Currency exchange: not something to be thankful for

. Nov 28, 2019
Currency exchange: not something to be thankful for Image: Andre Nery

Good morning! We’re covering Brazil’s hectic currency. Black Friday 2019: workers choosing gifts over paying debts. And Bolsonaro accused of “indigenous genocide.” (This newsletter is for platinum subscribers only. Become one now!)

Brazil’s currency drama set to continue

Wednesday market was yet another trading session with the Brazilian Real

hitting a new nominal low. The Central Bank was forced to intervene twice, selling U.S. Dollars on the spot currency market. “If [today] we think there are dysfunctional moves, that Brazil’s exchange rate is behaving unlike other countries’ and there are liquidity gaps in the market, we will intervene again just like we did today,” said Central Bank President Roberto Campos Neto.</p> <p>Expect even more volatility today, as markets will have less liquidity with the Thanksgiving holiday in the U.S.</p> <div class="flourish-embed" data-src="visualisation/1007779"></div><script src=""></script> <p><strong>Why it matters.</strong> A highly volatile currency is terrible for companies dealing with both imports and exports. It also diminishes Brazilians&#8217; purchasing power, making products like fuels, bread, or pasta (based on products traded in USD) more expensive.</p> <p><strong>Red flags.</strong> The Central Bank went ten years without selling off U.S. Dollars on the spot market—but this year has already seen <a href="">numerous such auctions</a>. If the trend continues, it could reduce Brazil&#8217;s international reserves. Since the mid-1990s, the Brazilian government has worked hard to increase the country&#8217;s reserves as much as possible—and many economists are adamantly against overusing them.</p> <p><strong>Reasons.</strong> The Brazilian Real has been one of the worst-performing emerging currencies this year—especially this month. Investors were disappointed with a November 6 oil auction expected to be &#8220;the world&#8217;s biggest ever,&#8221; but that eventually drew almost no international interest. And this week, Economy Minister Paulo Guedes said a stronger currency is not something he worries about—which was taken by analysts as an invitation to sell off Brazilian Reais.</p> <p>“This need for [ currency ] intervention partly responds to a self-inflicted wound &#8230; following statements from Economy Minister Paulo Guedes,” JPMorgan analysts wrote in a note on Tuesday.</p> <hr class="wp-block-separator"/> <h2>Brazil&#8217;s Black Friday a scape from the crisis</h2> <p>Despite a sluggish economy and high unemployment rates, Brazilians are ready for a spending spree. Tomorrow, workers get the first installment of their end-of-year bonuses (called the &#8220;13th salary&#8221;). And, according to a survey by credit company SPC, one-third of Brazilians will use the money on Christmas shopping. Paying debts is only the fourth most-mentioned intention on Brazilians&#8217; list.</p> <p>Tomorrow is Black Friday, and millions of Brazilians are expected to pay their gifts in advance.</p> <p><strong>Why it matters. </strong>Retailers are betting on Black Friday to save their year. 130 million people are expected to participate in the retail frenzy, spending over BRL 1,000 on average. Sales should go up 4 percent from last year.</p> <p><strong>Googling it. </strong>Despite Brazilians favoring gifts over paying for debts, Google Trends data indicates that consumers are less enthusiastic about Black Friday this year. And search data shows that Brazilians are highly driven towards brands they already know—retailers Lojas Americanas and Casas Bahia top searches. Amazon, which launched its Amazon Prime subscription service earlier this year, doesn&#8217;t even crack the top 10—according to data from market research company Finder.</p> <figure class="wp-block-image"><img src="" alt="black friday" class="wp-image-28233" srcset=" 1024w, 300w, 768w, 610w, 1076w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure> <hr class="wp-block-separator"/> <h2>Bolsonaro denounced at international court for &#8220;indigenous genocide&#8221;</h2> <p>A group of lawyers—including six former cabinet members—have asked the International Criminal Court to indict President Jair Bolsonaro. They accuse him of encouraging &#8220;genocide&#8221; against Brazil’s indigenous populations. “We believe there is evidence to characterize genocide,” said José Carlos Dias, who served as Justice Minister under center-right former President Fernando Henrique Cardoso.