Brazil in Davos: President Bolsonaro will defend reforms and trade liberalization

Photo: Adriano Machado - Reuters

The Brazilian President Jair Bolsonaro will outline his government’s economic reform agenda and plans to increase trade with the rest of the world during his speech at the World Economic Forum’s Annual Meeting in Davos today.

Bolsonaro, a far-right former Army captain who took office on Jan. 1st vowing to end years of graft and crack down on violent criminals, will also pledge to lower rampant bureaucracy in Brazil, which many view as a drag on the country’s stuttering economy.

Bolsonaro’s 40-minute speech is scheduled for Wednesday, and he will also highlight efforts to simplify the economy, while pledging to give legal certainty to investors and defend the rule of law.

Bolsonaro is also expected to comment on the situation in neighboring Venezuela, which is undergoing an unprecedented crisis and growing international pressure against the regime of President Nicolás Maduro.

A long-standing critic of Maduro, Bolsonaro has ruled out military action to overthrow the current government, but said last week that a solution for Venezuela will come “briefly,” without giving details of how that would happen.

On his return from Davos, Bolsonaro will settle on a model for its pension reform proposal, his chief of staff, Onyx Lorenzoni, said on Tuesday.

Sources: Agência Brasil, Reuters

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Political Analysis Serie - US-China Trade War: Temporary opportunities to Brazilian Agribusiness Sector

Photo: France Presse Agency

The Overview

Last 6th July, US President Donald Trump announced tariffs of US$ 34 billion on Chinese imports. It was the harshest measure in a global trade dispute between big nations recorded in recent years. On that occasion, China said it would be forced to retaliate imposing higher levies on goods that would ranging from American soybeans to pork. And the promise was fulfilled.

“The United States has violated World Trade Organization rules and ignited the largest trade war in Economic History,” China's Commerce Ministry said in a statement. “Such tariffs are typical trade bullying, and this action threatens global supply chains and value chains, stalls the global economic recovery, triggers global market turmoil, and will hurt more innocent multinational companies, enterprises and consumers”, said that Chinese official.

Thus, over the past week, US tariffs on $34 billion in Chinese products effectively went into effect. China responded by slapping 25% duties on the same amount in US goods. The trade war between the two nations had begun. As a new response, Trump's administration released last Tuesday its list of $200 billion worth of Chinese goods that it said it aims to subject to 10% tariffs following a review process. In counterpart, China threatened retaliatory action and pledged that it would lodge a complaint with the World Trade Organization.

The riskiest economic gamble of Trump's Presidency could spread as it enters a new phase by imposing direct costs on companies and consumers globally.

Beijing noticed that the US side had threatened to impose additional tariffs forward gradually should China take retaliatory measures. However, Chinese authorities want to demonstrate that this logic of trade intimidation will not make them flinch. For this purpose, in a tactical logic of time, China will have no choice but to consolidate other markets for its products and expand relations to alternative input providers during the “conflict”.

The Quorum’s View: during the conflict – and only during that time -, opportunities for the Brazilian Agribusiness Sector

In the Agricultural Raw Materials sector - if Beijing really wants to demonstrate its resistance to the trade war from Washington -, China will have to increase soybean imports from other countries to reduce reliance on buying from the United States.

Soybeans, crushed to make cooking oil and the protein-rich animal feed ingredient soymeal, were the biggest US agriculture export to China last year at a value of US$ 12,3 billion, according to the US Department of Agriculture (USDA). China, which imports 60% of the soybeans traded worldwide, bought 32,9 million tons from the United States in 2017, accounting for 34% of the total purchases.

For this reason, showing concern on the trade war with the United States, the President of Chinese State Grains Trader (COFCO) Yu Xubo already said in an interview with the Communist Party’s official People’s Daily Paper last Wednesday that hefty import tariffs applied by Beijing on American goods, including soybeans, will inflate costs for Chinese farmers and potentially increase internal retail prices of foods, like pork, the nation’s favorite meat.

Thus, China could increase soybean imports from South American countries amid an escalating trade dispute with the United States. Beijing can also buy more rapeseed, sunflower seeds, and bring in more soybean meal, rapeseed meal, sunflower meal and fishmeal to fill any supply gaps. Increasing meat imports would be also an option.

In this regard, the trade conflict between Beijing and Washington is already boosting grain and oilseed exports from the Black Sea region, where major sellers including Russia, Ukraine and Kazakhstan are looking to sell more corn, wheat and soybean to the huge Chinese market. However, the isolated capacity of global offer of these regions is limited. For example, a Rabobank report said last week it reckoned China will have to buy 15 million tons of US beans with the new tariff this year because there aren’t enough alternative sources of beans from other major exporters.

That’s why Brazil could indirectly benefit from the intensifying US-China trade war. The South American country finds itself in a strategic position to increase its market share of soybean exports to China. The other major producer, Argentina, is not in much of a position to offer competition this year. Soybean production there has been hammered by poor weather conditions that mean its crop is expected to be the lowest in a decade.

