11.14

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 111

17

Veirano adVogados’ Monthly review of econoMic, legal, and political developMents

pho

tog

raph

: wik

imed

ia c

om

mo

ns/Flic

kr/psd

B mg

nCherry picking opposition initiatives?

n Infrastructure issuesnMining notesnBanking and financenEconomy in briefnBusiness news

nOil & gas in briefnOperation Car WashnPetrobras newsnBiofuels in briefnElectricity sectornEnvironmental news

nPolitics in briefnDefense issuesnLegal issuesnSocial issues

nDiplomatic briefsn International trade

Viewpoint economy & Business energy & enVironment politics, law, society international affairs

There is a joke circulating that Aécio Neves actually won the election

Three days after the election, Dilma Rousseff had already suffered two political defeats in the Chamber of Deputies.

Her idea of a plebiscite on political reform was rejected, replaced for the time being by proposed “political con-sultation.” And her executive decree to create citizens’ councils to evaluate legislative initiatives was voted down in the Chamber of Deputies and faces an uncertain future in the Senate. Government sources label the two moves as revenge against Rousseff’s electoral win.

Rousseff won a new term in part by painting her oppo-nent, Aécio Neves, and the party he leads, the Brazilian Social Democracy Party (PSDB), as fiscal tightwads who

would jeopardize the gains of working-class families. Maybe so, but Rousseff moved so swiftly to implement some of Neves’s own key policies after the electoral dust had settled that the joke circulating on social media is that he actually won the race.

First, having implied during the campaign that inflation was engineered by bankers – who largely supported Neves – as a way to increase their profits from interest, three days after the election Rousseff permitted the Central Bank to increase the benchmark Selic rate to 11.25 percent, the highest level in three years. Neves had proposed a similar measure for controlling inflation. …

cherry picking opposition initiatives? rousseff off to rocky start

economy & Business energy & enVironment politics, law, society international affairs

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 112

17

Viewpoint

Rousseff gave an interview on 4 November to leading Brazilian newspapers Estado de São Paulo, Folha de São Paulo, O Globo, and Valor Econômico in which she acknowl-edged that the government has to “do its homework” to contain price increases in 2015.

She announced that she wouldn’t meddle with the infla-tion target of 6.5 percent (currently being exceeded) but would instead reduce inflation itself. She is also allow-ing the Brazilian currency to weaken against the dollar

– another Neves proposal – and appears to be considering a more orthodox approach to economic policy.

Second, Finance Minister Guido Mantega announced on 7 November that the government will adjust its economic policy in order to achieve fiscal consolidation based on reducing public expenditures and subsidies. Mantega pointed to heritable pensions and subsidized loans by National Bank for Economic and Social Development (BNDES) as areas of potential cuts, but he did not say precisely where or how much cutting will be done.

BNDES, which functions as a key instrument of govern-ment industrial policy, has been providing an off-budget and distorting economic stimulus. Rousseff, who is an economist herself, has been instrumental in developing a strategy of taking on debt to fund economic stimulus through ad hoc tax cuts and subsidized credit from state

banks. The government has offset the resulting inflation through currency and fuel and energy price controls.

It should be noted that cutting earmarked expenditures requires congressional approval. The government has greater discretion over investments, but although curbing them may stave off a sovereign downgrade in the near future, it could damage long-term economic prospects.

Third, Rousseff loosened the leash on Petrobras slightly by allowing the state oil company to increase fuel prices. The price of diesel has gone up by 5 percent and of gasoline by 3 percent. During the campaign, Neves had advocated easing fuel price controls to allow the embattled Petro-bras to recover some financial equilibrium, but this first step is only that – a step, and a small one.

Discontent from within The president will have to do more to dispel the current mantle of gloom over the Brazilian economy and polity. Not only has she suffered defeats in the Chamber but rumblings of discontent have been heard within her own Workers’ Party (PT).

In an interview on 10 November, Secretary of the Presidency Gilberto Carvalho said Rousseff had failed to engage business leaders and other key economic actors during her first term, thus weakening her government. …

VistaBrazil is published monthlyProduced by Prismax ConsultariaEditor: Georges D. LandauProduction: Blakeley Words+Pictures

© 2014 · Veirano Advogados and Prismax Consultoria All text rights reserved

Vista Brazil is sponsored by Veirano AdvogadosFounding Partner: Ronaldo C. VeiranoManaging Partner: Pedro Aguiar de Freitas

Rio de JaneiroAv. Presidente Wilson, 231 / 23º andar20030-021 – RJ(55 21) 3824 4747 Phone(55 21) 2262 4247 Faxcontact@veirano.com.brwww.veirano.com.br

São PauloAv. Brigadeiro Faria Lima,3477 / 16º andar04538-133 - SP(55 11) 2313-5700 Phone(55 11) 2313-5990 Fax

Porto AlegreRua Dona Laura,320 / 13º andarRio Branco – 90430-090 – RS(55 51) 2121 7500 Phone(55 51) 2121 7600 Fax

BrasíliaSCN Qd. 2Ed. Corp. Financial Center – Bloco A10º andar/Sala 1001 – 70712-900 – DF(55 61) 2106 6600 Phone(55 61) 2106 6699 Fax

DisclaimerThis newsletter is intended to provide general information regarding recent events, developments, and trends in Brazil. It is not intended, nor should it be relied on, to provide legal analysis or legal advice on any of the information covered in the newsletter. Veirano Advogados and Prismax Consultoria cannot ensure against or be held responsible for inaccuracies. To the full extent permissible by law Veirano Advogados shall have no liability for any damage or loss (including, without limitation, financial loss, loss of profits, loss of business, or any indirect or consequential loss), however it arises, resulting from the use of any material appearing in this publication or from any action or decision taken as a result of using information presented in the publication.

Veirano aDVogaDos

Offices in Rio de Janeiro, São Paulo, Porto Alegre, and Brasília …

Viewpoint energy & enVironment politics, law, society international affairs

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 113

17

economy & Business

During her re-election campaign, Rousseff announced that she would change her economic team and that Mantega would leave his post as finance minister. His willingness to follow interventionist policies has not endeared him to the business community. Rousseff noted, nonetheless, that she did not have a specific date to announce a new cabi-net, only that she would do so by the end of the year.

That did not deter Minister of Culture Marta Suplicy, who resigned her post on 11 November and accompanied the move with an open letter to Rousseff on Facebook, urging her to set up “an independent economic team, with proven experience, to rescue the credibility of your government.” Suplicy indicated that she may leave the party altogether to run for her former post of São Paulo mayor.

Suplicy’s action triggered at least 10 further resignations from cabinet, including Minister of Justice Jose Eduardo Cardozo, Minister of Development and Foreign Trade

Mauro Borges, Minister of Labor Manoel Dias, Minister of Science and Technology Clélio Campolina, Minister of Aviation Moreira Franco, Minister of Education José Henrique Paim, and Chief of Staff Aloisio Mercadante.

