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Federal troops have been called to maintain order in Rio. In
São Paulo, car thieves stole an
auto belonging to the Minister of
Justice. The Landless movement has declared that the truce
with
Lula's government is over. They occupied federal offices as
well as several farms and ranches around
the country.
By
Richard Hayes
The inevitability of a US war with Iraq as well as its uncertain aftermath has placed new foreign investment in Brazil
on hold. Projects already underway are being carried forward, however. The government, who would prefer a peaceful
solution to the disarming of Saddam Hussein, has not irritated the Americans by attempting to form a front of Latin American
nations to oppose the invasion. This idea was scrapped when it became obvious that Brazil would have nothing to gain by
such maneuvering and in no way would influence Washington's decision to go ahead with a war with or without UN endorsement.
There have been no anti war demonstrations of consequence in Brazil. It is not a major topic of discussion as
Brazilians are concerned with other closer to home problems. Law and order is a major issue with the Army in Rio de Janeiro to
help cope with unfettered crime and violence. This is the first time in many years that federal troops have been called in on
this scale to aid incompetent and corrupt state and municipal officials. In São Paulo, car thieves stole an auto belonging to
the Minister of Justice, Márcio Thomaz Bastos, while his driver was waiting for Bastos's wife, who was visiting her doctor.
Perhaps Minister Bastos will have better luck in reforming the judicial, police and penitentiary systems than did his nine
predecessors that served as Ministers of Justice under FHC during his eight years as President.
The MST or landless people have stepped up their offensive to obtain land for those who have none. They
occupied federal offices in the states of Goiás and Mato Grosso as well as several farms and ranches around the country. So far
no one has been killed by the efforts of the legitimate owners of land to regain their property by expelling these illegal
invaders. There will be more of this as the MST has declared that the truce with Lula's government is over. Land reform is a very
complex issue that will soon attract the interest of the international media.
Many of the invaders are urban slum dwellers who have no clue about working land. Granting land to unprepared
people has yielded little practical results in the past. Credit and technical advice as well as marketing mechanisms are not
currently available in most cases. Many of the expropriated areas are very far from markets. Frequently those who receive land
later sell it, which is against the spirit of this exercise in bettering the lot of those without land who wish to become farmers.
It seems as if some of the resources and food that is to be donated to the "Zero Hunger" program may be used to
feed these people who are camped out illegally on private property. This may create more of an incentive for the
unscrupulous leaders of the ignorant masses to violate the law. This entire rural issue will be a headache for Lula. As it happens
agricultural exports are largely responsible for Brazil's recent trade surpluses. So it behooves the government to not upset the rural
sector any more than they have by not allowing genetically modified soybean seeds to be used. It is a big country and so far
the invasions have not deterred farmers from expanding their productive areas.
Financial markets remain favorably disposed toward the new government. This beginning of March, both Fitch and
Merrill Lynch upgraded their opinions about Brazilian paper. Moodys and Standard & Poors will probably join the parade soon.
The price of Brazilian C Bonds has risen to US$0.76 on the dollar bringing the Brazil Risk, as measured by JP Morgan's EMBI
down to 1,139 points. This is a very thin market that fluctuates on an almost daily basis.
I suspect that the increase in the price of C-bonds is due to technical factors rather than an overwhelming display of
faith in Lula's government manage its debt. It would not surprise me if Banco Central, who is quite liquid at the moment, is
buying back some of its own debt to lower the Brazil risk index as they contemplate a sovereign risk issue. Also traders may be
covering short positions, as Brazil is perceived as doing the right things fiscally and monetarily.
The inflation rate was less for February than it was for January. Interest rates may be moved up again when
COPOM (Comitê de Política Monetária— Monetary Policy Committee) meets again this March. Hörst Kohler, the head of the
IMF, continues to express confidence in Lula. At a meeting of the Bank for International Settlements in Basle this week, Brazil
came out as looking good. So barring any really bad news or gross errors on the part of the government, the market reaction
should continue tranquil in spite of the world situation. Changes in the management of Petrobras have raised some concern in certain quarters. After several years of sound,
objective professional management under Philippe Reichstil and Francisco Gros, it is feared that this company, Brazil's largest,
may be regressing. The Minister of Mines and Energy, Dilma Rousseff is not known for her entrepreneurial attributes. The
appointments of José Eduardo Duarte, a defeated PT politician from Sergipe with little or no knowledge of petroleum along
with a financial director with experience solely in the academic area, were not taken well by observers. Several top jobs in the
company and its subsidiaries are being reserved as rewards for PMDB members if their party supports Lula's legislative efforts.
Petrobras has insisted that offshore drilling rigs have 60 percent Brazilian content although there is doubt that
Brazilian shipyards have the capacity to do the work. Any delays in the delivery of these platforms would seriously endanger
the profitability of the company as well as its goal to reach self-sufficiency in crude oil production in the near future. So far
none of these potential pitfalls are evident. But the government must remember that although they control the voting shares
of this company, its ADRs are traded in New York and many Petrobras shares are in the hands of the Brazilian public, some
of which were purchased with retirement funds. Petrobras should not fall back into being a politically run organization.
On the positive side, a major discovery has been announced off the coast of Sergipe. Is this a coincidence or did
Dutra time this right? This will eventually bring in royalties for his poor state. It will remain to be seen if Sergipe is allowed to
borrow from the federal government in anticipation of receiving these royalties several years in the future.
For the following month, your commentator will be absent from Brazil. Perhaps when I return in mid April, there will
have been material progress on the many reforms that Lula and his people claim to espouse. Priority is to be given to
changing the taxation and pensions systems. Lula has also reiterated his intention to push for Central Bank autonomy. I am not
holding my breath.
Richard Edward Hayes first came to Brazil in 1964 as an employee of Chase Manhattan Bank. During the past
thirty-eight years, 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
192louvre@uol.com.br
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