Cyberwarfare risk has increased. Is Brazil ready?

. Jan 09, 2020
Cyberwarfare risk has increased. Is Brazil ready? Image: Mehaniq/Shutterstock

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Good morning! We’re covering today Brazil’s cyberwarfare apparatus (or lack thereof). How Bolsonaro is using public banks to give the economy a boost. And the increasingly more realistic and less-mythical Brazilian unicorns. (This newsletter is for premium subscribers only. Become one now!)

How ready is Brazil for cyberwarfare?

After Iran declared that a missile attack on a U.S. base in Iraq had “concluded proportionate measures

in response to the assassination of its top military official, experts alerted that the threats of cyberwarfare have been amplified. Philip Ingram, a former colonel in British military intelligence, told <em>Forbes</em> that “cyber will almost certainly play a part in the wider response that Iran will unleash on the U.S. and its allies.”</p> <p>So, we ask: as one of the countries most aligned with Donald Trump&#8217;s U.S., is Brazil ready to deal with cyberwarfare?</p> <p><strong>Why it matters. </strong>Cyberattacks can cause more damage than traditional warfare without direct casualties. In 2012, Iran launched its <a href="">most famous cyberattack</a> against oil giant Saudi Aramco, forcing the company to go offline for months and rebuild its IT infrastructure from scratch—which cost hundreds of millions of dollars.</p> <p>Public administrations across the world are notoriously unprepared to deal with this. Last year, <a href="">hackers held the city of Baltimore&#8217;s computers hostage</a> for two weeks, making it impossible for citizens to pay water bills or parking tickets—as hackers demanded &#8220;ransom&#8221; money.</p> <p><strong>History.</strong> In 2008, Brazil approved its <a href="">National Defense Strategy</a>, which included cybersecurity as a priority. Since then, little has been done. In 2019, the country created the National School of Cyber Defense—but Brazil&#8217;s investments to prepare for cyberwarfare remain subpar. This year, the government set aside only BRL 20 million for the area, while experts warn that the budget should be at least BRL 60 million.</p> <p><strong>Cyber insecurity.</strong> Over the past three months, Brazil was home to 15 billion cyberattacks, according to data from Fortinet. On the Global Cybersecurity Index, the country ranks 70th in commitment to IT security, behind nations such as Macedonia, Nigeria, or Uganda.</p> <p><strong>Lacking regulation.</strong> According to a report by Recorded Future, a company specialized in cybersecurity, &#8220;Brazilian cybercriminals are not intimidated by two-factor authentication,&#8221; as companies still provide SMS channels with lax security protocols. But service providers have little interest in enhancing their systems, as they rarely get any heat from regulators.</p> <p><strong>Sloppiness. </strong>Over the past few years, several authorities in Brazil were victims of <a href="">hacking attacks</a>—including former President Dilma Rousseff and incumbent Justice Minister Sergio Moro. Usually, the attacks were possible due to the little regard these authorities have for protected systems.</p> <hr class="wp-block-separator"/> <h2><strong>How Bolsonaro is using public banks to stimulate the economy</strong></h2> <p>Over the Jair Bolsonaro administration&#8217;s first year, Caixa and Banco do Brasil—the country&#8217;s two major federally-controlled banks—aggressively lowered their interest rates. According to a survey by C6 Bank, the two public institutions offered the lowest rates on the market in eight of the top ten most-used credit options for individuals.</p> <p><strong>Why it matters.</strong> The government has political motivations for this, trying to stimulate credit and give the economy a boost while investments remain sluggish.</p> <p><strong>Yes, but … </strong>What the Bolsonaro administration is doing, however, is not the same as what Dilma Rousseff did when she had public banks artificially charging low interest rates from clients, including in areas that weren&#8217;t the banks’ expertise, creating huge losses. This time around, Brazil has the lowest benchmark interest rates in its history.</p> <p><strong>Competition.</strong> Having public banks charging lower interest can have another positive mid-term effect: forcing private players to do the same.&nbsp;</p> <hr class="wp-block-separator"/> <h2>Brazil: land of unicorns</h2> <p>In 2019, only the U.S. and China had more new unicorns—startups valued over USD 1 billion—than Brazil, according to the Crunchbase Unicorn Board. A total of 142 companies joined the club, five of them coming from Brazil: Gympass (fitness), QuintoAndar (real estate), Loggi (logistics), <a href="">Wildlife</a> (gaming), and Ebanx (payments).