According to Mercadante, the move had been intended to be kept secret until Rousseff returned from Australia on 16 November, but the plan was leaked. He billed the resignations as an attempt to give the president the latitude to present a new team for a new government, but they have also lifted the lid on a fierce debate within the Workers’ Party over the economic direction of the administration.

who will get finance?The issue of who will replace Mantega at the helm of the Ministry of Finance is particularly fraught for that reason. Some party members want a figure such as former Central Bank governor Henrique Meirelles, because he would appeal to the market. Others want a new finance minister to stay the course of economic intervention. A moderate such as economist Nelson Barbosa could be a compromise choice. Luiz Trabuco, president of Bradesco Commercial Bank, has also been mooted as a candidate.

Meirelles was finance minister under former president Lula da Silva, but giving the post to a former banker would not square well with Rousseff’s campaign message about rapacious bankers who trample on the poor.

Rousseff has said only that she will not make any cabinet announcements, including about the minister of finance, until after the G-20 meeting on 15–16 November in Brisbane. Confronted with evidence that industry lacks confidence in her government, she has pointed to the fact that foreign direct investment was US$64 billion in 2014, making Brazil the fifth-largest recipient globally.

economy & Business

infrastructure issuesppps on the horizonThe upcoming year will see few infrastructure conces-sions, partly because of lack of funds and partly because proposals are still being analyzed by government depart-ments – but investors should consider playing the long game in this vast sector.

Railways and highways are priority areas, and Dilma Rousseff’s administration has announced that it will now seek private-sector collaboration to finance infrastruc-ture projects through public–private partnerships (PPPs). Until very recently, the Workers’ Party did not favor such arrangements.

As well, the government has authorized large invest-ments in airport privatizations, using a PPP model with 51 percent public capital and 49 percent foreign participa-tion. Infraero, the government corporation responsible for operating the main Brazilian commercial airports, has pre-selected Fraport as its partner in the undertaking. Fraport operates the Frankfurt airport.

urban railway joint ventureOdebrecht TransPort, a subsidiary of the Brazilian giant Odebrecht Group, has signed a joint venture agreement with Japanese Mitsui to promote public–private part-nership projects related to urban passenger railway …

Minister of Culture Marta Suplicy resigned her post on 11 NovemberPh

OTO

GRA

Ph: W

IkIM

EDIA

CO

MM

ON

S/JO

Sé C

Ruz

/AG

êNC

IA B

RASI

L

Veirano aDVogaDos

Infrastructure & Projects …

Viewpoint energy & enVironment politics, law, society international affairs

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 114

17

economy & Business

transportation. The assets of the new joint venture will include the suburban railway in Rio de Janeiro, a subway line in São Paulo, and light rail transit in Rio de Janeiro and Goiania. The company will also responsible for the devel-opment of new PPP projects in major Brazilian cities.

Odebrecht TransPort operates various types of trans-portation infrastructure in Brazil, including passenger railways, highways, airports, and ports. The company focuses its investment strategy on integrated logistics systems that contribute to Brazil’s development and competitiveness.

Mitsui will have a 40 percent share in the joint venture and will contribute technology transfer and experience in Japanese passenger railway operation and manufacture.

a new terminal for santosEmpresa Brasileira de Terminais e Armazéns Gerais (EBT), which operates the liquid cargo terminals Ageo and Ageo Norte at the port of Santos, plans to invest in a new

multi-purpose private port complex for dry bulk (mostly soy), liquid bulk (diesel, gasoline, and ethanol), and various types of non-containerized general cargo, including steel products and forest products such as cellulose.

The new facility, which will be called Santorini General Warehousing and Terminals, will require an initial invest-ment of US$187.4 million and will have an eventual capacity of 26 million tonnes per annum.

Doubling capacity at pecemAPMoeller Terminals (APMT) will invest US$22 million by the end of 2014 in new equipment for its terminal at the port of Pecem, in the northern state of Ceará. APMT wants to double its container-handling capacity to 480,000 TEU per annum. The purchase will include new ship-to-shore gantry cranes from Chinese ZPMC and 15 new terminal tractors.

Digitizing Brazilian theaters On 11 November, the National Bank for Economic and Social Development (BNDES) announced that it will finance digital upgrades of the approximately 40 percent of Brazilian theaters still running film. The bank will work in association with the National Cinema Agency.

Telem Group Quanta DGT will receive loans of US$47.4 million to digitize 770 theaters across the country, installing new equipment and leasing digital projectors. The funds will also be used to help train projectionists to operate the equipment. The process is expected to be complete by early next year.

telecom telenovaSpanish telecom Telefónica wants to sell almost half of its 5 percent stake in mobile operator China Unicom for as much as $875 million, to help rebuild its financial position.

Its US$9.3 billion September acquisition of Vivendi’s Brazilian broadband business GVT ranks as the country’s largest M&A deal of 2014 – partly because Telefónica was forced to raise its bid after a rival offer from Telecom Italia.While Telefónica still has high net debt, its Latin American interests are an area of strength, and Brazil is the largest telecom market in the region, with 2014Q3 revenues of US$3.63 billion.

Telefónica has indicated that it would support telecom consolidation in Brazil given the prospect of a merger between operators that could strengthen its position in this important market. To make matters more interesting, the company has been linked to the potential purchase of TIM Participações, a Brazilian wireless carrier controlled by Telecom Italia.

In August, Brazilian telecom Oi, which is merging with Portugal Telecom, hired investment bank BTG Pactual to assess its options for buying Telecom Italia’s stake in TIM. Last month, TIM CEO Marco Patuano asserted that the company was not for sale.

Now, Oi, Mexican company América Móvil, and Tele-fónica have reportedly agreed to make a joint bid for the Italian company’s subsidiary. Oi recently denied that it had reached such an agreement.

The new joint venture will include a subway line in São Paulo

PhO

TOG

RAPh

: WIk

IMED

IA C

OM

MO

NS/

DIE

GO

TO

RRES

SIL

VES

TRE

Veirano aDVogaDos

Banking & Finance …

Viewpoint energy & enVironment politics, law, society international affairs

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 115

17

economy & Business

mining notesVale and the asian market Brazilian mining giant Vale has suffered losses of US$3.4 billion so far this year as a result of a sharp fall in the price of iron ore and the value of the Brazilian currency. Iron ore prices have fallen by more than 40 percent to five-year lows.

The company is large enough to sustain such setbacks, however, and is opening a US$1.4 billion port terminal in Malaysia designed to cut the cost of selling iron ore to China, which buys about 25 percent of its iron ore from Vale alone. Asia as a whole represents 65 percent of Vale’s market, but the company is disadvantaged against major competitors BHP Billiton and Rio Tinto by having to ship its iron ore much farther to reach those markets.

In 2011, Vale built its own fleet of ore super-carriers, known as Valemax vessels, each capable of carrying 400,000 tonnes of iron ore.

