europe face fiscal and political pressures that could lead them to waver as main supporters of global order. The think tanks are generally proposing to President Barack Obama that he attract to the club, while there’s time, the four emerging allies before they make decisions contrary to the US and its allies’ central interests and, worse, ally themselves to nations Washington considers dangerous, untrustworthy or out of their control, such as Russia and China. Messrs. Kliman and Fontaine define the world order in five themes: Trade, finance, maritime issues, nuclear proliferation and human rights. Then, they analyze how each of these four emerging countries is dealing with the issue. It’s curious to see how they see Brazil, historically friendly to the US, but equally reluctant to a greater closeness, differently from India and Turkey, for example. Brazil is seen as a nation which, in the last few years, in view of its relative economic success, deepened democracy and reduced social equality, thus demanding international recognition. The country now aspires for a permanent seat on the UN Security Council and for more weight in IMF and IBRD decisions, requests that officials the US and Europe never took seriously. Regarding trade issues, Brazil is described by the authors as a country that has worked to slow commercial liberalization, adopting protectionist measures, although still inside OMC’s rules. They recall the country’s attempt to transform into disputes at the OMC policies adopted by China and the US to “artificially” devalue their currencies. To Brazilians, that is an “export subsidy.” In the financial sphere, Brazil left the position of recipient of resources from multilateral lending institutions and became a net donor. The country has also become a strong supporter of capital control, having obtained success in convincing the IMF to rethink its recommendations in this area. Brazil is also remembered for defending the end of the dollar’s prominence in international trade relations. Regarding maritime issues, the country is seen as a nation that tries to circumvent international laws but also contributes to maritime security. It has signed UNCLOS – the UN maritime convention – and is now trying to carry out its ambitions within its scope. One of them is to expand, as it did in 2008 but in an unsuccessful manner, a security zone around offshore installations (such as oil platforms) allowed by maritime law. In the nuclear issue, Brazil is seen as an actor that despite having agreed to the Non-Proliferation Treaty (NPT), defends sovereign rights and is against measures to strengthen non-proliferation. Besides that, the country’s unsuccessful involvement, along with Turkey, in 2010’s negotiations with Iran is not seen as a harbinger of the country’s future actions in this area. “On the contrary, many Brazilians see the episode as a foreign-policy stumble,” say Messrs. Kliman and Fontaine. The human rights chapter recalls somo regressions of the Luiz Inácio Lula da Silva administration (mainly the opposition to UN resolutions against countries who violate these rights) and advances in President Dilma Rousseff’s administration, who voted against Iran’s interests. The country’s reluctance in supporting military action against regimes that commit atrocities against its citizens is mentioned. Here prevails the Brazilian diplomacy's premise that human rights shouldn’t be a pretext for geopolitical interventions.

