Good morning! We’re covering today how a weaker currency harms Brazilian companies. The government’s new land regulations. And a football-fueled controversy in Brazil’s anti-corruption court. (This newsletter is for platinum subscribers only. Become one now!)
Weaker currency balloons debts of Brazilian companies
Over the past five weeks, the Brazilian Real lost nearly 4 percent against the U.S. Dollar. When currency devaluation happens, press coverage tends to focus on the effects on agricultural exports, or how everyday prices will hike. But another element is crucial to understanding the true impact of currency fluctuation in the Brazilian economy: over the past six weeks, debts of Brazilian companies ballooned due to the rise of the U.S. currency, according to data from C6 Bank.
The numbers. At the end of October, debts of Brazilian companies (excluding banks) added up to USD 363 billion—or BRL 1.455 trillion, with the exchange rate of USD 1: BRL 3.9903 at the time. Now, with the rate at BRL 4.1463, these same debts now amount to BRL 1.506 trillion.
Why it matters. Most companies do not have a foreign exchange hedge, a financial instrument to protect them from abrupt currency devaluation. That makes them particularly exposed to the behavior...