The ships have been barred from entering many Chinese ports due to opposition from the China Shipowners’ Asso-ciation, which has raised safety concerns, but the new Vale facility will accommodate the vessels. They will transport the ore to Malaysia, and it will then be distributed to China and other Asian countries in smaller vessels.

minas-rio up and runningOn 25 October, mining giant Anglo American started shipping iron ore from its Minas-Rio operation in southeastern Brazil, after lengthy delays and huge cost overruns. It sent the 80,000 tons of ore to China, and two further shipments are expected to head there next month. The mine will eventually have a capacity of 26.5 million tons per annum.

Anglo American paid Eike Batista’s MMX US$5.5 billion for Minas-Rio and another smaller mine in 2008. At the time, the project was expected to cost US$2.7 billion to get underway, but that price tag has ballooned to US$8.8 billion. With iron ore prices at a five-year low, recouping the investment will be difficult although operating costs at Minas-Rio are expected to be competitive.

Banking and financestrong inflation, weak currencyThree days after the election, on 29 October the Brazilian Central Bank Monetary Policy Committee (Copom) raised its benchmark Selic interest rate by 0.25 percent in a five-to-three decision that included the vote of bank president Alexandre Tombini.

A statement issued by Copom indicated that the decision to raise the rate to 11.25 percent was based on the desire for “a more benign scenario for inflation in 2015 and 2016.” The Selic rate is the Central Bank’s main instrument to contain inflation.

On 5 November, the bank also scaled back its expensive efforts to support the Brazilian currency, leaving it to float almost freely. The Brazilian real was trading at R$2.57 to the US dollar by mid-November versus R$2.3 a year ago, reflecting an 11.79 percent shift.

softening the debt burdenBoth the government and the opposition in the Brazilian Senate on 5 November approved a bill that lowers the debt burden of states and municipalities. The bill permits the interest that regional governments pay on debt to the federal government to be adjusted by the benchmark Consumer Price Index (IPCA) or by the Selic benchmark overnight rate, whichever is lower. Debts have previously been adjusted against the IGP-DI index, which measures both wholesale and consumer prices.

The bill also allows the federal government to readjust …

In 2011, Vale built its own fleet of ore super-carriers, known as Valemax vessels, each capable of carrying 400,000 tonnes of iron ore

PhO

TOG

RAPh

: WIk

IMED

IA C

OM

MO

NS/RO

BERT SMITh

Veirano aDVogaDos

Shipping …

Viewpoint energy & enVironment politics, law, society international affairs

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 116

17

economy & Business

state and municipal debt back to the date on which a given state or municipality signed a debt-renegotiation agree-ment. The new legislation opens the way for regional gov-ernments to raise expenditures –a move that will make it difficult for President Dilma Rousseff to keep her new pledges to rein in spending.

tallying profitsThe largest commercial banks in the country, Itaú-Unibanco, Bradesco, and Santander, reaped US$10.54 billion in profits over the first three quarters of 2014, nearly 27 percent more than during the same period in 2013.

The profits of Itaú rose 35 percent, to US$2.08 billion. The largest private bank in Brazil, it is now the second-largest company by market value after Ambev, the Latin American brewer controlled by Anheuser-Busch InBev. Itaú displaces Petrobras in the number two spot, a further slide for the oil major after it was bumped from the top spot by Ambev in 2013.

Now at number three, Petrobras has a market capitaliza-tion of less than US$63.4 billion, down from US$196.2 billion in 2008. Its shares fell 4.6 percent on 7 November after it postponed the release of its 2014Q3 results.

The fall takes the company’s losses since early September to nearly 50 percent. In October, Moody’s downgraded its foreign and local debt rating to Baa2, two notches above junk status.

private equity still bullish on BrazilAdvent International investment firm announced on 7 November that it had completed raising a new US$2.1 billion private equity fund for Latin America. The record-breaking fund tops the US$1.9 billion raised by Rio de Janeiro-based Gávea Investments in 2011.

Advent stated that the equity fund had drawn 60 uniden-tified investors – 50 percent of them North American and 25 percent of them European – including pension and sovereign wealth funds. The process took just six months, so the general gloom surrounding the Brazilian economy has evidently not dimmed the private equity market.

Among other prominent private equity firms that are focused on Brazil is Warburg Pincus, which administers US$37 billion and is expanding its presence in the country. São Paulo-based Patria Investments has closed a new US$1.8 billion fund, which was oversubscribed. The Carlyle Group has also been raising money for a new Brazilian fund.

economy in brieffDi keeps climbingForeign direct investment (FDI) in Brazil reached US$66.5 billion over the past 12 months, according to the Central Bank, about the same level as 2011 – when the Brazilian economy was experiencing robust growth.

The Economic Commission for Latin America and the Caribbean released data showing a year-on-year 8 percent rise in FDI from January to August 2014. Over the same period, FDI declined by 23 percent across the region. The Economic Intelligence Unit has plans to open an office in São Paulo this year in order to serve investors focused on Brazil.

consumer price indexData from the Brazilian Institute of Geography and Statis-tics (IBGE) reveal that the Consumer Price Index (IPCA) increased by 0.57 percent in September, more than double the increase in August, and then by a further 0.42

percent in October. The October year-on-year rise was 6.59 percent, down slightly from 6.75 percent the previ-ous month but still above the target ceiling of 6.5 percent.

Price increases have slowed particularly in the sectors of food and transportation, which have the most significant effect on consumers. Meat prices rose just 1.46 per-cent in October compared to 3.17 percent in September. Transportation rose by 0.39 percent in October versus 0.63 percent in September. The slowing rate of increase was particularly marked in air travel, which rose by a mere 1.94 percent after soaring 17.85 percent in September. See Table 1 for further details.

the underground economyBrazil’s underground economy will shrink slightly this year to 16.2 percent of GDP, down from 16.3 percent in …

Table 1: consumer price index, october 2014

october increase (%)

Clothing 0.62

Communication –0.05

Education 0.11

health and personal care 0.39

household articles 0.19

housing 0.68

Personal expenses 0.36

Transportation 0.39

Viewpoint energy & enVironment politics, law, society international affairs

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 117

17

economy & Business

2013 (around US$1.89 trillion), according to a study released by the Getúlio Vargas Foundation (FGV).

The underground economy, which includes all economic output not reported to the government and covers both informal and illegal activity, will amount to US$326.7 billion this year, according to an index calculated by the FGV’s Brazilian Institute of Economics and the Brazilian Institute for Ethical Competition.

