Good morning! Can Brazil defy the global trend of slowdown predicted by the IMF and regain growth in 2020? Plus, we’re covering Congress’ deal on an upcoming massive oil auction. And the president’s party has joined forces with … the opposition? (This newsletter is for platinum subscribers only. Become one now!)


IMF: Despite global slowdown, Brazil could regain growth in 2020

The International Monetary Fund

has once again downgraded global growth forecasts for 2019, now at 3 percent. The fund talks about a &#8220;synchronized slowdown,&#8221; as the world witnesses its &#8220;slowest [growth] pace since the global financial crisis.&#8221; Still, in 2020, the IMF predicts that the Eurozone—as well as some developing economies—will be able to pick up some growth. Brazil is among them.</p> <p><strong>Why it matters.</strong> The IMF expects a 2-percent growth rate for Brazil in 2020. While the forecast is worse than it was back in April (at 2.5 percent), it still places Brazil in a better position than other similar economies. A decade ago, 2-percent growth would be considered underwhelming, but it is now a cause for celebration, in the face of Brazil&#8217;s recent struggles for economic recovery.</p> <div class="flourish-embed" data-src="visualisation/780937"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Caution.</strong> According to the IMF, there is &#8220;considerable uncertainty surrounding [the recovery of countries like Brazil], especially when major economies like the [U.S.], Japan, and China are expected to slow further into 2020.&#8221; International <a href="https://brazilian.report/money/2019/05/14/us-china-trade-war-impact-brazil/">geopolitical tensions</a> could also further disrupt economic activity and derail an <a href="https://brazilian.report/money/2019/10/03/evolution-brazil-purchasing-power/">already fragile recovery</a>.</p> <p><strong>Cheaper credit.</strong> As Brazil continues to slash its benchmark interest rate, the IMF warns of the perils of cheap credit. After the 2008 global crisis, central banks in developed nations aggressively cut their interest rates, leading to an injection of USD 15 trillion in the global market. That also led to record levels of indebtment—which can create systemic risks.</p> <hr class="wp-block-separator"/> <h2>Senate settles on division of money from upcoming mega oil auction</h2> <p>In November, the federal government plans to hold the biggest oil auction in Brazil&#8217;s history—hoping to raise at least BRL 106 billion. Yesterday, the Senate approved (in a rare unanimous vote) the framework for how the money will be split among federal-, state-, and municipal-level administrations.</p> <p><strong>Why it matters.</strong> Across Brazil, administrations are in dire financial straits—and the money will provide a much-needed cash injection. But beyond that, the vote also unclogs the Senate&#8217;s agenda—meaning the pension reform (the government&#8217;s core proposal for the economy) can now finally be approved. The very last vote on the reform is scheduled for October 22.</p> <div class="flourish-embed" data-src="visualisation/780991"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Winners. </strong>No other state will receive as much money as Rio de Janeiro—due to being the main oil-producing state. Overall, the division approved by Congress benefits states from the Southeast and Center-West regions—which are already wealthier than those in the North and Northeast. The state of São Paulo, for instance, will receive a share 573 percent larger than it would have according to a previous bill killed by lawmakers.&nbsp;</p> <p><strong>Transfer of Rights.</strong> The reserves in question have been at the center of a legal imbroglio between Petrobras and the federal government since 2010. Back then, Petrobras paid BRL 74.8 billion to exploit 5 billion barrels of oil in pre-salt areas. Later, though, it was discovered that the reserves were much heftier than initially thought—storing up to 16 billion extra barrels, per some estimates. This surplus is what will go to auction in November.</p> <p><strong>Oil in Brazil.</strong> This week, our podcast, Explaining Brazil, dives into the history of Brazil&#8217;s oil industry. <a href="http://brazilianreport.buzzsprout.com/299876/1875641-81-oil-brazil-s-underwater-treasure">Listen to the episode now</a>.