n Bracing for Libra n Infrastructure issues n Mining notes n Financial issues n Prospects for re-industrialization n Economy in brief n Oil, gas & biofuels n Petrobras news n Climate change n Electricity sector n Politics in brief n Legal issues n Defense issues n Social issues n Snowden sequel n The Bolivian conundrum n Sweeping the broom at Itamaraty n Diplomatic briefs n International trade 09.13 SEPTEMBER 2013 · VOLUME 02 · NUMBER 08 1 13 VEIRANO ADVOGADOS’ MONTHLY REVIEW OF ECONOMIC, LEGAL, AND POLITICAL DEVELOPMENTS PHOTOGRAPH: WIKIMEDIA/ERIC AND CHRISTIAN VIEWPOINT ECONOMY & BUSINESS ENERGY & ENVIRONMENT POLITICS, LAW, SOCIETY INTERNATIONAL AFFAIRS Brazil is bracing itself to hold the biggest oil and gas auction ever. As last month’s VistaBrazil noted, the pre- salt resources of the Libra field, in the Santos basin, will be tendered on 23 October 2013. The signature bonus alone has been set by the government at an eye-watering R$15 billion (US$6.6 billion). The goal is to increase production from the current 2.5 million boe/day to 5.63 million by 2020, which would place Brazil among the leading oil producers. E&P may total US$309.7 billion between 2012 and 2021. By law, Petrobras will hold at least 30 percent of each product-sharing concession. To that end, the company will install 38 new platforms, 28 drills, 89 petroleum transport ships, and 198 other vessels to support the operation. Domestic industry will employ 100,000 workers in this endeavor by 2016 (compared to just 2,500 in 2003). Petrobras will have built four large refineries by then. The key to all this is of course investment, but another challenge is qualified manpower. The figures involved in integrating the oil and gas sector into Brazilian industry as a whole are colossal. But one may trust the people who built capital city Brasília from scratch within four years (1956–60) to deliver on this huge task. … Bracing for Libra: Investment, infrastructure, labor Petrobras headquarters in Rio de Janeiro
Transcript
n Bracing for Libra n Infrastructure issuesn Mining notesn Financial issuesn Prospects for re-industrializationn Economy in brief
n Oil, gas & biofuelsn Petrobras newsn Climate changen Electricity sector
n Politics in briefn Legal issuesn Defense issuesn Social issues
n Snowden sequeln The Bolivian conundrumn Sweeping the broom at Itamaratyn Diplomatic briefsn International trade
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Viewpoint economy & Business energy & enVironment politics, law, society international affairs
Brazil is bracing itself to hold the biggest oil and gas auction ever. As last month’s VistaBrazil noted, the pre-salt resources of the Libra field, in the Santos basin, will be tendered on 23 October 2013. The signature bonus alone has been set by the government at an eye-watering r$15 billion (uS$6.6 billion).
The goal is to increase production from the current 2.5 million boe/day to 5.63 million by 2020, which would place Brazil among the leading oil producers. E&P may total uS$309.7 billion between 2012 and 2021.
By law, Petrobras will hold at least 30 percent of each product-sharing concession. To that end, the company
will install 38 new platforms, 28 drills, 89 petroleum transport ships, and 198 other vessels to support the operation.
Domestic industry will employ 100,000 workers in this endeavor by 2016 (compared to just 2,500 in 2003). Petrobras will have built four large refineries by then.
The key to all this is of course investment, but another challenge is qualified manpower. The figures involved in integrating the oil and gas sector into Brazilian industry as a whole are colossal. But one may trust the people who built capital city Brasília from scratch within four years (1956–60) to deliver on this huge task. …
Bracing for libra: investment, infrastructure, labor
Petrobras headquarters in Rio de Janeiro
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With respect to conventional oil and gas in addition to pre-salt, Brazil will continue to hold tenders for E&P con-cessions. The last one was held by the National Petroleum, Natural Gas, and Biofuels Agency (ANP) in May and col-lected r$2.8 billion (uS$1.2 billion) with concessions of 42 blocks. Some 12 countries participated in the tender, pay-ing an average premium of nearly 800 per cent.
Brazil is well on the path to becoming a major petroleum producer, at both the conventional and the pre-salt levels.
economy & Business
infrastructure issuesmaking exemptionsThe government has decided to make the rules applicable to the special Incentives regime for the Development of Investments (rEIDI) more flexible. In other words, it will resume the program of fiscal exemption for investors in infrastructure projects.
privatizing logisticsThe government intends to privatize more airports beyond the five that have already been tendered. Additionally, a small new private airport has been authorized to operate at São roque, in São Paulo state.
The government is likewise eager to develop its Program for Investment in Logistics (PIL) and hopes this year to add two tranches of r$100 billion (uS$44 billion) each, relating to ports, roads, railways, and waterways.