The underground economy has decreased as a percent-age of GDP every year since 2003, when it was equal to 21 percent of GDP, but the reduction has slowed down from 2013 to 2014.

slipping budget surplusBrazil’s recurring primary budget surplus – the money

left over before interest payments and excluding one-off expenditures – will have fallen from 4 percent of GDP in 2008 to –0.4 percent by the end of 2014, according to Itaú-Unibanco. The country needs a primary surplus of at least 2–2.5 percent to avoid increasing the gross public debt. Analysts estimate that it would take expenditure cuts and/or tax increases of US$38–76 billion to halt the slippage.

shrinking industrial productionThe Brazilian Institute of Geography and Statistics (IBGE) published a survey on 4 November showing that indus-trial production fell in September by 0.2 percent month on month and 2.1 percent year on year, despite expecta-tions that it would rise. Industrial production is down 2.9 percent so far this year and 2.2 percent over the last 12 months.

Industry continues to pull down overall economic growth, in particular because of sluggish results for food products (–4.1 percent) and petroleum products and biofuels (–1.3 percent). Healthier sectors are pharmaceutical and

chemical products and automotive and vehicles and truck bodies. Both showed production increases of over 10 percent.

real estate rising … but slowlyResidential and commercial real estate in São Paulo and Rio de Janeiro continue to show very modest increases in price per square meter: 0.3 percent in São Paulo and 0.35 percent in Rio de Janeiro this past month.

Rio de Janeiro still has the highest average real estate value in the country, approximately 30 percent higher than the national average price per square meter. It is fol-lowed by São Paulo and Brasília. And while the pace of price increases has slowed, the number of new housing units has increased 8 percent year on year in Rio, accord-ing to the Association of Corporate Real Estate Market.

Bumper crop despite droughtDespite severe drought in the southeastern region, on 11 November the Brazilian Institute of Geography and Statistics (IBGE) released an estimate of 198.3 million tons for the 2015 harvest, 2.5 percent greater than the 2014 harvest and a record for agricultural grain production. The 193.5 million tons produced in the 2014 season in turn represented a 2.8 percent over the 2013 harvest.

Soybean production is up by 9 percent; beans by 11 per-cent, and rice 1.4 percent. Cotton production is expected to drop by 8 percent, however, because a smaller area has been seeded.

The Brazilian Food Supply Agency (CONAB) estimates that soybean represent 45.92 percent of total Brazilian grain production, followed by corn (39.62 percent), rice (6.34 percent), and wheat (3.55 percent).

Residential and commercial real estate in São Paulo and Rio de Janeiro (above) continue to show very modest increases in price per square meter

PhO

TOG

RAPh

: WIk

IMED

IA C

OM

MO

NS/

JEN

S h

Au

ShER

RVeirano aDVogaDos

Commercial Contracts …

Viewpoint energy & enVironment politics, law, society international affairs

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 118

17

economy & Business

Business news adecoagro posts huge profitGlobal agribusiness giant Adecoagro, which owns farming and industrial facilities across Brazil, Argentina, and Uruguay, has posted 2014Q3 profits of US$70.3 million, representing 60.6 percent growth year on year. Among other products, the company produces soybeans, wheat, corn, ethanol, and bio-electricity.

Its growth is attributed in part to improved operational and financial performance in the crops segment, achieved through higher yields and lower production costs. It has also experienced higher yields and sales volumes in the sugar, ethanol, and energy sector.

Adecoagro is now planning to expand its Ivinhema cane-crushing mill in Mato Grosso do Sul. The mill was inaugurated only last year and the second phase will be commissioned in March 2015.

safra skyscraperWhat does it say about Britons and Brazilians that the most iconic building on the London skyline, the Norman Foster–designed 30 St Mary Axe, is known to the former as the Gherkin and the latter as the Bullet? In any event, the London landmark is now the property of one of Brazil’s richest people, Joseph Safra. Its principal tenant is Swiss Re.

Safra has been having a good month. He finally prevailed in the purchase of US banana company Chiquita for US$682 million – a hard-fought acquisition in which he partnered with the Brazilian Cutrale family to fend of rival Fyffes. A fortnight later, he announced that he had won the bidding to purchase the Gherkin for US$1.14 billion.

Safra is a Brazilian global investor worth watching. His Safra Group runs banking interests in North and South America, Europe, the Middle East, and Asia and manages assets worth more than $200 billion.

inbound m&a activity remains strongThe weak Brazilian currency has its benefits. Inbound mergers and acquisitions have risen 53 percent year on year in 2014, to US$29.6 billion. Despite the prevailing economic pessimism, transactions and interest are by no means stalled. With hefty natural resources and a population 200 million strong, the country continues to draw foreign investment interest.

industrias metalurgicas downgradedFitch Ratings has downgraded the foreign and local currency issuer default rating of Industrias Metalurgicas Pescarmona to RD from C. The company announced in September that it was postponing the payment of bond interest, clearly facing liquidity problems.

Its previous rating incorporated a growing business presence in Brazil, but Fitch estimates that those operations are hurting liquidity. Its operations in Argentina continue to generate cash flow. …

upcoming events

title Date place sponsor contact

3rd Annual LatAm hSSE in Energy 3–4 December 2014 Rio de Janeiro Fleming Gulf alphy.nangani@fleminggulf.com

6th Private Equity Brazil Forum 8–9 December 2014 São Paulo hSBC, kPMG, Debevoise&Plimpton, paloma.lima@latinmarkets.org Mattos Filho

13th International Conference on Finance 11–12 February 2015 Rio de Janeiro WASET www.waset.organd Business Economics

Port Finance International Brazil 2015 4–5 March 2015 Rio de Janeiro JLT, Souza Cescon, Barrieu & Flesch cathy@portfinanceinternational.com

Export & Agency Finance Americas 5–6 March 2015 Miami Euromoney registrations@euromoneyplc.com

Viewpoint energy & enVironment politics, law, society international affairs

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 119

17

economy & Business

ambition in asphaltThe Brazilian antitrust Administrative Council on Economic Defense (CADE) on 6 November approved the creation of the second-largest asphalt company in Brazil. The new enterprise doesn’t yet have a name but brings together leading companies in the sector – Greca, Betunel, and Centro-Oeste – by creating a joint venture that represents 32 percent of the market.

It will rival Petrobras-Distribuidora, currently the largest Brazilian company in asphalt distribution.

Blocking BraskemThe Administrative Council on Economic Defense (CADE) on 12 November blocked São Paulo-based petrochemi-cal company Braskem from acquiring Solvay Indupa, the Argentinean unit of Belgian chemical company Solvay. Braskem agreed last December to acquire Solvay’s major-ity stake in Indupa for US$290 million.

CADE announced that the transaction “would affect the competitiveness” of Brazilian industry because Braskem is the Latin American leader in the polyvinyl chloride (PVC) market and Indupa is number two.

Indupa produces PVC and caustic soda at plants in Bahia Blanca, Argentina, and Santo Andre, Brazil. Its shares are traded on the Buenos Aires Stock Exchange.