President will seek to improve dialog with the private sector

braziltribune — Wed, 26 Dec 2012 19:42:26 +0000

By Claudia Safatle President Dilma Rousseff wants to "freshen up" her government with further discussions and a broader universe of interlocutors. Ms. Rousseff is not satisfied with the performance of the economy in the first two years of her term, but does not intend to change the team that controls that area. Guido Mantega, for example, should continue as Finance Minister. There will be no replacements in the ministry in the short term, said a government source, referring to the next six months "at least". The president, however, knows that 2013 is the last year for her government to present more promising results. In 2014, the focus will be on reelection. In the first year of Ms. Rousseff’s term, the country grew 2.7%. This year the performance will be worse and GDP growth should be only 1%. There is no time to lose, her advisors said. Ms. Rousseff should open new channels of dialogue next year. "She wants to talk to people who are managing businesses, both in the production as well as in the financial industry," the source said. One cannot blame others for any mistakes when designing the economic policy. "The president is in charge of the enforced economic policy," the source said. But not everything pleases her in managing the day-by-day. There is a problem that may be compromising the entire result: the gap between the government and the private sector, which feeds uncertainties regarding the President’s intentions and delay investment decisions. No investment, no growth. "While Chief of Staff in [previous President's] Lula administration, Ms. Rousseff believed that the State, through its investments, could make the country grow. Now, as the President, she understood that there are limitations and you have to attract the private sector for economic growth," summarized this advisor. It was this understanding, emerged only at the end of last year, which led her to shift from the statism designed under the Accelerated Growth Program (PAC) for the concession regime - the government wants to avoid the word privatization. These programs were prepared in the first half of this year and, in in the second half, Ms. Rousseff approved concessions of highways, railways, ports and, yesterday, of airports. For highways and railways concessions, however, government technicians said they used an invested-capital return rate of 6% to 6.5% per year. The first two of a total of nine highways have come up with a return rate even lower than 5.5%, according to feasibility studies. The technical explanation is that this fee is for the total project, which encompasses the BNDES loans at subsidized interest rates (1% to 2% per year). The concessionary's return on equity is bigger: 10%. The fact is that these rates did not please the private sector. The electricity package, with all its noise, only served to feed the bad mood. On Wednesday, the president announced the package to privatize airports and, therefore, concluded the announcement of concessions set out to do. Now it will start the preparation of tender documents and auctions, a more administrative agenda. After that, according to a high-ranking official from the economic department, the changing of the government’s strategy will be done, migrating the focus from incentives for spending to supply expansion. The results of the economic policy this year - measured by growth rate and inflation - fell short of forecasts and disappointed the government and the private sector. The IPCA, according to the Quarterly Inflation Report released on Wednesday by the Central Bank (BC), should end the year at 5.7%, considerably above the central target (4.5%). For 2013, projections indicate that the IPCA should fall to 4.8%, rising to 4.9% in 2014, the last year of the Rousseff administration. GDP, according to the BC, grew 1% this year and is following an expansion trend, reaching 3.3% in the third quarter in 2013. The report does not include a scenario predicting a 4% growth rate for 2013. A lot of goals have been accomplished this year but not enough to imprint more dynamism to the economy. Interest rates fell to 7.25%, there was a devaluation of the exchange rate, the government implemented payroll-tax cuts and tax incentives of about R$45 billion, and after relaxing the fiscal policy electricity prices began to fall in February. Over R$100 billion in bank deposit requirement have been released and prudential measures are being undone. "There was no change in the mix of the macroeconomic policy. What happened was an adjustment to the tripod instruments," said a government official. This adjustment is already done in the exchange rate - more depreciation will push inflation up - and, for BC, it is imperative that the Finance Ministry pursues again the full primary surplus’ target of 3.1% of GDP, both in 2013 as in 2014. On the global scenario, BC estimates the U.S. economy should grow between 2% and 2.5%, the risk of hard landing in China is practically removed and its GDP should be between 7.5% and 8%. From Europe should come neither growth nor the occurrence of an "event". So the international environment is still disinflationary. The challenge for Ms. Rousseff in 2013 is sizable: To convince the private sector to invest more, increasing the supply of goods and services in the economy and facilitate a growth path for the country. "One thing, however, is to make the state invest. Another is to convince a private company to take money out of pocket to invest. So you must have a relationship with entrepreneurs who, in the economic area, nobody has," said the president's advisor. In this case, it is essential a good that the government lacks: business confidence in its true intentions. “This administration is permeable,” the source said. article source: Valor Economico - 12/20