Quibbling over airport biddingWith the tender for Galeão international airport in rio de Janeiro and Confins airport in Belo Horizonte, Minas Gerais, scheduled for 31 October, the various consortia are seeking improvements of the bidding conditions. …
VistaBrazil is published monthlyProduced by Prismax ConsultariaEditor: Georges D. LandauProduction: Blakeley Words+Pictures
DisclaimerThis newsletter is intended to provide general information regarding recent events, developments, and trends in Brazil. It is not intended, nor should it be relied on, to provide legal analysis or legal advice on any of the information covered in the newsletter. Veirano Advogados and Prismax Consultoria cannot ensure against or be held responsible for inaccuracies. To the full extent permissible by law Veirano Advogados shall have no liability for any damage or loss (including, without limitation, financial loss, loss of profits, loss of business, or any indirect or consequential loss), however it arises, resulting from the use of any material appearing in this publication or from any action or decision taken as a result of using information presented in the publication.
Oil-based Arembepe thermal power plant in Camaçari, Bahia
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They claim, among other things, that the government has overestimated the passenger traffic in the airports.
lifting the licensing burdenThe government will remove one of the greatest impediments to investment in highway concessions – procurement of environmental licenses – by assuming the burden of securing them. The tenders for a variety of road concessions will be held this month September, and the winners will be able to count on the pertinent licenses.
duplicating tracksThe federal government has decided it will pay to con-struct roads duplicating 682.6 km of railways to be auc-tioned on 18 September. Thus, in three of the nine lots to be offered to the private sector, the government will duplicate the roads: for highways Br101 (Bahia), Br202 (Espírito Santo), and Br163 (Mato Grosso).
Associations of federal highway users for cargo transport such as Associação Brasileira dos Transportadores de Cargas (ABTC) advocate that the program be extended to the entire network of 7,500 roads to be privatized.
making concessions appealingPublic banks, pension funds of state-owned companies, and the National Bank for Economic and Social Develop-ment (BNDES) may have up to 49 percent of the capital in specific-purpose companies established in connec-tion with highway and railway concessions to be made in the next few months, up to a total of r$12 billion (uS$5.3 billion).
This reflects an attempt by the government to increase the attractiveness of these infrastructure and logistics concessions.
infrastructure bondsForeign buyers have been losing interest in Brazilian infrastructure bonds, although they are income-tax free. These papers have since 2011 been competing with other government bonds and foreign exchange.
For the Ministry of Finance, however, launching new concessions programs in transport, energy, and telecoms should widen the scope of infrastructure bonds. The programs entail uS$100.5 billion for the 53 projects approved as of 23 July.
mining noteslonger mining licensesrecent court decisions have compelled the government to issue three-year mining licenses, contradicting the National Department of Mineral Production (DNPM), which, on orders from the minister of mines and energy, had stopped issuing licenses valid for more than one year. The Brazilian Mining Institute (IBrAM), which represents the industry, estimates that r$20 billion (uS$8.8 billion) in investment has been dammed up by the prohibition.
The DNPM is about to be restructured, following approval of the new Mining Code by Congress.
no more aluminaCanadian aluminum company Alcoa announced on 15 August that it would no longer produce alumina in Brazil, due to low prices for bauxite and high ones for electric power. Thus, for the first time since the mid-1980s the country will be a net importer of aluminum. The company ended 124,000 tons of production at its plants in Poços de Caldas, Minas Gerais, and São Luis, Maranhão.
Brazilian consumption of the metal stood at 1.412 million tons in 2012. With the cost of electricity well above the uS$40/MWh barrier, Alcoa found it impossible to continue production, but sees this as temporary.
financial issuesexchange rate bluesThe Central Bank has sold uS$3.6 billion in the futures market in auctions of foreign exchange swaps. Neither this auction nor the Treasury’s tender of repurchase of government-issue papers has been able to gain traction on an exchange rate of r$2.3 to the uS dollar – the high-est since March 2009.
disbursing fundsThe National Bank for Economic and Social Development (BNDES) disbursed a record r$88.3 billion (uS$38.6 bil-lion) in the first half of 2013, a 65 percent increase over the same period in 2012. The president of the bank, …
Brazil will soon become a net importer of aluminum
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Luciano Coutinho, estimates that total disbursements for the year may reach r$190 billion (uS$83.1 billion), as against r$156 billion (uS$68.2 billion) last year. Coutinho believes the bank will require additional funding from the Treasury to finance its commitments during the last quarter of 2013.
attracting private banksThe government wishes to reduce the spread accruing to BNDES in the tenders for concessions on infrastructure projects – which today is 0.75 percent. The idea is to enhance the attractiveness of such concessions to private banks, with which the government is already negotiating in this regard.
sharing the riskThe participation of BNDES in the Brazilian economy has reached 20 percent, a record (in 2012, it was 13.7 per-cent). The bank has already used up 95 percent of the Treasury’s r$300 billion (uS$131 billion), and only about r$15 billion (uS$6.6 billion) remains available.
The president of the bank, Luciano Coutinho, said on 3 September that investments in Brazil over 2014–17 would total r$3.8 trillion (uS$1.7 trillion), encompassing industry, infrastructure, and construction. Infrastructure concessions may increase the investment rate to 22.2 percent of GDP by 2018 (compared with the current rate of 18.6 percent of GDP).
