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Gloom on Brazil Finances Deepens
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Fitch Ratings downgrades Brazil's bonds to double-B-plus in Dec. 2015, a junk rating from an investment grade rating. The yield on Brazil's 10 year benchmark dollar denominated bond increased to 6.97% from 6.7%. Other emerging markets such as Turkey and South Africa now expect ratings downgrades in 2016 as the U.S. Fed raises interest rates. Standard & Poors downgraded Brazil's sovereign debt to junk status in September 2015. GDP in Brazil declined 4.5% in the third quarter of 2015 from a year earlier. Brazil's currency, the real, declined by 32% in 2015, making it harder for companies that borrowed in dollars to pay off debts. President Dilma Rousseff is facing impeachment proceedings following a corruption scandal at Petrobras.
Brazil's economy in 2015-2016
04/05/2015
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The Economist on the Brazilian economy's perilous situation in 2015-2016
04/05/2015
Dollar debts for Brazil went up from $100 billion in 2010 to $250 billion in 2015, according to BIS data. Even more in local currency terms which went up from 210 billion reais to 650 billion reais. BNDES and Caixa Economic Federal, 2 state owned banks made up 35% of bank loans in Brazil in 2009, by 2015 this went up to 55%, making Brazil's banking system a fiscal operation overly dependent on the state. With rates as high as 16%, the state banks provide subsidized loans to firms at 5.5%. Monetary policy is difficult for the central bank as increasing rates to shore up the declining real would hurt the economy, which is expected to contract by 1.5% by official estimates, but higher according to other private estimates. The declining real, drought affecting hydroelectric generated power prices, and lower export revenues, in addition to high debt interest payments exceeding 6% of GDP, are leading to low or no economic growth for 2015-2016. This comes at a time of corruption issues and ratings one notch above junk for state oil company Petrobras, which itself needs government support.
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Brazil’s coming recession: The crash of a titan
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How Brazil’s China-Driven Commodities Boom Went Bust
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Brazil Sinks into Technical Recession on Second Quarter Output Contraction
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Brazil's repeated boom-bust cycles since 1973, and lost decades
08/28/2015
Brazil, Russia, Australia, Canada, are caught up in the commodities bust with dependence on commodities exports. Brazil faces a lost decade because in adddition to the sharp drop in commodities prices, it also has to tackle large debt and capital outflows, a credit card binge of households cutting into consumer spending, and problems with manufacturing from the period of overvalued currency. A serious long term problem as bottlenecks to growth come from a weak educational system and infrastructure that were not tackled in the boom years. The social safety net and the currency are supported by the foreign currency reserves fund of $397 billion, a lesson learned from the 1997 financial crisis.
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How Brazil’s China-Driven Commodities Boom Went Bust
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Gloom on Brazil Finances Deepens
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Australia Finds Something Else to Export to China
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Dilma Rousseff’s Former Supporters in Brazil Express Disillusionment
New York Times 04/16/2016
Fight to Impeach Brazil’s Leader Tears at Fabric of Daily Life
New York Times 04/15/2016
Globalization: Capitalism Should Be Nicer | ZEIT ONLINE
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The caution in raising rates of the U.S. Federal Reserve in 2015 and memories of the emerging market crisis in 1997
09/17/2015
In 1997 Federal Reserve rate increases worsened the situation in the fragile Mexican economy, with Mexico needing a large bank bailout. Contagion to other countries was also a large problem at the time. Harvard economists Kenneth Rogoff and Larry Summers, cite the situation facing emerging markets with the sharp fall in commodity prices and the decline in the value of the currencies, particularly Brazil, Indonesia and Russia, countries dependent on commodity exports, creating risks in the global economy that the Fed could not ignore. The debt crisis in China and slowing economy, with missteps by the government in handling the stock market decline, happened in August-September 2015, creating added uncertainty- making Sept 15, 2015, too soon for the Fed to risk even a modest 0.25% increase in rates.
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Watching the Fed, and Remembering the Tequila Crisis
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Why China’s Market Illness Has Gotten More Contagious
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A January Pause, but Fed Affirms Plan for Gradual Rate Increases
New York Times 01/27/2016
Brazil debt, credit ratings and borrowing costs
02/02/2014
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Brazil Budget Gap Widens to Highest Level in Four Years
Wall Street Journal 02/02/2014
Gloom on Brazil Finances Deepens
Wall Street Journal 12/17/2015
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