Simpler procurement system is taking over government contracts

braziltribune — Tue, 18 Dec 2012 14:16:01 +0000

By Caio Junqueira and André Borges | Brasília Published in Valor Economico on 12/17/12 The exception has become the rule. When it was created in 2011, through a law “smuggled” in an executive order (MP), the Differentiated Hiring Regime (RDC) had as its specific goal to accelerate hiring for the construction projects of the 2014 World Cup and 2016 Olympics. Included in the law that created the Secretariat of Civil Aviation, the RDC promised to speed up construction of airports and other facilities linked to sports events. It was only the beginning. After a couple of well-reviewed experiments in airports by the government, the RDC started to dominate the main federal purchases, putting the future of the Procurement Law (8,666) at risk. From World Cup to Olympics works, the RDC started since July to involve the projects listed in the Growth Acceleration Program (PAC). In October, it was the regime's turn to be extended to the education area. This month, Congress approved its application on health purchases. The weight of government investments that migrated to under the RDC umbrella gives a clear idea of the relevance that regime started to have for the government. It also reflects how law 8,666 is being abandoned. A Valor survey shows that adding up the planned budget for the next few years involving PAC, the World Cup and the Olympics, there are R$700 billion in investments. Of that total, R$526 billion are linked to PAC money, already excluding transfers for the My House My Life housing program for low-income families, which don't fit into that category, since they are directly negotiated by state-owned bank Caixa Econômica Federal. Up to R$80 billion have been set aside for investments in health next year. In education, R$50 billion more are expected to be invested. Despite the government's heavy bet on the RDC, the regime is far from being unanimously supported, starting with the path chosen to its creation. The method is questionable: To include the so-called “smuggled” amendments to executive orders. Those amendments are usually included in the MP when they're being negotiated in Congress and most of time they have no relationship with the MP's main object. The immediate effect of that trick is that the discussion about the pros and cons ends up losing importance. When the RDC was instituted, there was some controversy by the opposition on the method adopted. Since 2011, the government tried to impose the tool in every new MP until it finally managed to obtain approval in the MP 527, which created the Secretariat of Civil Aviation. After being approved in the Chamber of Deputies and in the Senate, it became law on August 4th of last year. Since then, the government started to use the same strategy to extend the RDC to other areas. In none of those cases the original MP dealt with the issue at stake. Also, in no other case there was a huge mobilization against the change in the allied base or in the government's opposition. The only reaction to that procedure ended up appearing from the hands of a first-term federal deputy, Fábio Trad. He's also a member of the PMDB group “Democratic Affirmation,” formed to try to recover the party's image and end its reputation as just interested in being in power, by proposing an agenda to the country. He's the brother of the reelected mayor of Mato Grosso do Sul capital Campo Grande, Nelson Trad Filho (PMDB). Based on 135 draft laws currently being studied at the Chamber and with the goal of reformulating the Procurement Law, Mr. Trad presented last week a replacement for the RDC legislation that tries to balance it with the Procurement Law. In drafting the text, it had the monitoring of the Brazilian Institute of Infrastructure Judicial Studies (Ibeji), linked to PUC-SP, a university. “From RDC, what I absorbed the most was the concept of agility in the process and the simplification of procedures, and the issue of sustainability. From the Procurement Law, I kept the criminalization of inappropriate uses of funds, the social clauses; we reinforced the principle of impartiality, efficiency, morality and included proportionality and reasonability.” But one essential point in the RDC was excluded from the law designed to replace it: The integrated hiring process. That tool allows the same suppliers to be responsible for the basic and execution engineering plans. According to Law 8,666, a new tender has to be launched for each step in the construction project. “Integrated hiring didn't convince us that its agility would surpass the resource misappropriation risk it offered. Generally, our logic is that the virtues of 8,666 and the RDC are much more advantageous to public administration and to society than only the RDC, because the system has failures. There's an excessive simplification that compromises the honesty of the process.” He expects the project to be approved by the Constitution and Justice Committee in 2013, after which it would follow to a vote in the Chamber. “The rule is still that it's 8,666, but the RDC is on its way to supplant that system. What we propose is blocking that loss of prestige for the 8,666 with a new procurement model,” Mr. Trad said, adding he considers the Procurement Law too positive to be withdrawn without wider debate. In parallel to the political discussions, the RDC also fosters some judicial questions. Augusto dal Pozzo, vice president at Ibeji, cites the case of the confidential budget. The government argues that by not previously reporting the price of a work, he manages to avoid conspiracies between rivals and fuel more competition. “That's one of the judicial aberrations of the RDC. The Constitution says everything must be publicized. The amounts are basic information that everybody should know,” Mr. Pozzo criticizes. “Besides, nothing stops two companies from agreeing on their proposals. That argument is empty and makes absolutely no sense.” Ibeji's vice president also calls attention to eventual risks from integrated hiring. “How are we handing to the same company in charge of the construction work the responsibility for the developing its engineering studies?” Mr. Pozzo asks. “The government picked a path, an easier path for hiring public works, but it doesn't mean it's the best. The RDC contracts started to be signed now and soon we'll start to see the problems. We're legitimizing bad planning.” For the government, the criticism didn't stick. Last month, Infraero published another tender under RDC to hire expansion and renovation work at the Confins International Airport (in Minas Gerais). At the National Department of Transportation Infrastructure (DNIT), the RDC is the new mantra to fix the current effort to hire renovation and maintenance work of federal highways. Meanwhile, more and more are being left over to fall under Law 8,666 only minor work.