Buses for Brazil CNH Industrial N.V. has officially launched the Iveco Bus brand in Brazil. One in every five buses in circulation in Europe originates from the Iveco brand. This success has prompted expansion objectives in Latin America, Africa, the Middle East, and China.

automotive opportunityAutomotive production has fallen 16 percent this year in Brazil and factories have cut 10,000 jobs, but the luxury car segment is nonetheless growing. In developed

economies the segment generally represents 10 percent of the market, leaving little room for growth. An emerging economy such as Brazil, however, represents greater opportunity.

Jaguar Land Rover expects the share of luxury vehicles to rise from 2 percent to 4–5 of the Brazilian automotive market by 2020.

The company is therefore opening a plant in Itatiaia that will be the first wholly owned by the group outside the UK. The plant is expected to cost about US$290 million and to create 400 jobs. The Land Rover Discovery Sport will be assembled there starting in 2016.

The São Paulo International Motor Show, the largest automotive trade show in Latin America, took place on 30–31 October. Notably, both BMW and Chinese firm Chery International presented the models that will be produced in recently inaugurated manufacturing plants in Brazil. Another Chinese carmaker, Geely Automobile, also confirmed that it is looking into opening a factory in the country.

fashion forwardThe São Paulo fall-winter 2015 fashion shows wrapped up in the first week of November, proving again that fashion is big business in Brazil. Names such as Versace and McCartney put up drama-laden stunts to try to break into the Brazilian market, but the sector continues to be dominated by home-grown labels.

Brazil used to hold competing fashion weeks in São Paulo and Rio de Janeiro, but starting this season the fall-winter shows in Rio have been scrapped. Some Rio labels have migrated to São Paulo, while others will continue to show in Rio, but only for the spring-summer season.

CNH Industrial N.V. has officially launched the Iveco Bus brand in Brazil

PhO

TOG

RAPh

: WIk

IMED

IA C

OM

MO

NS/

JAM

ES A

DL

Viewpoint economy & Business politics, law, society international affairs

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 1110

17

energy & enVironment

energy & enVironment

oil & gas in briefimproving subsea technologyGeneral Electric on 13 November announced the opening of its US$500 million Brazil Technology Center on the Ilha do Bom Jesus peninsula in Rio de Janeiro. The center will focus on developing advanced subsea oil and gas technology and is expected to employ 400 researchers. It is the first GE center in Latin America.

Developing machines to survive the extreme pressure and corrosiveness of the subsea environment is a huge challenge. Currently, offshore oil and gas are processed on platforms on the surface. If power and processing equipment can be made to function right at the subsea wellhead, extracting and pumping oil will become more environmentally sound and cost efficient.

GE plans to work with Petrobras and BG Group to develop subsea oil and gas processing technology and equipment to move production from the platform to the seabed. This is particularly relevant for the pre-salt sedimentary layers that dominate the deep water off the Brazilian coast and contain vast reservoirs of high-quality light oil.

BG and GE are exploring ways to increase the data that drilling systems provide and permit the data to be used in real time. This will make deepwater offshore exploration more productive, efficient, and safe.

GE and Petrobras are discussing more effective ways to separate oil, water, and gas on the seabed in order to increase production. Reducing the need to move fluids from the seabed to the surface will bring down energy

use. Separating out water at the subsea level also frees capacity in the pipeline and topside facilities.

marginal field tenders to resumeThe National Petroleum, Natural Gas, and Biofuels Agency (ANP) intends to resume small tender rounds for marginal fields in 2015. These low-productivity areas have been disregarded by Petrobras, and the last such round was held eight years ago. Seven enterprises have so far displayed interest in the 10 inactive fields offered for auction but have assessed the areas as undesirable.

Bg stays the course in BrazilBritish oil major BG Group recently stated that falling oil prices have not affected its interest in Brazil. BG is the largest partner of Petrobras on the development of pre-salt and the largest private producer of oil and gas in the country. The company put its break-even point for its Brazilian endeavors at around US$40 per barrel.

The most important factors affecting its investment decisions are apparently the regulatory framework and the stability of rules.

sBm offshore bribery investigationThe Brazilian Comptroller General’s Office (CGU) has filed an inquiry into bribery allegations at SBM Offshore. The CGU indicates that the offshore company may have made payments to Petrobras officials in exchange for contract advantages and leniency may be extended in exchange for cooperation. SBM has reportedly already contacted the CGU to talk about an agreement.

This week the offshore oil and gas services company settled a bribery case in the Netherlands courts involving illegal payments to government officials in several coun-tries, including Brazil. With the US$240 million settlement

the company will avoid charges in the Netherlands, but not necessarily in Brazil.

SBM Offshore has eight contracts, worth more than US$7.7 billion, for the lease of oil platforms to Petrobras.

operation car wash

On 14 November, Brazilian police arrested a former Petrobras director and 19 other suspects – including nine construction and engineering firm executives – as part of an investigation into an alleged multi-billion-dollar kickback scheme. The firms are accused of paying bribes worth approximately 3 percent of contracts to Petrobras between 2004 and 2012.

Petrobras is the focal point of Operation Lava Jato (Car Wash), launched in March. The company is allegedly at the heart of a US$3.85 billion money-laundering and overbilling scheme.

Prosecutors in Brazil allege that Petrobras and its contrac-tors inflated the cost of capital expenditure projects and acquisitions by hundreds of millions of dollars and paid part of the proceeds to politicians from the ruling Work-ers’ Party (PT) coalition. …

Veirano aDVogaDos

Oil, Gas & Biofuels …

Viewpoint economy & Business politics, law, society international affairs

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 1111

17

energy & enVironment

raids and arrestsThe Federal Police raided the offices of builders OAS and Queiroz Galvão, industrial engineering firm UTC Engen-haria, and IESA Oil and Gas, arresting top executives and taking numerous boxes of documents. As well, they confis-cated documents from the offices of Odebrecht, Mendes Junior Engenharia, and Engevix. An arrest warrant was issued for the top executive of builder Camargo Corrêa.

The personal bank accounts of 36 suspects have been frozen. They contain US$277.2 million in assets.

In Rio de Janeiro, the police detained Renato Duque, a former Petrobras director of engineering and services who was fired in 2012. Duque oversaw some of the construc-tion contracts at the Abreu e Lima refinery, in the north-eastern state of Pernambuco. The refinery is Brazil’s first in 30 years and is expected to cost US$18.5 billion. The initial estimate was US$4.3 billion. The project is being audited for irregularities in the contracts. …

Petrobras is the focal point of Operation Lava Jato (Car Wash) Ph

OTO

GRA

Ph: W

IkIM

EDIA

CO

MM

ON

S/A

DA

M JO

NES

, Ph

.D.

petrobras newspre-salt field agreementState company Pré-Sal Petroleo SA (PPSA), the enterprise that represents the Brazilian government in contracts for pre-salt areas, on 31 October signed a production individualization agreement (PIA) with Petrobras with respect to Tartaruga Mestiça, in the southern portion of the Campos basin. The agreement outlines the participation of the parties and the rules of operation.