This leaves the field open to Brazil as the main supplier of soybeans and at more competitive prices than the other options available on the market. Meanwhile, the weakness of the Brazilian currency enhances farmers’ margins when compared with the more expensive US grains that, despite the drop in prices caused by the US-China trade dispute, are still not as attractive.

However, there are doubts over how quickly Brazil will be able to react to the new trading situation in the aftermath of a Truckers Strike protesting high fuel costs that halted transport of cargoes to ports for more than two weeks. In fact, regular loadings of cargoes at most ports weren’t impacted in the short term as the grains being sold were old crops stored in silos located near the port facilities. But it’s also true that Brazil still has structural problems in the logistics field and its freight costs are higher than the US and more sensitive to price shocks derived from increased demand.

All this involved, its possible to affirm that Brazil will have comparative advantages in its capacity to offer agricultural raw materials to China in this trade war environment against US. However - sooner or later -, once re-established the regular trade relations between Washington and Beijing, Brazil will lose these advantages and should be ready to readjust its volume of offers on the raw materials global markets. The evaluation of the correct moment to initiate this readjustment will depend on help of a good staff of analysts with focus on the changes of geopolitical scenarios to the global commodities sector.

Quorum Political Strategy is a government relations and political risk consulting firm made up of experienced professionals who can help your organization achieve its goals. We are a result-oriented consulting firm. Do not hesitate to contact us.

Sources: The Wall Street Journal, BBC, Mercopress Agency

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Brazil National Truckers Strike: Government says a truce has been reached, but roads are still blocked

Photo: Everaldo Silva/Futura Press/Folhapress

Brazil's Government said late Thursday that a deal had been reached with truckers to suspend a four-day-old strike that caused fuel shortages, cut into food deliveries, backed up exports and threatened airline flights.

Eliseu Padilha, Chief of Staff for President Michel Temer, told reporters in Brasília that several unions that represent truckers agreed to suspend the strike for 15 days to give all parties time to negotiate a solution to rising fuel prices that drivers say has cut deeply into their earnings. The deal came after a full day of negotiations with several of the largest transportation unions. But it wasn't immediately clear how many of the thousands of truckers, who by the nature of their jobs operate with a good bit of independence, would heed calls to stop the strike.

Brazil's economy runs largely on road transport and the strike to protest rising diesel prices was beginning to have serious consequences, with highway police reporting blocked roads in nearly all of Brazil's states.

The airport in the Capital of Brasilia allowed landings only by planes that carried enough fuel to take off again. The stop-gap measure hadn't resulted in any flight cancelations, but it was unclear how long it could continue before companies would have to ground planes. The civil aviation authority and airport authorities said they were monitoring fuel supplies carefully.

Long lines formed at gas stations, and some ran out of some kinds of fuel. In Rio de Janeiro, only about two-thirds of the city's buses were running Thursday, according to Rio Onibus, which represents the companies that run the various lines.

Local media reported food shortages and rationing in some supermarkets, and an association of supermarkets in Brazil's south warned that perishable food would run out in days if the strike did not end. The association said stores on average have a 15-day supply of dry goods, but fresh food would run out or spoil before then.

The Brazilian Association of Meat Industry Exporters said dozens of meatpacking plants were idling because of the strike, and 1,200 containers carrying beef for export were not being loaded on ships each day. Brazil is one of the largest exporters of meat in the world.

Truckers complain that rising diesel prices have cut deeply into their income and are demanding relief from the government. Diesel prices are being pushed up by rising world oil prices and Brazil's falling real currency.

On Wednesday night, the Lower House of Congress rushed through a bill to eliminate a tax on diesel through the end of the year. But the Senate still had to approve it.

Truckers rejected the Wednesday decision by the state oil company Petrobras to reduce diesel prices at refineries by 10 percent. The company said the measure would last for 15 days and give the Government time to negotiate an end to the strike.

“The government thinks truckers are illiterate and can't count,” said Vicente Reis, who has been driving for 20 years. ”In 2018, there has already been about a 25% increase in fuel prices. And now they want a 15-day freeze with (a reduction of) 10%. Truckers know how to count, Mr. President”.

Despite of Government announces about an alleged truce, Federal Highway Patrol authorities informed this Friday morning that the roads are still blocked throughout the country. Meanwhile, Brazilian Federal Police investigates whether the truckers strike is, in reality, a lockout orchestrated by businessmen from the logistics sector. Unofficially, Federal Government considers to use Armed Forces troops to liberate the highways.

Sources: Agência Brasil, Mercopress Agency

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US, France and UK launch strikes in Syria in response to suspected chemical attack

 (Ford Williams/U.S. Navy)

The United States, in a coordinated action with its European allies (France and United Kingdom), launched strikes on Friday against Syrian research, storage and military targets as President Trump sought to punish President Bashar al-Assad for a suspected chemical attack near Damascus last weekend that killed more than 40 people.