</p> <div class="flourish-embed" data-src="visualisation/1008266"></div><script src=""></script> <p><strong>Why it matters.</strong> Between August 2018 and July 2019, deforestation in indigenous lands is up 74 percent from the previous year. The invasion of such reserves triggers violent clashes between indigenous communities and loggers, who are usually armed.</p> <p><strong>Rebound.</strong> Between 2008 and 2015, Brazil dramatically reduced deforestation in indigenous lands. Since 2016, however, the government has adopted fewer controls—and the trend has gone upwards again.&nbsp;</p> <p><strong>Image crisis. </strong>This is yet a new blow to Brazil&#8217;s image abroad. The country has been singled out as an international &#8220;bogeyman&#8221; when it comes to environmental protections—with many countries calling for boycotts against Brazil&#8217;s agricultural products. The government claims it is a strategy to enforce protectionist measures against Brazil&#8217;s highly-competitive agribusiness.</p> <hr class="wp-block-separator"/> <h2>What else you should know today</h2> <p><strong>Interests.</strong> Starting on January 6, 2020, Brazilian banks will not be allowed to charge more than 8 percent a month for overdraft fees. That should slash this interest in half to 151 percent a year. The Central Bank says the move will help correct a major distortion in Brazil&#8217;s financial system, as this form of credit is used by people with less financial education and lower income.</p> <p><strong>Lula. </strong>Brazil&#8217;s former president has, once again, lost an appeal trial. A panel of three judges found him guilty of corruption and money laundering, and enhanced his sentence from 12 to 17 years. But the Supreme Court decided earlier this month that prison sentences can&#8217;t be enforced before all appeals are exhausted—meaning that Lula won&#8217;t be back in jail anytime soon. The judges also went against a Supreme Court ruling according to which defendants who collaborate with investigators must present their closing arguments before other defendants. In Lula&#8217;s case, this ruling was not adhered to—which could, in the future, nullify Wednesday&#8217;s conviction.</p> <p><strong>Supreme Court.</strong> Brazil&#8217;s highest court is expected to finish a trial on whether tax authorities can flag suspicious, but sealed, information with law enforcement. So far, there is a 5-1 majority is in favor of allowing that. But justices are expected to slap some sort of restriction around the cases in which sharing such information is permitted.&nbsp;</p> <p><strong>Population.</strong> Brazil&#8217;s life expectancy at birth continues to grow, reaching 76.3 years. It remains much lower than what is observed in countries like France, the UK, or Germany (82.3, 31, and 80.6 according to 2015 data). But that is also due to the high levels of mortality among young males in peripheral areas—who die victims of urban violence at high rates.&nbsp;</p> <p><strong>Tourism.</strong> President Jair Bolsonaro signed a decree giving more power—and more money—to Embratur, the agency responsible for promoting tourism to Brazil. The government will add funds from the so-called &#8220;<a href="">Sistema S</a>,&#8221; a group of non-profit organizations run by the private sector (but which gets public money). While Mexico, Colombia, and Argentina spend between USD 60 and 490 million in country branding abroad, Brazil&#8217;s budget was USD 13 million in 2018. The goal is for Brazil to attract at least 12 million foreign tourists by 2022.</p> <p><strong>Racism.</strong> Brazil&#8217;s Palmares Foundation is an institution created in 1988 to promote black culture and sponsor affirmative action towards Afro-Brazilian populations. The Bolsonaro administration has named Sérgio de Camargo to lead the foundation—to the bewilderment of many. Mr. Camargo <a href="">denies that there is racism in Brazil</a>, and said &#8220;slavery was terrible but beneficial to descendants [of slaves].&#8221; In August, he suggested that Workers&#8217; Party militants should be used to replace guinea pigs in lab tests.

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