Brasilinform Daily Briefing

Brasilinform Daily Briefing April 25, 2013

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Brasilinform Daily BriefingApril 25, 2013, Vol. XXV. No. 5541

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Committee Votes To Limit Powers of Supreme Court The constitution and justice committee of the lower house of Congress on April 24 declared war on the autonomy of the Supreme Court with approval of a measure that would require congressional review and approval of court decisions. The measure brought back memories of the dictatorship of Getúlio Vargas who in the 1937 constitution gave himself the power to veto Supreme Court decisions. The proposed constitutional amendment approved by the committee, dominated by pro-government congressmen, would restrict the ability of the court to rule on the consti-tutionality of laws and amendments passed by Congress. In the case of a constitutional amendment declared unconstitutional, the court’s de-cision would have to be reviewed by Congress. If Congress rejected the court’s ruling, which would seem inevitable, the question would then be left for a public referendum to decide. The proposed legislation would prevent the court from suspending a constitutional amendment through the issue of an injunction. When the court rules that its decision stands as a binding precedent for lower courts, this must be approved by nine out of the 11 justices, not six as at present, according to the proposal. In addition, the ruling would have to be approved by Congress. The amendment would also require that four fifths of the members of any court approve the unconstitutionality of a law or decree for the decision to be valid. In defense of the amendment, its author, Congressman Nazareno Fonteles (PT-PI) said that the Supreme Court has interfered with the work of Congress by declaring laws unconstitutional. “The judiciary has a mountain of cases to rule on and they keep on interfering with Congress,” he said. Opposition congressmen charged Fonteles and the amendment’s backers with violat-ing the separation of powers and threatening the autonomy of the Supreme Court. Justice Marco Aurélio Mello called the amendment a form of “retaliation” for the court’s conviction of several members of the ruling PT Party in the mensalão corruption trial. Two of the committee’s members were convicted by the court. Chamber president Henrique Eduardo Alves (PMDB-RN) said the house does not want conflicts with the judiciary and said he would discuss the question with “the judicial power.”


FINANCIAL INDICATORS

Interest Rates (%)CDs 0.50 (monthly)DI 7.25 (annual)Selic 7.50 (annual)Hot Money 3.06 (monthly)

Exchange Rates (R$ per US$)Average Rate (sell) Variation Day (%) Month (%) Year (%)Ptax* 2.0244 0.37 0.53 -0.93Black 2.1700 0.46 0.93 -0.46 *day’s average exchange rate, calculated by Central Bank

Stock Markets (% movement) Day Week Month Year Volume São Paulo 1.08 1.7 -2.6 -9.9 R$10,197 m.

Capital Flow (cumulative for month in US$ million) Financial Financial Date Inflows Outflows Exports Imports TotalMarch 31 32,594 34,221 19,426 17,410 391

Level of Reserves (in US$ million)As of Total Variation from previous dayApril 23 376,877 15

Court Justice Suspends Senate Vote on New Party Bill Wednesday evening, after a lower house committee voted to limit the powers of the Supreme Court, Justice Gilmar Mendes issued an injunction suspending voting in the Sen-ate on a controversial proposal to limit the authority of newly formed political parties. The bill would restrict the access of new parties to resources from the political party fund and to free air time for commercials. It is supported by the government and opposed by the opposition which see it as an attempt to inhibit the launching of opposition candidates for president in 2014. The bill has already passed the lower house and was expected to be approved quickly by the Senate but this has now been suspended. Mendes issued the injunction in response to a request by Senator Rodrigo Rollemberg (PSB-DF) who has challenged the bill’s con-stitutionality before the Supreme Court. The injunction will remain in effect until the court rules on Rollemberg’s challenge which could take months.

