Brazil’s Carnival Float Flirtations
Brazilian shares stayed in their year-long 25 percent descent alongside a mammoth 8.5 billion Petrobras external debt flotation, adding to the over $100 billion pile as its audit committee recommended urgent leverage reduction in revising the original $225 billion capital program for pre-salt deposit development. EPFR-monitored bond and equity outflows are almost $5 billion this year, with the economy due to advance only 1 percent on 5 percent inflation with the current account gap stuck at 3.5 percent of GDP. The central bank is again set to raise the double-digit benchmark rate as the primary fiscal balance slips below target at 1.5 percent of GDP with additional energy subsidies to combat drought. To offset these costs the government intends to freeze $20 billion in spending but election imperatives will likely waylay plans as President Dilma Roussef’s opinion poll lead shrinks with rivals starting to campaign in full. Rising consumer debt has become an issue as even the president’s supporters urge a cabinet shakeup for the economic team lasting throughout her tenure’s travails. However many critics point to the micro-management style at the top for performance lapses and warn that the Worker’s Party in charge is fundamentally anti-business although it recognizes the benefit of sound fiscal and monetary policies for core lower middle class voters. Following the Carnival season which has coincided with poor weather for the agricultural harvest and a security crackdown to convince tourists are World Cup final preparations, with venues and accompanying infrastructure and services still lagging behind schedule. The next BRIC Olympics then come in Rio after Moscow’s smooth Winter display after President Putin sank an estimated $50 billion into the project though public and closely-controlled private channels. That outlay may pale against the eventual fallout from the Crimea takeover launched after the Games’ close, as capital flight in 2014 may soon reach the same amount as Western sanctions batter the ruble and securities markets. Russian companies rank with Brazilians in the international borrower ranks with $150 billion owed through end-2015 according to Bloomberg data, about one-third of current reported reserves which may have just shifted out of the dollar and euro to counter potential trade and financial punishment.
Central Europe will also face boycott decisions amid complex historical and commercial links. Poland is culturally united with Eastern Ukraine and relies on Moscow for all its gas imports, while Hungary’s biggest domestic bank OTP has $2 billion in exposure through its Ukrainian subsidiary and is almost as energy-dependent. In Latin America Mexico’s sectoral reforms had won a sovereign ratings upgrade two notches over Brazil but enthusiasm has since been dented by lackluster growth prospects and heavy long-term foreign-owned bond positioning at 60 percent of the total, quadrupled the local pension fund share. The MSCI index was off 10 percent through mid-March after a NAFTA two decade anniversary summit yielded meager results despite event pageantry.