Tartaruga Mestiça is a shared field, and the agreement is the first to involve the unitization (merger of two areas) of a single production project at the pre-salt level. The field is partly within the area defined contractually as BM-C-36 and partly within a non-contracted area.

The agreement has not fully clarified issues regard-ing unitization, but once it has been approved by the National Petroleum, Natural Gas, and Biofuels Agency (ANP), a portion of the produced oil and gas will be guaranteed to the federal government.

october production an all-time highPetrobras announced on 11 November that the previous month had been the most productive for oil production in the company’s history. The output of 2.126 million barrels per day in October represents a 0.4 percent rise in production month on month and marks the nine straight month of growth.

abreu e lima nears start-upPetrobras announced on 6 November that construction projects at the Abreu e Lima oil refinery, in Pernambuco state, are nearly complete. Construction on the first, 115,000 b/d phase of the refinery is 95 percent com-plete and it will be commissioned by the end of the year. A second phase is scheduled for 2015, and will bring processing capacity to 230,000 b/d.

a windfall, but smallAfter receiving government permission on 4 November, Petrobras raised the price of gasoline by 3 percent and diesel by 5 percent as of 7 November, a move that will cost consumers an average 6 cents more per liter at the pump for gasoline and 9 cents for diesel.

Analysts interviewed by local media remarked that the market had forecast an increase of 5 percent for gasoline but that would have pushed the 2014 Consumer Price Index further above the government annual inflation target of 6.5 percent.

The price increases will give Petrobras some breathing space but are not enough to replenish its coffers to enable it to pursue necessary investments. The company needs US$3.8 billion to continue investing at the same pace as during the first half of 2014.

argentinean investmentPetrobras Argentina announced on 10 November that it will invest US$622 million to increase non- …

Viewpoint economy & Business politics, law, society international affairs

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 1112

17

energy & enVironment

counting the costAudit Tribunal president Augusto Nardes stated on 11 November that audits of Petrobras have so far revealed overpricing of about US$1.2 billion. That includes US$624 million to buy a seriously overpriced refinery in Pasadena, and US$117 million in overpriced investments in the Petrochemical Complex of Rio de Janeiro (Comperj).

us gets involvedThe US Department of Justice has thrown its hat into the ring over the Petrobras kickback scandal, opening a crimi-nal investigation. The company’s American depositary receipts (ADRs) are registered on the New York Stock Exchange, meaning that its alleged corrupt activities could violate US law. The US Securities and Exchange Commission is pursuing a civil investigation.

US authorities are investigating whether Petrobras, or its employees or contractors, violated the Foreign Corrupt Practices Act, a statute that makes it illegal to bribe foreign officials to win or retain business.

The company is majority owned by the Brazilian gov-ernment, however, and in other cases US prosecutors have argued that such arrangements make a company’s employees de facto government employees.

The Foreign Corrupt Practices Act does not apply to government officials who allegedly receive bribes, but the Department of Justice may consider applying anti-money laundering statutes or conspiracy charges. Alternatively, US investigators may concentrate on the quality of the bookkeeping and internal controls at Petrobras. The involvement of US authorities certainly widens the international profile of the scandal and could seriously damage the company’s bottom line.

Biofuels in briefthe right to chooseThe Brazilian Senate has approved an increase in the mandatory ethanol component of gasoline from 25 to 27.5 percent. The same bill also increases a cap on the optional amount of biodiesel that can be mixed into fossil diesel from 5 to 6 percent.

Most cars in Brazil have flex-fuel engines that can run on either ethanol or gasoline or a mix, and service stations typically have pumps that offer pure ethanol alongside pumps that offer a blend. Because the price of gasoline has been kept artificially low, drivers tend to favor gasoline – an issue that has drawn criticism from ethanol producers. …

conventional gas production in Punta Rosada, in the Argentinean province of Neuquén. Petrobras Argen-tina expects to drill 44 natural wells at depths of up 13,114 feet. It will invest US$245 million in at least 15 wells over the next three years in order to add 1.4 mcm/day to natural gas production in Neuquén.

selling off peru assetsOn 6 November, Petrobras completed the sale of its wholly owned subsidiary Petrobras Energía Perú to the China National Petroleum Company (CNCP). The US$2.6 billion transaction includes 100 percent of Lot X, a 46.16 percent stake in Lot 57, and 100 percent of Lot 58.

Lot X produced 13,000 barrels of oil equivalent per day in 2013. Lot 57 produces natural gas and conden-sate and is operated by Repsol. Lot 58 is under explo-ration and has so far revealed significant quantities of natural gas and condensate.

Petrobras has sold Petrobras Energía Perú to China’s CNCP

PhO

TOG

RAPh

: WIk

IMED

IA C

OM

MO

NS/

DIV

uLG

Aç

ãO

PET

ROBR

AS/

AG

êNC

IA B

RASI

L

The US Department of Justice is now investigating Petrobras

PhO

TOG

RAPh

: WIk

IMED

IA C

OM

MO

NS/

CO

OLC

AES

ARVeirano aDVogaDos

White-Collar Crimes …

Viewpoint economy & Business politics, law, society international affairs

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 1113

17

energy & enVironment

Brazil ethanol the cheapestAccording to the UN Conference on Trade and Devel-opment, Brazil continues to have the lowest ethanol production costs in the world. The Brazilian production cost of US$0.18 per liter compares variably to a range of US$0.20 to US$1.38 in developed countries. China spends US$0.28–0.46 and India spends US$0.44. The United States is now the top ethanol producer, and the fuel supplies 1 percent of global energy needs.

electricity sectornot so fast for generation increasesThe Brazilian Electricity Regulatory Agency (ANEEL) has reduced its estimate of energy generation increases in 2014 by 25 percent. The agency had projected growth of 10,100 MW in the power matrix this year but that has been cut to 7,600 MW. Most of the blame falls on delays in the construction of hydro-power plants.

pressing ahead with solar energyThe first federal energy auction in Brazil to include a category specifically for photovoltaic projects concluded on 31 October with the award of 31 contracts for the development of solar energy. The contracts will total 1,048 MW and developers will invest US$1.6 billion to build the country’s first large-scale solar project.

is the wind dying down?A recent drop in wind and biomass energy generation is putting pressure on the electric power sector. A deficit

of 9,241 MW is expected in January 2015, and it will have to be addressed by hydro-power or thermo-electric generation.

environmental newsis that Volvo green?The Getúlio Vargas Foundation has recognized the Volvo Group as the most sustainable company in its sector in Brazil for having made significant energy and emission reductions over the past decade. Volvo has cut energy use in its vehicle production by 63 percent and carbon dioxide emissions by 48.5 percent.