</p> <p><strong>Why it matters.</strong> The numbers are a testament to the <a href="">dynamism of Brazil&#8217;s startup scene</a>, despite heavy taxes and bureaucratic hoops. São Paulo, Brazil&#8217;s financial capital, was recently considered the world&#8217;s 12th best city for startups.</p> <p><strong>2020.</strong> The year has barely begun, but Brazil has already registered its first new unicorn: Loft, a real estate company. The U.S. also has a new unicorn in ClassPass, a company which claims to be a &#8220;Netflix of gyms,&#8221; and will fight for market share with Gympass.</p> <p><strong>Changing the landscape.</strong> As reporter Natália Scalzaretto showed on <strong>The Brazilian Report</strong>, <a href="">Brazil&#8217;s young professionals</a> are increasingly abandoning their parents&#8217; dreams of having a stable job at a state-owned company, hoping to work for startups instead.</p> <p><strong>Omnipresent.</strong> Japanese investment behemoth <a href="">SoftBank was responsible</a> for three of Brazil&#8217;s five 2019 unicorns. SoftBank launched its Innovation Fund for Latin America in March 2019. With USD 5 billion in venture capital to be applied in Brazil, Argentina, and Colombia, the investments show no signs of stopping.</p> <div class="flourish-embed" data-src="visualisation/1208821"></div><script src=""></script> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <p><strong>Oil. </strong>The Mines and Energy Ministry wants to propose, by the end of February, a fund that will allow the government to hold fuel prices in moments of international oscillations of oil fares. One of the main possibilities is creating a fund with part of the money raised in oil royalties to be spent on subsidies at times of hikes.</p> <p><strong>Corruption.</strong> Former Paraguayan President Horacio Cartes will face trial in Brazil for financial crimes, tax evasion, money laundering, and corruption. Federal Judge Marcelo Bretas also accepted charges against notorious dollar smuggler Dario Messer—called &#8220;the dollar smuggler of dollar smugglers&#8221;—and 17 other defendants. On November 20, 2019, a federal court signed on an <a href="">arrest order against Mr. Cartes</a>, but the Superior Court of Justice granted him habeas corpus just days later.</p> <p><strong>Infrastructure.</strong> São Paulo Governor João Doria said on Wednesday his administration will no longer make investments in <a href="">transportation infrastructure</a>. From now on, those will be done through privatizing assets, such as metro lines, state roadways, and regional airports. Mr. Doria&#8217;s Logistics and Transportation secretary promised to launch an invitation for bids for the concession of 21 airports to private groups by July.</p> <p><strong>Cash transfer.</strong> The Bolsonaro administration reportedly wants to promote changes to the cash transfer program Bolsa Família—credited for <a href="">lifting millions out of extreme poverty</a> over the past 15 years. According to the president&#8217;s spokesman, 21 percent of Brazilians depend on the program. A new version is being drafted, and it would reward &#8220;personal merit, imagining possibilities for people to no longer need the program as they evolve as citizens,&#8221; the spokesman told reporters.</p> <p><strong>GDP.</strong> In its latest Global Economic Prospects report, the World Bank forecasted <a href="">Brazil&#8217;s GDP growth</a> in 2020 at 2 percent. While that would be an improvement from 2019—when the final numbers should stay close to 1.1 percent—the expectation is much lower than it was six months ago, when the bank expected Brazil to grow some 2.5 percent in 2020. Social unrest, inequality, sluggish economies, and issues related to fighting corruption within organizations were mentioned as continuing obstacles for Latin America.</p> <p><strong>Davos.</strong> President Jair Bolsonaro has canceled his participation at the World Economic Forum in Davos, Switzerland, set to be held between January 21 and 24. According to his spokesman, the president snubbed the meeting for &#8220;safety and political reasons.&#8221; Last year, Mr. Bolsonaro was one of the keynote speakers at the forum&#8217;s opening event, but delivered a <a href="">superficial speech that lasted a little over six minutes</a>.</p> <hr class="wp-block-separator"/> <p><em>Correction: A previous version of this newsletter said ClassPass is a Brazilian unicorn, but the company is actually U.S.-based. Loft is the new Brazilian unicorn. The information has been corrected.</em>

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