Coutinho said on 27 August that BNDES would not assume the risks of private banks, and that project finance for infrastructure projects requires a sharing of risks within a syndicate. The government announced the creation of the Agência Brasileira Gestora de Fundos Garantidores e Garantias (ABGF) to give guarantees for project finance, to start operations as of 2014.
differing with imfThe International Monetary Fund (IMF) has recommended that Brazil gradually reduce loans from the Treasury to pub-lic banks. The Brazilian government did not authorize the Fund to publish the entire text of its report on the Brazilian economy, only a summary. There are methodological differences between the IMF analysis and that of the gov-ernment itself.
Building a bigger bankCaixa Econômica Federal (CEF), the national savings bank, plans to become the third-largest bank in Brazil, super-seding Bradesco, a commercial bank, in volume of assets. It is also expanding its credit operations, from 16.95 to 20 percent of the market. Within the last year, CEF’s credit portfolio increased 42.5 percent.
The Ministry of Finance now wishes to dial down the granting of credit to large enterprises, however, preferring CEF to focus its lending strategy on borrowers for the national program for infrastructure.
raising the interest rateAt its meeting on 27–28 August, the Monetary Policy Committee of the Central Bank (Copom) unanimously raised the Selic interest rate from 8.5 to 9 percent, as pre-dicted by the market. The basic interest rate is expected to rise to 10 percent by the end of 2013.
saving public moneyThe consolidated public sector, including states and municipalities, must save 45 percent this year in order to reach the government’s primary surplus goal of 2.3 percent. This means that over the last four months of 2013 the public sector will have to save r$11.28 billion (uS$4.93 billion).
prospects for re-industrialization
Amid a foreign exchange crisis that threatens to push both inflation and interest rates up, the Federation of Industries of the State of São Paulo (FIESP) held a seminar Brazilian re-industrialization.
It was attended by some iconic figures in the Brazilian economy: Eduardo Bacha, author of the anti-inflationary real Plan in 1964; Yoshiaki Nakano, director of the Getúlio Vargas Foundation’s School of Economics in São Paulo; and Luiz Carlos Bresser Pereira, a former minister of finance.
Bacha argued that Brazil must “burn up” some of its international reserves and make them available to …
International Monetary Fund (IMF) headquarters in Washington, DCPh
Viewpoint economy & Business energy & enVironment politics, law, society international affairs
business people. He asserted that the only possible way to ensure the survival of Brazilian industry is to integrate it into the world economy as a strong exporter.
Nakano expressed skepticism about the Central Bank’s intervention in the foreign exchange market and advo-cated absolute fiscal controls. Bresser said that the gov-ernment is attempting to substitute industrial policy for foreign exchange policy.
economy in briefinvesting in BrazilIn a visit to Brazil at the end of August, Tucker York, in charge of asset management at Goldman Sachs, said that Brazil continues to be attractive in the long term despite ongoing economic deceleration and strong pres-sure on the foreign exchange and interest markets and the stock exchange. According to York, the two markets
of priority investment for Goldman Sachs are those of China and Brazil.
a new guarantee schemeThe government on 27 August installed a new state agency in Brasília for the insurance sector. Informally known as Segurobrás, it will provide guarantees for the large infrastructure projects to be tendered within the next few months.
The Agência Brasileira Gestora de Fundos Garantidores e Garantias (ABGF) will initially manage two funds: the Guarantee Fund for Infrastructure (FGIE), which will deal with concessions; and the Guarantee Fund for Foreign Trade (FGCE), which will replace the existing Export Guarantee Fund (FGE).
The agency will have nominal capital of r$50 mil-lion (uS$22 million) to finance its initial administrative expenses, and a ceiling of r$11 billion (uS$4.8 billion)
for its infrastructure fund. The export guarantee fund will have capital of r$14 billion (uS$6.1 billion).
The chair of the ABGF board is ambassador Carlos Mar-cio Cozendey, currently the international secretary of the Ministry of Finance. The agency president is Marcelo Franco, a career employee of the Bank of Brazil.
a healthy clienteleColombian healthcare group Colsanitas will invest r$10 million (uS$4.4 million) in Brazil with the intention of gaining a million clients for its health insurance plans within five years. In 2011, Colsanitas acquired 40 percent of Brazilian operator universal Saúde and is now expand-ing its participation to 80 percent.
a glass factoryFrench glass-making group Saint-Gobain has decided to establish a new factory at Verallia, in the state of Sergipe, at a cost of r$230 million (uS$101 million). It is due to start operations in 2015 and will be able to process 77,000 tons of glass per year.
acquiring a universityAmerican educational network Laureate on 22 August acquired a second private university based in São Paulo, Faculdades Metropolitanas unida, for r$1 billion (uS$0.44 billion). The same American group already owns a similar university, Anhembi-Morumbi.
auto packageThe government will launch a stimulus package for the automotive parts sector in September aimed at develop-ing competitive domestic production. Christened Inovar Autopeças, the new program will increase the technologi-cal content of auto parts and reduce imports.
