Brazil forecast to post US$43bn trade surplus in 2017

Brazil is forecast to post another trade surplus in 2017. Twenty-two experts consulted by ValorData forecast an average surplus of US$43.5 billion that if confirmed will represent a US$100 billion surplus in two years that will help keep the foreign account deficit under control next year. The good results this year and optimistic expectations for 2017 are due to the widespread rise in the price of Brazil’s main commodity exports. Iron showed the most surprising behavior, rising 86% this year. Five of the eight top agricultural commodities produced by Brazil ended the year at higher levels than last year, because of supply and demand fundamentals that should continue having an effect in 2017. Sugar is one example, having finished the year at the highest price in New York since 2012.

Treasury further reduces deferred expenditures

The federal government will spend R$15 billion to R$20 billion in December to further lower the level of deferred expenditures ("restos a pagar"). Officials plan to spend a total of R$73.5 billion this year paying expenditures created in previous years but still not covered. The central government is forecast to post a R$170.5 billion deficit, as targeted by the Treasury, the Central Bank and the Social Security prgram. “We spent a lot of time discussing whether the target would be achieved. Now our conditions to meet the target are very clear,” Treasury Secretary Ana Paula Vescovi told Valor.

Treasury will reward fiscally responsible states and municipalities

The National Treasury will hold public hearings starting this week on a new rating system for states and municipalities, which will reward those that carried out reforms to improve their long-term fiscal situation.

The Treasury secretary, Ana Paula Vescovi, told Valor that the consultation will last one month and the rule will come into force already in 2017. She advanced that the Treasury will offer guarantees to as much as R$17 billion in loans and also authorize R$3 billion more in unsecured loans to the local governments.

Taxation on capital gains to be kept at 15% for deals through December

Taxation on capital gains will be maintained at 15% for transactions completed until December 31, even if the payment is made in subsequent years. This is the understanding of the Federal Revenue on the subject, according to a statement sent to Valor. Transactions occurring after 2017 will be subject to higher rates, based on a progressive table. There were doubts about the Federal Revenue’s stance in relation to the new rates. This is because the tax is only collected at the time of the money transfer. But, according to the Federal Revenue, what it counts is the moment the contract is signed or the asset sold.

Central Bank President signals bigger rate cuts from January

Central Bank President Ilan Goldfajn on Wednesday gave even stronger indications that the Monetary Policy Committee (Copom) considers intensifying interest-rate cuts from January and defended the institution from recent criticisms from the market and businesspeople, which argue he’s been insensitive to the recession. "We are doing what has to be done. We are part of the solution, and this will be appreciated by society," said Ilan during breakfast with reporters. "We are on the right track from the monetary policy standpoint." In a brief speech, Ilan said that, thanks to the recovery of credibility and the work of anchoring expectations, the BC has made room to start cutting interest rates.

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Refis - Brasília may open new installment program for corporate debt

Under pressure by businesspeople and parliamentarians to open a new installment program for the payment of companies’ debts to the federal government, Palácio do Planalto, the presidential seat, has sent a positive signal to Congress and should forward the measure within the set of initiatives under study for a faster recovery of economic growth and jobs, according to senior sources. Part of the government is sympathetic to the proposal since the measure would help take businesses out of the financial crisis and still boost revenues next year. The Planalto, however, is still studying whether the political climate is favorable to such measure. The government also faces strong resistance from the Secretariat of Federal Revenue, which believes the program encourages defaults and, in the long run, deteriorates the government's tax collection capacity.

valor.com.br

Central Bank keeps rate steady in first meeting with Ilan Goldfajn

The Monetary Policy Committee (Copom) of the Central Bank kept policy rate Selic steady at 14.25%, in line with market expectations and in a unanimous decision. Now presided by Ilan Goldfajn, the Copom said "the basic scenario and the current balance of risks do not indicate room for monetary policy flexibility." Brazil's base interest rate has been at 14.25% for eight consecutive meetings as the Central Bank fights to reduce resilient inflation. Presenting a more detailed note than before, officials argued that short-term inflation remains above expectations due to food prices, and highlighted lingering uncertainties about the approval of spending cuts and other fiscal adjustments. Yet the Copom conceded that economic adjustments could come more quickly and help recover confidence, lowering inflation expectations that have retreated since the last meeting but are still above the 4.5% target for 2017. Another positive factor pointed by officials is the high output gap of the economy, which can also help lower prices.

Valor Economico

Brazil Public debt forecast to reach 84% of GDP by 2018

Brazilian public-debt forecasts for the next few years are raising concern. The gross debt, which ended 2015 at 66.2% of GDP, could reach nearly 84% in 2018 according to Itaú projections. The level that excludes foreign reserves from the gross debt could also rise, going to 58% of GDP in 2018 from 42% last year. Itaú expects the public sector to continue posting primary deficits in the period, marked by very weak economic performance and high real interest rates.

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There will be no surplus and the government knows it

Before defining how much of this year’s budget it will cut, the government will have to take a much more difficult decision. President Dilma Rousseff and her economic ministers will have to evaluate whether it is worth keeping the illusion that it’s possible to achieve the primary-surplus target of 0.5% of GDP. This is the first time in which the year begins with all private and government economists aware that the fiscal target is a mirage. The best option for the government may be showing full transparency to society on the gloomy situation of public accounts.