This week in print: Mexico’s drug war, Brazilian banks, Fujimori’s pardon request and talks with the FARC

braziltribune — Sat, 20 Oct 2012 10:21:29 +0000

Mexico's drug war, Brazilian banks, Fujimori's pardon request and talks with the FARC

Oct 19th 2012, 17:03 by The Economist online

THE Mexican government has killed or captured 25 of its 37 most-wanted men in the drug war. This week's issue of The Economist asks whether going after kingpins does any good. It also includes stories on how falling interest rates are affecting Brazilian banks, Alberto Fujimori's request for a pardon and the start of peace talks between Colombia's government and the FARC guerrillas.

Brazilian banks: No more free lunch

braziltribune — Fri, 19 Oct 2012 10:17:38 +0000

ON OCTOBER 10th Brazil’s Central Bank cut its policy interest rate for the tenth time in just over a year, to 7.25%. The move surprised analysts, since rates were already historically low and inflation above the centre of the monetary-policy committee’s 2.5-6.5% target. Neither economic growth, likely to finish the year at an anaemic 1.5%, nor the currency, which tends to rise with rates as return-seeking foreign investors pile in, are supposed to play a part in its deliberations. But most analysts now believe that its decisions are taken with an eye to boosting growth and weakening the currency, and that unless inflation threatens to break the 6.5% barrier, rates will stay low for some time. For now, subdued global demand means that inflation is unlikely to slip its leash. But in the longer term the government will have to rein in public spending and push through difficult reforms if it wants Brazil to grow faster than 3-4% a year without fuelling inflation. Recent moves to cut payroll taxes, limit public-sector pay rises, reduce energy costs and improve a woeful transport infrastructure should help to raise this distinctly modest economic speed limit. They have also convinced many that the president, Dilma Rousseff, will do whatever it takes to save the bank from having to hike again. Permanently lower interest rates would be the most positive economic development in Brazil since hyperinflation was vanquished almost 20 years ago, says Enestor dos Santos of BBVA, a Spanish bank active in the region. Firms would invest more—and making a decent return would mean funding productive projects, not just parking cash in government bonds. Returns to lender But some industries will see profits fall. When investors realised that electricity firms would have to accept much lower returns from early next year, or else be ineligible to rebid for concessions that run out between 2015 and 2017, share prices slumped. Masha Gordon of PIMCO, a fund manager, praises the government for blocking its ears to vested interests and calling time on Brazil’s “free lunch”. Toll-road and energy concessionaires who signed deals when rates were much higher benefited hugely as they fell, she points out, leaving some low-risk projects earning real returns approaching 20%. That could hardly be expected to last. But it is banks that will have to do most to adapt to Brazil’s new low-interest environment, says Ms Gordon. Their net interest margins have been falling for years as the rates they charge on loans fall in line with the policy rate, and the room to cut the rates they offer on deposits reduces. That has eaten into returns (see chart). The pressure on profits has built recently as the government has pushed banks to pass on lower rates to customers, faster. The two big state-controlled banks, Caixa Econômica Federal and Banco do Brasil, have slashed rates at the government’s behest. Private banks have had to follow suit or lose market share. According to Anefac, an accountants’ trade body, the average rate paid by Brazilian retail borrowers in September fell below 100% for the first time. Rates for business loans are also at an all-time low—48% a year. By Brazilian standards such rates may be low; by international ones, they are eye-watering. The biggest reason, says Sergio Furio of bankFacil, a start-up that offers consumer-finance information online, is the inefficiency of Brazilian banks. Although their revenues per employee are broadly in line with other large economies, their low productivity is masked by very high prices. They need twice as many staff to generate the same volumes as banks in Europe or America, he points out—but are still profitable because margins are two or three times as high, too. “Brazilian banks have been relying on the last gasp of outrageous interest rates,” says Mr Furio. Instead they should be trying to become more efficient and to attract a better class of customer. High-cost loans put off numerate, well-heeled types who could be relied on to repay them. That adverse selection means rates must be pushed up even higher to cover frequent defaults. BankFacil hopes to make money by breaking this cycle, referring newly educated, creditworthy users to financial institutions which can then charge them less. The highest interest rates of all are on credit cards, which in Brazil are mostly used to buy goods in “interest-free” instalments. Retailers offer self-financed payment plans over up to 18 months. They hide their own financing costs inside the sticker price and only request payment from the customer’s card issuer month by month. Banks make little money from this peculiar “credit on credit”, which makes up 70% of total credit-card loans in Brazil. Only when a cardholder misses a payment does the card issuer finally get to charge interest. But the chance of default among such late payers is a hefty 28%, meaning rates must be astronomical if banks are to make a profit at all. Last month Itaú Unibanco, Brazil’s largest privately controlled bank, let it be known that it would like to put an end to credit cards being used this way. But the government worries that Brazilian consumers are so used to paying for everything from clothes to white goods to cars in supposedly interest-free instalments that they might then stop spending altogether, nipping a nascent recovery in the bud. Any move will have to be gradual. The good news is that Brazilian banks have lots of fat to cut before they reach the bone. They have also acquired plenty of new customers during the past decade, says Franklin Santarelli of Fitch Ratings, an expensive process that should reap rewards during the next one. Brazil is “just moving into the mainstream,” says Ceres Lisboa of Moody’s, another ratings agency. Its banks, like those elsewhere, have to work out how to make money with lower margins and higher volumes.