Bacha believes the only possible way to ensure the survival of Brazilian industry is to integrate it into the world economy as a strong exporter
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cargo cartelThe Administrative Council for Economic Defense (CADE) on 28 August unanimously condemned four air-lines (Alitalia, American Airlines, ABSA, and VarigLog) for forming a cartel in the cargo transport sector. They were fined r$289 million (uS$126 million).
agroscience, agribusinessDow AgroSciences plans to invest uS$100 million in Brazil through to 2014 to expand its production of seeds. To this end, three experimental research labs are being built: in the west of Bahia, in the interior of São Paulo, and in Mato Grosso.
foreign participation in aviationThe 20 percent limit in the capital of Brazilian airlines for foreign shareholders may soon be lifted. President Dilma rousseff is reportedly considering a new limit of at least 49 percent. An unfavorable exchange rate, an increase in the cost of fuel, and declining demand for air travel has induced the president’s change of heart.
There is a proposal, pending in Congress for the past nine years, to amend the Brazilian Aeronautical Code, and the president’s idea is to reach an agreement with legislators to have it passed in 2013 along with the new limit on foreign capital.
doing the mathOn 29 August, the government announced that the fiscal surplus would be reduced in 2014 from 2.3 to 2.1 per-cent. The measure is embodied in a budgetary proposal
submitted to Congress that also contains an increase in the minimum wage to r$722.90, a 6.6 percent rise that will cost enterprises r$29.2 billion (uS$12.8 billion). The bud-get likewise reflects a GDP increase of 4 percent in 2014.
gdp – up or down?Brazil’s GDP per capita declined from its peak of uS$12,690 in 2011 to uS$11,460 in 2012. Tendências Consultoria predicts that it will be just uS$10,918 in 2013, in light of weak GDP growth and an average foreign exchange rate of r$2.40 to the uS dollar.
Nevertheless, led by investments, agribusiness, and indus-try, GDP growth surpassed expectations in the second quarter of 2013 and rose 1.4 percent, permitting a projec-tion of 2.7 percent for the year. Investments in the second quarter had their largest gain in three years, to 3.6 percent.
more cars for BraziliansBrazil is consolidating its presence in the global automo-tive market as the fourth-largest consumer of motor vehicles, having surpassed Germany by over 215,000 units. It is likely to surpass Japan by 2016. Last year Brazil produced 3.4 million vehicles.
philips to make tabletsDutch electronics manufacturer Philips plans to invest r$50 million (uS$22 million) in a new factory in Manaus, Suframa, to produce tablets. Philips already operates an industrial facility in Manaus.
Kirin to expand – kampai!Japanese brewer Kirin do Brasil plans to invest r$1 billion (uS$0.44 billion) through to next year, with some help from the National Bank for Economic and Social Development (BNDES), mainly in order to enlarge a beverages plant in Itu, São Paulo.
a banker’s perspectiveCandido Bracher, president of investment Bank Itau BBA, gave an interesting interview to Valor Econômico, published on 2 September.
He remarked that Brazil must change the factors affecting its growth, and the foremost requirement is an increase in productivity, which depends on labor and ultimately on education. The country must also resolve its serious infrastructure bottlenecks, but for this Brazil has r$213 billion (uS$93 billion) from the concession tenders.
Devaluation of the foreign exchange rate contains a very positive component, he asserted, namely the enhanced competitiveness of enterprises. Brazil still has reserves of uS$370 billion that have been unaffected by two months of foreign exchange crisis.
Citizens will have to put up with higher interest rates, he said, as they are inevitable in order to bring inflation back to its target. Finally, the government must push the investment rate beyond the current 17.5 percent of GDP.
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oil, gas & biofuels
Biofuel production up, prices downrevenues from Brazilian ethanol production slightly exceeded those from sugar production in the 2013–14 harvest. Ethanol production is expected to grow by 16.3 percent to 27 billion liters. Prices in foreign countries are likely to drop 13 percent in 2013, but due to the foreign exchange factor, the price reduction in reais will be just 8 percent.
plants versus pipelinesThe government foresees the need to construct new gas-fired thermo-electric plants close to possible discoveries in areas to be tendered in the 12th round of ANP conces-sions. The round will take place in late November and focus on natural gas. The idea is to avoid the need for long gas pipelines.
no rise in fuel pricesIn the absence of a readjustment in fuel prices due to the hike in the uS dollar vis-à-vis the real, Petrobras is having to spend an additional r$900 million (uS$393 million) per month for imported gasoline.
The government has no more room to increase the price of the product – already decided in principle by President Dilma rousseff – as the CIDE tax on gasoline is at its maximum, as is the addition of ethanol to the fuel. In order to authorize a new price increase, the president must wait for the moment when inflation and the exchange rate come under control.
climate change
On the basis of a study compiled by 345 scientists, the Brazilian Panel on Climate Change has forecast that aver-age temperature in the country will rise at least 3ºC by 2100. The Amazon region and the northeastern semi-arid zone (Caatinga) will be the driest and hottest areas, while in parts of the south (Pampas) and southeast (Mata Atlantica), rainfall may increase by 30 percent.
electricity sectortreasury shockThe Treasury may kick in as much as r$17 billion (uS$7.4 billion) by the end of 2013 to bring electricity bills down. This is roughly double the estimate that was made at the beginning of the year. …
petrobras newsparticipating in pre-saltSpeaking at a joint hearing of the Brazilian Senate Committees on Infrastructure (CI) and Economic Affairs (CAE) on 22 August, Magda Chambriard, the director-general of the National Petroleum, Natural Gas, and Biofuels Agency (ANP), encouraged Con-gress to debate whether the country benefits when Petrobras is obliged, as it is now, to participate with at least 30 percent in every consortium for the produc-tion of pre-salt oil, as mandated by Law 5.938 of 2009.
selling blocksPetrobras announced on 16 August the sale of uS$2.1 billion in assets in the form of 35 percent of block BC-10 in the Campos basin, also known as Parque das Conchas.