Record First Quarter Current Account Deficit The deterioration of Brazil’s foreign accounts accelerated in the first quarter due mainly to the period’s growing trade deficit. With a trade deficit of US$5.2 billion plus US$7 billion in profit remittances and US$6 billion in overseas spending by Brazilian tourists, the quarter’s current account deficit soared to US$24.9 billion compared with US$12 billion for the same period last year. The deficit was the highest on record for the quarter and easily outdistanced the quarter’s foreign direct investment total of US$13.3 billion, 11% less than in 2012. The 12-month deficit in March reached 2.9% of gross domestic product and exceeded


the period’s FDI for the first time since November 2010. March posted a deficit of US$6.9 billion and FDI of US$5.7 billion. Despite the widening deficit, Central Bank economic department director Túlio Maciel said there is no reason for concern. Brazil’s reserves remain at record levels of US$376 billion and much of the current account deficit reflects the expanding economy, Maciel said. The trade balance should improve starting in May, thus reducing the monthly current account deficits.

Senate Committee Approves ICMS Changes The Senate economic subjects committee on April 24 approved a bill that would set new rates for the state valued added tax (ICMS) on interstate commerce. The government’s original proposal was to eliminate the current 7% and 12% brackets and create a single national rate of 4%. The bill approved by the committee, however, maintains a 7% rate for industrial products from the North, Northeast and Central-West regions as well as agriculture products from these regions. In addition, the approved bill sets a 12% ICMS rate for products from the Manaus free trade zone, which is opposed by the states of the South and Southeast regions. The legislation would also set a 7% rate on natural gas from the South and Southeast destined for the other regions and a 12% rate for all other natural gas transactions. All of the ICMS changes are dependent on approval of special funds to compensate the states of the North, Northeast and Central-West which currently charge a rate of 12% on interstate commerce compared with 7% for the South and Southeast.

Bill Sets Penalties for Companies in Corruption Cases An anti-corruption bill setting penalties for companies was approved by a Chamber of Deputies special committee on April 24. At present, only company executives can be punished for acts such as bribing govern-ment officials. Under the approved bill, companies would face fines of up to 20% of their revenues if it can be shown that they benefited from the illicit acts of their employees. In cases where it can be proven that companies took an active role in corrupt opera-tions, the penalties would be more severe, including the loss of assets, prohibition to receive government loans and the dissolution of the company.

Port Reform Suffers More Changes in Committee Vote The government suffered a series of defeats on April 24 when a special lower house committee approved the port reform bill, MP 595. Government negotiators had already agreed to significant alterations in the original bill to line up votes for the proposal. But the measure’s opponents were able to force additional changes. The approved bill would require the government to renew for ten years port terminal concessions signed before 1993, the date of the current port law. Originally the govern-ment wanted new concessions for all 159 of these terminal but eventually agreed to a five-year extension. This has now been doubled. The committee also added to the reform proposal a requirement for new terminal concessions to receive a guarantee that their 25-year terms would be extended for an-other 25 years. This would in effect create a 50-year concession instead of the 25 years


defended by the government. The bill now must be approved by the full Chamber of Deputies and the Senate but officials warned that if nothing is done to alter the version approved in committee, several of its measures will be vetoed.

Vale’s Q1 Profit Falls 7.4% Mining giant Vale announced a first quarter net profit of R$6.2 billion (US$3.1 billion), a decline of 7.4% from the same period in 2012. The result, however, exceeded financial market projections and Vale’s shares rose 0.72%. The company’s operational revenues increased 6.6% to R$22.3 billion (US$11 billion). On the negative side, Vale’s iron ore production fell 3.5% although this was partially offset by a 2% increase in the average price per ton exported. Vale also had an additional R$1 billion (US$500 million) payment of income taxes and the social contribution on net profit (CSLL). The performance of Vale’s shares coupled with a 1.4% gain for the shares of Petro-bras pushed the Bovespa index of leading shares to a gain of 0.18% on April 24, its fifth consecutive day of advances. The dollar fell 0.49% to close at R$2.014.

BNDES Has New Department for Africa, Latin America The government through a decree created a new department of the National Develop-ment Bank (BNDES) to deal exclusively with Africa, Latin America and the Caribbean. The department will handle bank loans to Brazilian firms that export goods and services to these countries. Last year, BNDES released US$682 million for projects in Africa and US$1.07 billion for Latin America and the Caribbean.

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