At the company’s Curitiba plant, the heat generated by machinery is used to produce hot water, and systems automatically shut down machines when they are not being used. The lighting systems have been improved and solid waste is comprehensively recycled.

lowering emissions in amazoniaBrazil succeeded in lowering CO2 emissions in Amazonia by 39.6 million tons per annum on average from 2005 to 2010. Now, it wants to be rewarded as the first country to receive recognition under the UN Framework Convention on Climate Change for its efforts against deforestation.

Brazil’s protected area network is the largest in the world, while improved environmental governance of private lands has contributed to an 80 percent reduction in the rate of deforestation in the Brazilian Amazon over the last decade.

congress considers mining proposalsAt least 20 percent of Brazil’s most strictly protected areas and reserves for indigenous people overlap with areas that have been registered as under consideration for mining.

Proposals currently being debated by the Brazilian Congress include a call to open up 10 percent of the most strictly protected areas to mining. In addition, many of the river systems associated with these areas would be influenced by the construction of large hydroelectric dams if the proposals move forward.

Drought damages coffee cropsThe United States has the largest retail coffee market in the world – $12 billion. Brazil comes in second, and about 40 percent of the coffee it produces is for domestic consumption.

Now drought is putting the crop in jeopardy, particularly affecting the younger bushes that have not developed extensive root systems to allow them to get the water they need. The lack of water means that farmers are managing to harvest only 35–40 kg of beans from mature trees and 30 kg from younger trees.

The Brazilian drought has coincided with a leaf rust in Central America, further pushing up coffee prices globally.

A red Volvo B12M bus, made at the company’s very green Curitiba plant

PhO

TOG

RAPh

: WIk

IMED

IA C

OM

MO

NS/M

ORIO

Veirano aDVogaDos

Environment …

Viewpoint economy & Business energy & enVironment international affairs

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 1114

17

politics, law, society

politics, law, society

politics in briefDivision within pmDBThe Brazilian Democratic Movement Party (PMDB), the party of Vice-President Michel Temer, is experiencing a sharp division. Two factions are led respectively by Temer, who is honorary president, and deputy Eduardo Cunha, who is eyeing the presidency of the Chamber of Deputies.

The current president of the Chamber, Henrique Eduardo Alves, from Natal, is a candidate for re-election and is counting on the support of Eduardo Cunha and Michel Temer as well as most of the party.

The Workers’ Party will nominate its own candidate.

political risk holds steadyA political risk rating index published by Latin America Monitor showed Brazil holding steady in October at 69.6, above the averages for the region as a whole (59.6) and for emerging markets (61.8). The re-election of Dilma Rousseff was not seen as a significant threat to demo-cratic stability and institutions.

The rating puts Brazil 5 out of 17 Latin American countries with respect to security and external threats, with the expectation that it will maintain a stronger security envi-ronment than in much of the region.

Defense issuesresearching pilot communicationsAs part of a program of modernization developed under the System of Control of Brazilian Air Space (SISCAD), a new laboratory is being established at the Campinas technological parks site in São Paulo state – often referred to as the Brazilian Silicon Valley.

The project will be set up at the Center for Research and Development in Telecommunications (CPqD) in partnership with the Brazilian Air Force (FAB) to test aircraft pilot communications and is expected to cost US$3.46 million.

guarding the amazonThe Brazilian army is conducting an exercise in the

Amazon this month to simulate a foreign invasion of the rain forest. Troop mobilization for Operation Machi-faro started on 3 November, and reflects a growing wariness in Brazil with respect to its sovereignty in the Amazon region, about 60 percent of which is located within its borders.

The exercise is intended to prepare soldiers to respond to a foreign military force larger than the Brazilian armed forces and to employ the doctrine of jungle combat.

The Amazon holds vast reserves of fresh water, mineral wealth, and other resources, and a 2011 survey by the Brazilian Institute of Geography and Statistics (IBGE) revealed that 50 percent of Brazilians believe the country will eventually be invaded in an effort to seize those natural assets.

The Amazon exercise is intended to prepare soldiers to respond to a foreign military force larger than the Brazilian armed forces

PhO

TOG

RAPh

: WIk

IMED

IA C

OM

MO

NS/u

.S. MA

RINE C

ORPS Ph

OTO

By M

ARIN

E CO

RPS LAN

CE C

PL. ABBy

BuRTN

ERVeirano aDVogaDos

Labor & Employment …

Viewpoint economy & Business energy & enVironment international affairs

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 1115

17

politics, law, society

legal issuesantitrust and associative agreementsOn 4 November, the Brazilian antitrust authority, the Administrative Council for Economic Defense (CADE), published a regulation requiring that “associative agree-ments” be submitted for antitrust clearance.

These agreements either result in an interdependent relationship between the parties or between any of the companies of the respective economic groups or whose term is two years or more.

Interdependent relationships are defined as horizontal or vertical cooperation or sharing of risks. In case of horizon-tal overlap, the combined shares of the parties in the mar-ket affected by the agreement is equal to or greater than 20 percent. In case of vertical integration, that figure is 30 percent, so long as the agreement establishes revenue and loss sharing between the parties or results in an exclusive relationship.

italian court rejects Brazilian requestAn Italian appellate court in Bologna has rejected Brazil’s request for the extradition of Henrique Pizzolato, who had been charged and convicted in the cash-for-votes mensalão case but was freed on 28 October. The court alleges that Brazilian prisons failed to observe human rights.

On the same date, the Brazilian Supreme Court authorized José Dirceu to stay under house arrest rather than go to prison.

thumbing their noses at the lawThe Getúlio Vargas Foundation has released a study revealing that only 57 percent of Brazilians see reasons to follow the law. Some 81 percent find jeitinho (tricks)

preferable to obeying the rules. The poll reveals that only 31 percent of the Brazilians trust the courts and 33 percent trust the police. Part of the reason is the slowness of the judicial process.

social issuesBilateral social security agreementOn 27 October, Brazil and Japan opened a formal consulta-tion with respect to the social security agreement between the two countries. In general, the employer-level social contribution of 20 percent due on remuneration, paid to a Japanese expatriate who moves temporarily to work in Brazil, will not be due to the Brazilian social security system.

unemployment hovers below 5 percentUnemployment continued to decline in Brazil in September, falling to 4.9 percent– the lowest level for that month in 13 years according to the Brazilian Institute of Geography and Statistics (IBGE). The number of people out of work – based on data from Brazil’s six largest metropolitan regions

– was 1.2 million, down 10.9 percent year on year.

Near historic lows for unemployment is beginning to look fragile, however. Payroll data in mid-November showed a net loss of 30,000 jobs in October. That’s the worst October since 1999.

struggling against povertyThe government think-tank Institute of Applied Economic Research (IPEA) released a survey on 5 November showing that the number of Brazilians living in extreme poverty grew from 10.08 million in 2012 to 10.45 million in 2013, the first increase after 10 consecutive years of reductions and since the Workers’ Party (PT) came to power in 2003.