For uS$1.54 billion, control of the block will be taken over by Chinese company Sinochem. Block BC-10 has Shell as its operator, with a 50 percent share, and Indian company ONGC with the remaining 15 percent. The company also divested its shares in three blocks in the Gulf of Mexico: MC-613, GB-244, and EW-910.
selling companiesPetrobras has announced the sale of its entire par-ticipation in petrochemical company Innova, located at the Petrochemical Poll of Triunfo, in rio Grande do Sul, for uS$372 million.
The company has also sold its 20 percent of vot-ing stock in Cia Energética Potiguar, for r$38 million (uS$16.6 million), to Global Participações em Energia.
The Caatinga zone will be one of the driest and hottest areas
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The price of natural gas in Brazil tends to be five times higher than in the united States, discouraging investment in power-intensive industries such as petrochemicals, glass, and ceramics.
tendering the windThe Brazilian Electricity regulatory Agency (ANEEL) held
a tender on 23 August for windpower plants. The big winner was Companhia Hidro-Elétrica do São Francisco (CHESF), an Eletrobras affiliate, which grabbed 25 of the 65 projects on offer. There was little private-sector par-ticipation, possibly because of the failure of the govern-ment to create transmission lines linking wind parks to the national grid.
state grid wants better termsState Grid, the Chinese state electricity conglomerate, arrived in Brazil in 2010 and still plans to invest r$10 billion (uS$4.4 billion) in the country through to 2015. It has so far invested r$7 billion (uS$3.06 billion) but contends that the government should improve the terms of power generation and transmission concessions to be tendered this semester.
guarantees for energy projectsThe Inter-American Development Bank (IDB) on 30 August approved uS$1.8 million in guarantees within the framework of the Energy Efficiency Guarantee Mechanism (EEGM) – formed by the bank itself and
the Global Environmental Facility (GEF) – to Esco-APS Soluções. The Brazilian energy services company will thus be able to implement three projects.
winning consortium collapsesANEEL on 29 August auctioned 18 energy projects, both hydro-electric and thermo-electric plants, yielding r$20.6 billion (uS$9 billion). A consortium consisting of Alupar, CHESF, and Eletronorte that had won the ten-der for the 550 MW Sinop hydro-electric plant in Mato Grosso was, however, for all practical purposes dissolved. Alupar had a 51 percent share, and the consortium col-lapsed when the company, surprisingly, backed out.
light for everybodyunder the government’s program Light for Everybody, 407,591 low-income households out of 715,939 have been connected to the national electricity grid, but the challenge lies in connecting the remaining 308,300. The government’s strategy is to invest in local sources of energy, including solar, Aeolian, biomass, and even small hydro-electric plants (PCH).
conferences
title date place sponsor contact
1st National Forum on Law & Infrastructure in Brasília 25–26 September Brasília Petrobras [email protected]
International Mining Exhibition and 23–26 September 2013 Belo horizonte IBRAM [email protected] Brazilian Mining Congress
3rd Conference on oil & Gas Surplus Management 8–9 october 2013 Rio de Janeiro Informa Group tamires.goncalvesibcbrazil.com.br
Brazil Summit 2013: New Drivers of Economic Growth 24 october 2013 São Paulo The Economist Events www.economist.com/events-conferences/ americas/brazil-2013
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politics, law, society
politics in briefrousseff’s ratings improveAn Ibope/Estadão survey released on 24 August revealed that the popular perception of Dilma rousseff’s govern-ment as “good and very good” had risen from 31 to 38 percent since 12 July, i.e., in the aftermath of the June street protests. This sudden improvement took place principally in the southeastern states. The percentage of the popula-tion that trusts the president rose from 45 to 51 percent.
These positive developments for the president in the 32 months of her mandate are better than those former president Lula da Silva enjoyed at the same point in his tenure and can be ascribed to economic improvements and rousseff’s prompt response to the street protests.
national monetary council convenedIn an attempt to thwart the seemingly unstoppable decline of the Brazilian currency vis-à-vis the uS dollar – on 21 August the exchange rate was r$2.436 per uS dol-lar – President rousseff convened the National Monetary Council (CMN), causing Central Bank president Alexandre Tombini to cancel a planned trip to the united States.