&nbsp;</p> <script src="https://www.buzzsprout.com/299876/1875641-81-oil-brazil-s-underwater-treasure.js?player=small" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <h2>The president&#8217;s ruling party joins the opposition</h2> <p>The British say that politics makes strange bedfellows. Few, though, are as odd as the far-right Social Liberal Party (of which President Jair Bolsonaro is a member, for now) and the left-leaning Workers&#8217; Party. The unlikely—and temporary—alliance was formed in order to obstruct a vote which is important to the federal government.&nbsp;</p> <p><strong>Why it matters.</strong> The move to boycott the government, coming from the president&#8217;s <em>own party</em>, further exacerbates tensions between Mr. Bolsonaro and Social Liberal Party chairman Luciano Bivar, who are fighting for control of the political group. This dispute already jeopardizes key votes for the government.</p> <p><strong>At stake.</strong> The Social Liberal Party helped block a vote on the program to foster investments through public-private partnerships and privatizations. That is a key issue for the administration in order to find new money to finance infrastructure projects.</p> <p><strong>Attacks.</strong> The move came on the day Luciano Bivar was targeted by the Federal Police, for the suspected use of dummy candidates to embezzle public campaign funds. Allies of Mr. Bivar believe that the president is being illegally informed about federal investigations concerning the party—and that he wants to distance himself before things hit the fan. So, they went on the offensive themselves. The Social Liberal Party&#8217;s whip in the House told reporters that Senator Flávio Bolsonaro, the president&#8217;s eldest son, should prepare himself for a visit from the Feds soon.</p> <p><strong>Context.</strong> Senator Bolsonaro is suspected of operating a money-laundering scheme while serving as a state lawmaker in Rio, until December 2018. The investigations around him, however, have been temporarily suspended by the Supreme Court.</p> <hr class="wp-block-separator"/> <h2>What else you should know</h2> <p><strong>Asia.</strong> As President Jair Bolsonaro heads to Japan and China next week, Brazil aims to sign free trade agreements between South American common market Mercosur and countries such as Singapore and South Korea. The bloc will also hold talks with Vietnam and Indonesia later this year. Asia is the destination of 42 percent of Brazilian exports and 36 percent of the country&#8217;s imports (half of both exports and imports to Asia are <a href="https://brazilian.report/money/2019/06/03/exporting-to-china-generates-less-revenue-for-brazil/">traded with China</a>).</p> <p><strong>Privatizations.</strong> Two presidential decrees published today make it official: the government has kicked off the process to privatize postal service Correios and telecoms company Telebras. Both companies have registered huge losses recently, and are deemed to be highly inefficient.</p> <p><strong>Stocks.</strong> Payments company <a href="https://brazilian.report/newsletters/weekly-report/2019/04/12/escalating-war-brazilian-fintech-companies/">PagSeguro</a> held a follow-on offering at the New York Stock Exchange, as its controller—news company UOL—decided to sell off 16.7 million shares. Despite positive quarterly numbers, markets didn&#8217;t receive the move well, and the company lost 12 percent of share value at closing (the dip reached 19 percent earlier in the day). PagSeguro&#8217;s rough day spilled over onto its competitors, with other payment companies, such as Stone and Cielo, also having negative days.&nbsp;</p> <p><strong>Lethal force.</strong> The number of Rio de Janeiro police operations resulting in at least three civilian casualties reached a new record over the first six months of this year. According to information from the state government, there were 34 such cases—resulting in 123 victims. While overall murders are down in Rio, the police have never been so lethal.</p> <p><strong>Disaster.</strong> A seven-story building collapsed in the city of Fortaleza (Ceará). The fire brigade estimated that 18 people were inside the building when it went down—eight remain missing and one person was confirmed dead so far. City Hall said the building was erected illegally.

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BY Gustavo Ribeiro

Gustavo is the founder of The Brazilian Report, and is an award-winning journalist with experience covering Brazilian politics and international affairs. His work has been featured across Brazilian and French media outlets.