The IPEA defines extreme poverty as a per capita income below the level necessary to buy enough food to meet the recommended minimum caloric intake for one person. The number of people described as poor – an income sufficient to feed two people – decreased 5.4 percent over the past two years, from 30.35 million to 28.69 million.

The IPEA posted the information on its website without comment after being criticized for not releasing the data before the presidential election. The minister responsible for the IPEA, Secretary for Strategic Affairs Marcelo Neri, defended the publication of the survey.

The news is damaging to President Dilma Rousseff, who based much of her campaign – and her credibility – on the success of her government in lifting Brazilians from poverty. Since 2003, when there were 61.81 million poor Brazilians, the number has fallen 53 percent. Even with the uptick in 2013, the total number of those in poverty is less than half what it was in 2003.

passing an education hurdleOver the 8–9 November weekend, 6.3 million people took the National High School Exam, known as the ENEM. Another 2.4 million registered exam takers stayed home.

The ENEM has become the Brazilian equivalent of the SATs in the United States or A-Levels in Britain. About 70 percent of exam takers are seeking university positions, 20 percent are simply graduating from high school, and 10 are attempting to gain high-school equivalency certificates.

Veirano aDVogaDos

Antitrust & Competition …

Viewpoint economy & Business energy & enVironment politics, law, society

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 1116

17

international affairs

The ENEM is not considered a good measure of the qual-ity of Brazilian high school education in general but it has made the process of gaining entry to public universities in the country more democratic by eliminating the need to travel to take entrance exams. All federally funded univer-sities are free and use ENEM scores to accept students.

Scores are also used to allocate scholarships and for place-ment in the Science without Borders program – an initia-tive to fund Brazilian undergraduate and graduate students abroad that is much touted by President Dilma Rousseff.

too many criminals, not enough policeArmed men attacked a hospital in Niterói, Rio de Janeiro, to free an alleged criminal associate on 10 November. O Globo reported that at least 15 men had rescued orga-nized crime leader Johnny Luís da Silva, who had been hospitalized since September after being shot while attempting to hold up a delivery truck.

Niterói has suffered the attrition of 75 percent of its military police force over the past 40 years while increasing its population by 50 percent. Opposition leader Aécio Neves made security issues one of the planks in his recent campaign. Dilma Rousseff has pledged to better coordinate public security agencies and invest in state-level security.

the problem of securityThe São Paulo–based Brazilian Forum on Public Safety has released a study revealing that 11,197 people have been killed by police nationwide from 2009 to 2013. By contrast law enforcement agents in the United States killed 11,090 people in the past 30 years.

Violence is becoming an increasingly serious problem on both sides of the law and Brazilian authorities are having to spend more on security. Security measures across the country cost US$100 billion in 2013.

international affairs

Diplomatic briefsrousseff in BrisbaneIndian Prime Minister Narendra Modi praised Dilma Rousseff for her “visionary” leadership of the BRICS at a group meeting on the sidelines of the Brisbane G20 Summit, and congratulated the Brazilian president on her re-election. “I wish to join my other colleagues and con-gratulate President Dilma Rousseff on her re-election as the president of Brazil,” Modi said in his opening remarks on 15 November.

Rousseff was hosting the meeting of BRICS nations, which are also members of the G20.

Venezuela and the mstOn 5 November, Minister of Foreign Affairs Luiz Alberto Figueiredo has asked the Venezuelan embassy for an explanation of a visit to Brazil by a Venezuelan cabinet minister. Brasília was not informed of the schedule of Minister of Popular Power for Communes and Social Movements Elias Jaua, who signed an agreement with the Landless Workers’ Movement (MST), among other activities while in Brazil.

According to a ministry spokesperson, Figueiredo sum-moned Venezuelan chargé d’affaires Reinaldo Segovia to express the discomfort of the Brazilian government with Jaua’s visit.

The MST has weighed in that the agreement has not been formalized but is merely a letter of intent covering agricultural cooperation and exchange between Brazilian and Venezuelan rural workers.

The Brazilian Forum on Public Safety has released a study revealing that 11,197 people have been killed by police nationwide from 2009 to 2013

PhO

TOG

RAPh

: WIk

IMED

IA C

OM

MO

NS/

CA

PTA

LIz

EW

Viewpoint economy & Business energy & enVironment politics, law, society

No

vem

ber

2014

· v

olu

me

03

· Nu

mbe

r 1117

17

international affairs

unasur attendance listAs of 14 November, nine Latin American and Caribbean leaders had confirmed that they will attend the Union of South American Nations (Unasur) summit on 5 December in Quito, Ecuador, where the regional bloc has just inaugu-rated its new headquarters. Those who have RSVP’d are

Cristina Fernandez ArgentinaEvo Morales BoliviaDilma Rousseff BrazilJuan Manuel Santos ColombiaRafael Correa EcuadorDonald Ramotar GuyanaOllanta Humala PeruDesiré Delano Bouterse SurinamNicolas Maduro Venezuela.

Among other priorities, the economic and political bloc facilitates regional electoral observation and joint defense policies.

international tradeBrazil upbeat about auto program The European Union on 31 October presented a request at the World Trade Organization to open a case questioning the Brazilian Inovar Auto program, having already made visits to Brazil to discuss the impact of the tax incentives. Brazil has chosen to open a dispute panel in response.

Minister of Foreign Affairs Luiz Alberto Figueiredo has defended the program, asserting, “We think our rules are fully compatible with WTO rules and we will demonstrate this on the panel.” The minister indicated that he does not

believe the controversy will derail the negotiation of a free trade agreement between the EU and Mercosur, which is under negotiation.

In any event, that agreement is in a holding pattern for now. The Brazilian government says a Mercosur proposal is ready but no date has been set for the exchange of offers.

it’s the price, not the volumeThe balance of trade in October was the worst in 16 years (US$1.17 billion) bringing the total so far this year to US$1.87 billion. The culprit was a sharp drop in export prices rather than volume. The government now admits the possibility of a trade deficit this year.

In October, the value of exports shrank 19.7 percent year on year to US$18.33 billion, following a 6.6 percent drop in September. The picture is different in terms of volume: exports of coffee hit 3.09 million 60 kg bags compared

with 2.92 million a year earlier; sales of orange juice, crude oil, and raw sugar increased 73.2 percent, 51.5 percent, and 1.5 percent, respectively, year on year.

The quantity of iron ore exported has risen 5.8 percent over the year to date, while its value decreased 14.9 percent. Exports of chicken rose 3.8 percent in volume terms but dropped 1.7 percent in value, and shipments of maize fell in both value and volume.

At the same time, imports decreased 15.4 percent to US$19.5 billion. Automotive imports registered the greatest decrease (–15.5 percent), followed by oil (–6.5 percent).

Veirano aDVogaDos

VistaBrazil 11.14

The European Union presented a request at the World Trade Organization to open a case questioning the Brazilian Inovar Auto program

PhO

TOG

RAPh

: VO

LkSW

AG

EN D

O BRA

SIL LTDA