Meeting on 22 August, the Council resolved that in order to contain the rapid devaluation of the real, the Central Bank could issue up to r$500 million (uS$218 million) per day, and up to r$60 billion (uS$26 billion) in auctions for exchange swaps. The markets have endorsed this very unusual activity.
planning for the electionGovernor Eduardo Campos of Pernambuco, president of
the Brazilian Socialist Party (PSB), convened a 19 August meeting of his party’s leaders in the six most important electoral colleges to discuss plans for the 2014 election. The party plans to launch candidates in 10 states.
In a parallel development, investment bank JP Morgan produced a report on candidates and concluded that Campos will be the leading contender against Dilma rousseff, with a good chance of winning.
The bank estimates that voting intentions will stabilize around the 35 percent mark for rousseff, but that she has difficulty dealing with political interests in Congress. Her votes could therefore migrate toward Aécio Neves of the Brazilian Social Democracy Party (PSDB) and, mainly, Eduardo Campos.
no signatures, no partyFormer senator Marina Silva on 26 August applied to the Superior Electoral Court (TSE) to register her
Sustainability Network as a new political party – without the required 492,000 signatures. She lacks 188,000 but hopes to reach the required threshold gradually by demanding more expeditious registration procedures from the regional electoral courts. The deadline for this is 5 October.
By officially registering a political party, Silva would have automatically become the fourth leading candidate for president in 2014. On 28 August, however, the TSE rejected her petition. It may be recalled that in 2010, as a then candidate of the Green Party (PV), Silva amassed no fewer than 20 million votes.
shuffling the packPresident rousseff will have to carry out her third Cabinet reform between the end of this year and early 2014. At least 12 ministers, in the following portfolios, will have to leave the 39-member Cabinet in order to run for office again: …
Initial members of Dilma Rousseff’s Cabinet (2011)
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n Agriculture n Institutional relationsn Cities n Laborn Civil Cabinet n Sportsn Development n Ports n Fisheries n Tourismn Health n Transport.n Human rights
legal issuesnew attorney-generalPresident rousseff on 17 August nominated rodrigo Janot for Attorney-General (Procurador Geral da república). Janot had been the deputy to roberto Gurgel, whose term of office expired on 15 August. He has yet to be ratified by the plenary Senate, but if he is he will take office at a criti-cal moment, as the Supreme Court hears final appeals in Criminal Suit 470 (the mensalão case).
siemens in the spotlightThe anti-trust Administrative Council for Economic Defense (CADE) has been investigating Siemens over alleged cartel formation in state railway and metro systems.
The Office of the Public Prosecutor of the State of São Paulo has been conducting a major investigation of the company since 2009 on the same grounds, and São Paulo governor Geraldo Alckmin has taken a strong public stance on the matter, asserting that the alleged price fixing has financially harmed the city and a number of local firms.
The repercussions of these investigations are all the more important as Siemens has billions of dollars in contracts with the principal infrastructure projects in Brazil, including a great many linked with Petrobras.
defense issuesa whirl of activitySikorsky, a well-known American manufacturer of helicopters, is seeking a Brazilian partner to help it install a plant in Brazil, where the company already has 152 aircraft in operation.
Parts for the helicopters have been produced in the country by Embraer since the 1980s. The Brazilian Armed Forces operate 24 Sikorsky helicopters.
up, up and away Embraer held a delivery ceremony on 3 September at its industrial plant in Gavião Peixoto, São Paulo, as the first of 43 refurbished and modified subsonic AMX fighter jets was handed over to the Brazilian Air Force (FAB). The modernized A-1 (A-1M) jet is capable of performing air-to-ground attack, bombing, tactical air support, and reconnaissance missions. The total cost of the A-1M program will be r$1.3 billion (uS$0.57 billion).
social issuesHow to spend pre-salt moneyThe Chamber of Deputies has approved a bill earmark-ing 50 percent of federal royalties from pre-salt oil and gas exploration for education, and 25 percent for public health. The bill instituting the Social Fund had already been passed by the Senate and has proceeded to the president for signature.
The royalties for education will yield r$134.9 billion (uS$58.9 billion) through to 2022, but that will not suf-fice to meet the National Plan of Education goal of invest-ing 16 percent of GDP. To do so, the government would
have to invest the profits derived from royalties, maintain the current track of federal spending on education, and allocate an additional r$164.7 billion (uS$71.9 billion).
this land is your landThe National Commission on Indigenous Policy (CNPI), which includes representatives of 20 ethnic groups from around the country, held a meeting on 22 August. At it, Minister of Justice José Eduardo Cardozo forcefully made the point that the government wishes to maintain a dialogue with indigenous people on the issue of demarcation of lands.
Congress is reviewing a proposed constitutional amendment (PEC 215) that would transfer authority over demarcations, currently exercised by the National Indian Foundation (FuNAI), to Congress itself. The minister made it clear that he regards the proposal as unconstitutional.
is there a doctor in the house?One of President rousseff’s most important banners is the program More Physicians, which is bringing 4,000 Cuban physicians to Brazil, most of them on Indian reservations and in public hospitals and clinics in low-income areas. …
The cost of the A-1M program will be R$1.3 billion (US$0.57 billion)
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At the same time, a number of other doctors, primarily from Portugal and Spain, are arriving in Brazil for the same purpose and undergoing a training period.
