LatinFinance - March/April 2014 - 38

Economy
Investors are running
out of patience
with Brazil

INVESTOR
REPORT
BRAZIL

PAGE 39

Petrobras
The firm's efforts to
cut debt and ramp up
production
PAGE 46

Down
but not out
In the year Brazil hosts the FIFA World Cup, it increasingly seems on the losing side as far as
investors are concerned. But given its underlying economic and financial advantages, the
country could stage a comeback.
Brazil's image in global markets has taken
a turn for the worse. the truth is that
some aspects of its situation are better
than in regional and global peers. mexico
is perhaps a case in point.
Both mexico and Brazil had lacklustre
levels of economic growth 2013: Brazil's
economic expansion was perhaps slightly
less disappointing. mexico would score
better on inflation. But if inflation in Brazil
is more of a challenge, Brazil's central
bank can boast far higher reserves than its
peers, including mexico.
to give Brazil's policymakers their
due, the central bank has acted earlier,
and retained more credibility in global
markets, than other countries within
the fragile five - the moniker morgan
Stanley research gave last year to the
countries markets, including Brazil,
which it thought particularly vulnerable
to dollar rates.
"We are not behind the curve; we are

38 l atinfina nce.com - March/April 2014

not reacting to a phenomenon that we did
not anticipate," Brazil's deputy central
bank governor luiz awazu Pereira tells
LatinFinance in this section. as Pereira
points out, Brazil started increasing rates
in april: well before the likes of turkey.
Pereira also trumpets the central bank's
swap auctions, launched last summer, for
example.
there is little more the central bank
can do to alleviate about investors'
worries on the fiscal side, however.
this february, finance minister Guido
mantega announced 44 billion reais ($18.5
billion) of cuts to the 2014 budget. But
some economists fret, for example, about
transfers to state banks, and the impact
such measures have had on productivity.
meanwhile, the government has
limited the ability of its national oil
company to charge prices in line
with the international market, at the
same time as the firm's balance sheet

struggles with legal obligations to invest
billions developing ultra-deep reserves.
Petrobras is no longer the same shiny
story emerging oil producers wanted to
emulate a few years ago.
Yet Petrobras is also remote from the
collapse of eike Batista's oil firm oGX last
year, as a new euro and sterling bond
in January proved - the biggest ever in
europe by an emerging-market company.
chief financial officer almira Barbassa
tells latinfinance he sees 2014 as a pivotal
year for Petrobras' ability to generate
cash.
concerns about Brazilian government
policy are unlikely to subside in
election year. But as Petrobras could
yet illustrate, the country's potential
is far from exhausted. there are still
many opportunities for convergence to
developed markets - no doubt one reason
why foreign direct investment remains so
strong. LF

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