Michel Temer: “A Bridge to the Future”

The most relevant aspect of the document “A Bridge to the Future,” launched last week by the Brazilian Democratic Movement Party (PMDB), is that it lucidly addresses themes forbidden in the Brazilian economic debate. The prohibition was promoted by the discourse and the practice of the Workers’ Party (PT) administrations since the ascent of Luiz Inácio Lula da Silva to power, in 2003. It is clearly a sign by Vice President Michel Temer, who presents himself as alternative in view of a possible impeachment of the president.

Brazil Amnesty Program still has some Flaws

Economic officials are concerned with the changes made by Deputy Manuel Júnior (Brazilian Democratic Movement Party, PMDB, of Paraíba) in the bill that regularizes funds Brazilians illegally sent abroad. The congressman, who is the bill's sponsor in the Chamber of Deputies, reduced the income tax rate and the fine to be applied to the regularized assets and eliminated the destination of proceeds to the fund that would cover losses some states will have with the reform of the Tax on Circulation of Goods and Services (ICMS). But there are serious legal problems in the original bill that the government sent to Congress that can render it unfeasible, former Federal Revenue secretary Everardo Maciel warned in an interview with Valor.

Brazil Economists See Less Room for Cutting Rates Next Year

Brazil analysts forecast that the central bank will have less room for cutting rates next year, as inflation expectations for 2016 rose for the 10th straight week.

Analistas propõem uso de créditos da dívida ativa em ajuste fiscal

Em tempos de ajuste fiscal, o volume de créditos que o governo federal tem a receber de devedores com prazo esgotado para o pagamento chegou a R$ 1,5 trilhão neste mês. Embora a maior parte deste volume tenha, aos olhos da União, pouca probabilidade de ser recuperado, especialistas ouvidos pelo Valor afirmam que o potencial de arrecadação da dívida ativa não deveria ser ignorado pela equipe econômica.

Reasons for the high interest rates of Brazil

The Treasury issues bonds under base rate Selic (11%) and the BNDES lends to companies based on the Long Term Interest Rate (TJLP) of 5%. The spread represents the Treasury subsidies, estimated at R$30 billion a year. Most of them are not included in the Budget of the Union, run outside of primary spending and cannot be influenced by Congress, which holds the task of discussing and approving the budget.

Half of credit operations in Brazil don't obey the base rate (Selic) and therefore are not subject to the Central Bank's monetary policy. These rates only affect free credit.

This means that an important share of portfolios at state-run banks is out of reach for the decisions of the Monetary Policy Committee (Copom). They are guided by fixed rates set by the Monetary Policy Council (CMN).

The result of this model is that to fight inflation with the interest rate, according to the inflation targeting regime, the Central Bank has to double its efforts. And who pays the bill for the high rates are those without access to the BNDES, farm credit from Banco do Brasil or housing loans from Caixa Econômica Federal.

Without understanding this anomaly and its effect on demand, there is no way to seriously discuss the reasons why interest rates in Brazil are much higher than in the rest of the world. Since the Selic affects only half of credit, its level has to be much higher than reasonable to contain inflationary pressures. One of the main channels through which the interest-rate lowers demand and fights inflation is credit.

Brazil: Why It Fails to Deliver on Potential

Looking beyond politics
Politics continue to dominate market sentiment. Doubts about the capacity to sustain the current economic model in coming years and a highly unpredictable Presidential election have fuelled recent market swings. But would a confidence shock alone be sufficient to raise Brazil's growth trend? We don't think so.

Why Brazil fails to deliver on potential
A rebound in sentiment could lead to a better growth outlook in the short term but would likely be insufficient to boost Brazil's medium to long-term growth trend. This is because a large part of Brazil's slowdown has clear structural roots, in our view.

Salários devem crescer com a economia, diz Arminio

Chamado ao debate pela presidente Dilma Rousseff, candidata à reeleição, o ex-presidente do Banco Central, Arminio Fraga, escolhido para ser o ministro da Fazenda de um eventual governo Aécio Neves, afirma que tal como proposto pela campanha do PT, tal comparação é "rasteira" e uma tentativa de "fugir do debate".

O cerne da questão é recuperar a capacidade do país de crescer. "Para os salários continuarem a crescer, para os programas sociais continuarem a crescer, é preciso que a economia cresça". Para ele, apesar de todos os progressos o Brasil continua a ser um país "tremendamente desigual".