The Federal Council of Medicine (CFM) and the Brazilian Medical Association (AMB) oppose the importation of foreign physicians, and the latter launched an unconstitu-tionality suit in the Supreme Federal Court on 22 August, alleging political motivations for the program.
cheap laborThe minimum wage will rise only 0.9 percent in 2014, due to low GDP in 2012. This will be the second lowest rise since the Workers’ Party came to power in 2003. Trade union associations are concerned about the repercussions of current wage policies. Data processed by Itaú unibanco show that Brazilian wages in the manufacturing sector, which in 2012 were the highest among the BrICS plus Mexico, have declined this year, enhancing the competi-tiveness of the sector.
cheaper moneyThe foreign exchange devaluation experienced by Brazil over the last few months has reduced the cost of indus-trial labor by 6 percent, making the manufacturing sector more competitive.
population pictureAccording to the Brazilian Institute of Geography and Statistics (IBGE), the population doubled over the past four decades and on 1 July reached 201,031,714. The pace of growth is now expected to slow, however, beginning to decline in 2043. The most populous state in 2010 was São Paulo, with over 42 million, followed by Minas Gerais, with over 20 million and rio de Janeiro with more than 16 million, and the least populated was roraima with slightly over 480,000.
international affairs
snowden sequel
On 18 August, David Miranda, the Brazilian partner of journalist Glenn Greenwald, was arrested at Heathrow Airport in London while in transit from Berlin to rio de Janeiro. He was detained for nine hours under British anti-terrorist legislation, and a number of his pen drives and related electronic equipment were confiscated.
On hearing about the arrest, Brazilian Foreign Minis-ter Antonio Patriota immediately issued a terse note of protest, and on the following day called British Foreign Secretary William Hague to complain about the unjusti-fied arrest of a Brazilian citizen. The British ambassador in Brasília was summoned by Itamaraty to explain.
Miranda’s lawyers in London, retained by Greenwald’s Guardian newspaper, entered a suit against the British government, demanding return of the confiscated materi-als and citing interference with journalistic work. On 22 August, London police announced that the confiscated electronics contained highly sensitive information that was potentially damaging to national security.
At the same time, Patriota received explanations about National Security Agency (NSA) eavesdropping and spying in Brazil, originally denounced by Snowden and Greenwald.
On 1 September, Brazilian program Fantastico, airing with a large national audience on TV Globo, broadcast a pro-gram based on data procured by Snowden/Greenwald showing that President Dilma rousseff herself was spied upon by NSA, which eavesdropped on her contacts with
ministers and advisors. The president decided to sum-mon the American ambassador, Thomas A. Shannon, to provide clarification on the matter.
rousseff threatened to cancel her state visit to the united States if President Barack Obama did not provide “con-vincing explanations” and an apology. On 5 September, she decided to cancel the precursor mission of advisor security staff that would have prepared for her visit to Washington.
rousseff further warned that she might present the case to the united Nations – whose General Assembly she will inaugurate on 24 September – to demand international action against electronic eavesdropping.
Viewpoint economy & Business energy & enVironment politics, law, society international affairs
the Bolivian conundrum
On 24 August, Bolivian Senator roger Pinto Molina, escorted by Brazilian chargé d’affaires Eduardo Saboia and several marine guards, left the Brazilian embassy in La Paz and travelled over 1,600 km by car to Corumbá, Brazil. There he was met by Senator ricardo Ferraço, chair of the Brazilian Senate Commission on External relations and National Defense, and accompanied to Brasília.
Pinto was mentally and physically depleted by his 14-month asylum in the La Paz embassy. The senator, who had been accused by his government of a dubious land deal, received diplomatic asylum from Brazil in May 2012 but since then had been denied safe conduct by the Bolivian authorities.
As a corollary to this episode, Foreign Minister Antonio Patriota resigned and was promptly reassigned as the permanent representative of Brazil to the united Nations, thus changing places with Luiz Alberto Figueiredo
Machado, who took office in Brasília on 28 August as the new foreign minister.
The Bolivian government issued a pro forma protest about the escape of Senator Pinto. President Dilma rousseff sharply criticized his escape, cancelling the nomination of the Brazilian ambassador in La Paz to Sweden because he allegedly knew of the plot.
The Brazilian Foreign Ministry, Itamaraty, opened an inquiry into the case, and the Bolivian government is studying ways to obtain Pinto’s extradition. On 28 August, the Brazilian government decided to defer to CONArE, the National Committee on Political refugees, on its deci-sion about the senator’s request for asylum.
The Bolivian episode has shown rousseff’s mettle. A foreign minister had to resign, two ambassadors were replaced, and the chargé d’affaires in La Paz is being sub-mitted to a disciplinary inquiry – and the president has let it be known that she wants an “exemplary” punishment.
sweeping the broom at itamaraty
Itamaraty is a conservative institution, but the change of foreign ministers from Antonio Patriota to Luiz Alberto Figueiredo Machado on 30 August heralds a profound change in the mores and perspective of the Foreign Min-istry. President Dilma rousseff had met uN ambassador Figueiredo at successive conferences on the environment and climate change and was impressed by his negotiating skills under difficult circumstances.
under Figueiredo’s tenure it is likely that the president herself will shape Brazilian foreign policy. She will also practice presidential diplomacy, but the key change is
that the country’s relations with other governments and international organizations will henceforth reflect her personal perceptions.
