figures for Brazil look quite promising. Fact unheard, gasoline
prices fell and the real gained nearly 15 percent on the dollar
in the last month. On top of all a surplus of over US$16 billion is
predicted for this year thanks to a reversal of negative
sentiment and the positive performance of Lula.
For the first time
that I can recall during my nearly forty years of residence in Brazil,
the price of gasoline at the pump actually has been reduced. With the
dollar considerably lower and world wide petroleum prices sliding now
that the war in Iraq is nearly over, Petrobras had little choice but to
modestly reduce what they charge to the distributors for gasoline and
other derivatives. For some unknown reason, the cost of LP gas that many
households depend upon for cooking remains unchanged.
Speaking of Petrobras,
plans to build a new refinery were recently announced. Its location is
still up in the air and may be decided by politics. José Eduardo
Dutra, the president of Petrobras, has made it no secret that if it depended
upon him, the new installation would be constructed in his home state
of Sergipe. Several other northeastern states would like to have the refinery.
Politics has already had some negative effects on Brazil's largest company.
During the presidential
campaign, Lula stated that the purchased new offshore rigs should be awarded
to Brazilian companies. This change of procedure has resulted in anticipated
delays in the delivery of at least two platforms. A legal battle with
Halliburton over two other rigs has slowed up their being put into use.
As a result of this
confusion, the goal of self-sufficiency in petroleum products has been
pushed back from 2006 to 2007. When and if this is achieved, a significant
improvement in the trade balance will result. In the meantime, however,
billions of dollars will be spent importing crude oil and other petroleum
On the diplomatic
front, Brazil continues to be chummy with Venezuela's president Hugo Chávez,
who met in Recife with Lula for the third time since he became Brazil's
President. The Venezuelan state owned oil company may participate in the
new refinery. In return for a loan of US$ 1 billion from BNDES guaranteed
by petroleum, which will be used to import Brazilian goods and services,
Chávez has promised to support Brazil's aspirations for a permanent
seat on the Security Council of the United Nations. France, Germany and
Russia have also promised to back Brazil in this endeavor.
By failing to condemn
Fidel Castro's recent clamp down on dissidents and summary executions
of men trying to escape from Cuba's police state, Brazil has made itself
look irresponsible to those who take notice of such things. Both the UN's
Human Rights Committee and the Organization of American States voted to
censor Cuba, but Brazil abstained using some flimsy juridical motives
for their inaction.
of the real, that gained nearly 15 percent on the dollar in the
last month, has caused some observers to be concerned about the negative
effects on exports that a cheaper dollar might have. My feeling is that
exports will not suffer for a while at least, since the bulk of products
Brazil exports are minerals or commodities or semi-manufactured goods
such as steel, pulp and paper, and certain processed food products.
The producers of these
products and the trading companies that export them, will receive less
reais than when the rate was hovering around US$1=R$3.50 or upward
from that. But at R$2.90 the dollar is still more expensive than it was
a year ago and is ahead of inflation.
The trade figures
thus far in 2003 look quite promising. A surplus of over US$16 billion
is predicted for this year. But should the Brazilian economy pick up fueling
imports and the delayed effects of a cheaper dollar on exports begin to
be felt later this year, this figure may not be reached. The mix of Brazilian
exports has not changed in years, with the exception of Embraer's exporting
of airplanes. Its order book is now anemic, which is no surprise given
the condition of the airline business worldwide. The increase in Brazil's
exports has come primarily from augmented agricultural production and
higher prices for some of the food products that Brazil sells overseas.
The decline of the
US$ in Brazilian exchange markets has been caused by a reversal of negative
sentiment both at home and abroad and the unexpected positive performance
of Lula and his economic team. Brazil placed a bond issue of US$1 billion
the last week of April with UBS Warburg and Merrill Lynch leading the
consortium. The rate paid, over 10 percent, and maturity of 2007 were
more expensive and shorter than Brazil's last sovereign bond issue. Critics
say the authorities should have waited until the Brazil risk factor was
less. But I think they were smart to take advantage of this window that
could close at any time if Congress excessively drags its feet in approving
the pension and tax reform measures now before it.
On April 30, Lula
presented the government's proposal to a joint session of both Houses
of Congress. He eloquently placed responsibility for starting to make
some necessary changes clearly in the hands of the legislature. There
continues to be vocal opposition from the radical ranks of Lula's PT (Partido
dos TrabalhadoresWorkers' Party). The other parties of Lula's coalition
have not enthusiastically come out in favor of these timid yet revolutionary
reforms. It is not clear yet how the "opposition" will behave
but it is assumed that they will cooperate as many of these same reforms
were proposed by Fernando Henrique Cardoso's government and stalled by
opposition from the PT, who now is in power.
The government's project
to inform the public of the inequity of the present pension system that
favors some 3,000,000 retired and active government workers to the detriment
of society as a whole is underway. It remains to be seen how responsible
the politicians in Brasília will be. As Lula pointed out, these
changes must be implemented this year, since 2004 will be taken up with
municipal elections. And we are already in 2003's fifth month.
Lula took a swipe
at the judicial branch of government recently that caused some indignation
among judges. But others agree that the "black box" of the justice
system should be exposed to the public. Judicial reform, that might eventually
help curb crime and violence, is on Lula's list of things to do. Entrenched
interests will be difficult to change, but at least Lula is trying to
do something about Brazil's many maladies. Brazil Watch mentioned
that Lula's task to try and improve Brazil is equivalent to that of a
US president attempting to take on the military-industrial complex and
the religious right at the same time. Lula's honest, direct approach is
rates, high unemployment and creeping inflation dampen consumer spending.
The economy is not expected to grow enough this year to compensate for
population increase. But the public, including many who voted against
Lula, are behind him. This wave of semi-euphoria may lead to some better
days ahead. All eyes will be on Brasília and progress in Congress'
approving some changes that are necessary if Brazil is to break the cycle
of increasing deficits and government debt, that coupled with high interest
rates, stifles economic growth and social well being for Brazil's 173,000,000
Hayes first came to Brazil in 1964 as an employee of Chase Manhattan
Bank. Since then, Hayes has worked directly and as an advisor for
a number of Brazilian and international banks and companies. Currently
he is a free lance consultant and can be contacted at firstname.lastname@example.org