Investing in Brazil’s infrastructure: The road ahead

braziltribune — Fri, 17 Aug 2012 04:28:06 +0000

The road ahead

Aug 16th 2012, 16:27 by The Economist online

OUR correspondents discuss whether the new investment in Brazil's infrastructure announced by president Dilma Rousseff can help boost the country's stalled economy

Rio+20: protecting the environment is not enough

braziltribune — Fri, 22 Jun 2012 20:04:36 +0000

A three-dimensional approach to development is now needed - one that combines social, economic and environmental concerns By: Antonio Patriota Rio+20 is a landmark for the future. As more than 190 countries gather in Rio, we are witnessing a historic moment. The recent global crisis has shown that old-fashioned views about development are misleading. It is now time to rethink the very foundations of how we consider development, wellbeing and wealth. Over the past four decades, the world has increasingly realised that our natural resources are under serious pressure. A growing awareness of the need to ensure sustainability has led a whole new generation to consider the requirements of sustainable development in its decisions to produce or consume. This is no small achievement. Rio 92 was a major step forward. Important legal texts on key issues were adopted. These conventions ensured important progress that we must maintain and build on. We now face a complex challenge. Protecting the environment is not enough. We need to encourage public and private decision-makers to incorporate environmental and social concerns into economic planning and growth strategies. This will require a new thinking from policymakers, experts, business people, project managers and many other public and private actors in order to plan and implement sustainable development initiatives. From now on, a three-dimensional approach to development is crucial, one that combines social, economic and environmental concerns. Rio+20 is endeavouring to become the launch pad for this new development model. This is why one of the main topics of Rio+20 is building consensus around the need for "sustainable development goals". They will offer a blueprint for international co-operation on sustainable development for years to come. Future strategies, be it for governments, entrepreneurs or civil society, must offer a balanced and integrated approach encompassing the three pillars of sustainable development. In order to achieve this result, Brazil decided to adopt new methods. Innovative tools for multilateral meetings were introduced, bringing national governments and global civil society together. The Dialogues for Sustainable Development, a Brazilian initiative enthusiastically embraced by the UN, opened straightforward means of communication between interested groups and civil society on key aspects of decision-making. Through an online platform, more than 1 million votes were cast, expressing views on 10 issues related to the conference. Topics ranged from energy and water to sustainable cities and food security. During four days in Rio, sharing the venue of the summit, experts, businessmen, activists and journalists engaged in live debates and streamlined the proposals that will be handed to the heads of state and government. The "Rio dialogues" were so successful that the UN is now considering turning this initiative into a standard practice for future summits. Another key objective of Rio+20 is the strengthening of the UN framework for sustainable development, with a view to greater efficiency and consistency across issues. Rio+20 has launched an important debate on green economy in the context of sustainable development and poverty eradication, based on the understanding that there is no one-size-fits-all solution. A green economy only makes sense for developing countries if it is accompanied by a significant improvement in the living standards of the population, with special attention to the most vulnerable. Rio+20 involves an assessment of the past 20 years and a look into the next few decades. We are confident that this message will echo through the years, fostering new initiatives which can lead to a more sustainable future for all."