It can be expected that she will intervene in diplomacy just as much as she is controlling the Brazilian economy.
Several aspects of rousseff’s future conduct of foreign affairs are bound to be inherited from former president Lula da Silva, but without the pyrotechnics:
n a south–south approachn preference for Latin American economic integration
and priority for Mercosurn solidarity with African countries and especially with
former Portuguese coloniesn distinct preference for multilateralism n pre-eminence for the united Nations, G20, BrICS, and
the tripartite IBSA Dialogue Forumn generally, a pragmatic approach to the issues.
The change at the top may signal that Itamaraty is in for a hard time in personnel matters. What is beyond doubt is that rousseff intends to exercise firm control over the ministry.
diplomatic briefs
youthful asylum seekersForty former participants in the World Youth Congress, which was attended by the Pope in rio de Janeiro in July, have requested asylum in Brazil. The young people come from Pakistan, Sierra Leone, and the Democratic republic of the Congo and claim to be fleeing persecution in their home countries.
Molina spent 14-months in asylum in the Brazilian embassy in La Paz
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mercosur matters President rousseff attended the swearing-in ceremony of the president of Paraguay, Horácio Cartes, in Asunción on 15 August. She discussed with him Paraguay’s interest in returning to Mercosur, but the fact is that this will be accomplished only once Venezuela’s pro tempore presi-dency of the bloc is finished, after 31 December.
On 30 August, President Cartes will attend a unasul summit in Suriname. Some 30 percent of Paraguay’s for-eign trade is with Mercosur, and notably with Brazil. Para-guay is also the largest beneficiary of the development fund FOCEM – Fondo para la Convergencia Estructural del Mercosur.
g20 agendaPresident rousseff arrived on 3 September in St. Peters-burg to attend the G20 summit. One of the main items on the agenda of interest to Brazil is the taxation of transfer pricing within multinational companies. With Argentina, Brazil voted against new protectionist measures.
Brazil’s thrust into africa
According to the National Confederation of Industry (CNI), Africa is the highest priority for Brazilian entrepre-neurs to establish free trade agreements. Brazilian trade with Africa, which in 1989 represented close to 6 percent of the total, excepting the Middle East, has nonetheless declined to 4.5 percent.
This is not due to a decline in Africa’s economic dyna-mism. Sub-Saharan Africa is projected to grow 6 percent in 2013–24. Why, then, is trade between Brazil and Africa dwindling?
Both Lula da Silva’s government and Dilma rousseff’s have pioneered closer south–south relations, not least within the framework of BrICS and the IBSA Dialogue Forum. The National Bank for Economic and Social Devel-opment (BNDES) is about to open a regional office in South Africa. And the Foundation for Foreign Trade Stud-ies (FuNCEX) will stage a seminar on Africa in rio de Janeiro in September.
From 2008 to 2010 only three countries – Egypt, South Africa, and Angola – received over 60 percent of all Bra-zil’s exports to Africa, and these exports consisted mostly of foodstuffs and commodities.
On the other side of the coin, Africa was able to expand its exports to Brazil by nearly 12 percent in the first half of 2012. About 85 percent of Brazil’s imports from Africa now consist of petroleum and its by-products.
Specialists have pointed to the need to intensify Brazilian technical cooperation with African countries, including assistance for the development of their institutions. A number of Brazilian agencies are already operating in Africa to that effect, notably the Brazilian Enterprise for Agricultural and Livestock research (EMBrAPA) and the National Health Foundation (FuNASA).
The imminent establishment of a regional office of BNDES in South Africa should also go a long way toward strengthening Brazilian investment in the region.
international tradeQuestions will be askedBrazil will this year undergo its fifth trade policy review (TPr) within the framework of the World Trade
Organization (WTO), and a surprisingly large number of questions (800) have been asked by other member countries, notably about
n the rise in taxes additional to import tariffsn the norms on local content linked to National Bank for
Economic and Social Development (BNDES) financing.
doha don’t goFormer Brazilian ambassador roberto Azevedo started work on 2 September as the new director-general of the WTO, with a four-year mandate. He attended the G20 meetings in St. Petersburg the following week, and on 9 September addressed the 150 members of the organi-zation. His biggest challenge will be to revive the Doha round, starting at the WTO ministerial conference at Bali, Indonesia, in December.
negotiating free tradeThe Brazilian government has determined its list of goods and its strategy for the negotiation of a free trade agree-ment with the European union, to be signed this year subject to the approval of the Brazilian Foreign Trade Council (CAMEX) and ultimately of the other members of Mercosur. The tentative proposal envisages tariff cuts for 75 percent of the goods offered. The Brazilian Entre-preneurial Coalition (CEB) met on 4 September with its 170 participating sectorial entities to debate the proposal.