Britain and France joined the United States in the strikes in a coordinated operation that was intended to show Western resolve in the face of what the leaders of the three nations called persistent violations of international law. Mr. Trump characterized it as the beginning of a sustained effort to force Mr. Assad to stop using banned weapons.

The strikes, carried with ship-based cruise missiles and manned aircraft, targeted three facilities associated with Syria’s chemical weapons arsenal, including a scientific research facility around Damascus, a chemical weapons storage facility around Homs alleged to be used for sarin gas and a nearby command post, the Pentagon said.

The Syrian Observatory said the Syrian Army’s 4th Division and Republican Guard was among the targets. Residents of Damascus, the capital, woke to the sounds of multiple explosions shaking the city before the dawn call to prayer. The city and the hills are surrounded by military facilities, and it appeared that these were among the first targets.

Syrian State television said government air defense systems were responding to “the American aggression” and aired video of missiles being fired into a dark night sky. It was not clear if they hit anything. It reported that 13 missiles had been shot down by Syrian air defenses near Al-Kiswa, a town south of Damascus.

The targets were chosen to minimize the risk of accidentally hitting Russian troops stationed in Syria, according to Gen. James F. Dunford Jr., the chairman of the Joint Chiefs of Staff.

Defense Secretary Jim Mattis told reporters at the Pentagon on Friday night that the strike was completed and was designed as a one-night operation. “Right now this is a one-time shot and I believe it has sent a very strong message to dissuade him to deter him from doing it again,” he said.

Mr. Trump called on Syria’s patrons in Russia and Iran to force Mr. Assad to halt the use of poison gas in the seven-year-old civil war that has wracked his country.

“To Iran and to Russia I ask: What kind of a nation wants to be associated with the mass murder of innocent men, women and children?” he said. “The nations of the world can be judged by the friends they keep. No nation can succeed in the long run by supporting rogue states, brutal tyrants and murderous dictators.”

The strikes marked the second time that Mr. Trump has attacked Syria to punish the government after it was accused of using chemical weapons. The White House had sought to craft a response that would be more robust than the attack in April 2017, when the United States fired 59 Tomahawk cruise missiles at a Syrian air base that was back in use a day later.

Sources: BBC, The Washington Post, The New York Times, Al Jazeera

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Temer presents a “softer” Pension Reform bill hoping for its "quick approval"

Photo: Beto Barata/PR

A new version of Brazil’s unpopular Pension Reform bill presented last Wednesday will suggest “softer” rules for retirement and social security contributions, according to a draft of the legislation that the Government hopes will win approval in Congress.

The new bill will require a minimum of 15 years of contributions from private sector workers, compared to 25 years in the previous draft bill and 15 currently. Public servants would have a 25-year minimum, and all workers would need to work 40 years to retire on full pension.

The bill maintains the minimum retirement age of 65 years for men and 62 years for women, a key proposal for reducing the cost of Brazil’s pension system.

Pension reform is the cornerstone policy in President Michel Temer’s efforts to bring the deficit under control, but he lacked the votes to get a tougher version approved by lawmakers who worried the unpopular measures would hurt their re-election chances next year.

Temer used political capital blocking corruption charges that further undermined support for his policies and delayed a pension reform vote in Congress by six months.

The revamped bill maintains the same retirement rules for rural workers that are in effect now, dropping proposals for tighter standards.

In the current bill, rural workers will contribute for 15 years to get a pension, 10 years less than the Government’s initial proposal. The minimum retirement age for female and male rural workers will be kept respectively at 55 and 60 years, the same as today, according to the draft.

The Government restored a guarantee that disabled or elderly people unable to support themselves would receive an additional amount so their total payment meets a monthly minimum,

The speaker of the Lower House of Congress, Rodrigo Maia, warned this week said that the government did not have the 2/3 majority of votes needed to pass a Pension Reform.

Maia said the government should work to strengthen its base first, which Temer sought to do on Wednesday by swearing in Alexandre Baldy to head the Ministry of Cities, a move designed to please the Baldy’s Progressive Party (right wing), which has 40 seats in the chamber.

Source: Mercopress Agency

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Brazilian Central Bank predicts growth of 2,2% for 2018; but Temer suffers a new disapproval record

Photo: Marcelo Camargo - Agência Brasil

Brazil’s Central Bank trimmed its inflation forecast on Thursday and said it expected economic growth to pick up into next year, painting an optimistic picture for Latin America’s largest economy as interest rates approach record lows.

In a quarterly inflation report, the Central Bank forecast economic growth of 0.75% in 2017, up from a previous estimate of 0.5%. For 2018, the Bank forecast growth of 2.2%. Inflation is estimated at 3.2% in 2017 and 4.3% in 2018, down from 3.3% and 4.4% respectively that it expected previously.

The Central Bank, which has slashed interest rates from 14.25% to 8.25% over the past year to revive a recession-hit economy, maintained its forecast of gradually reducing the pace of interest rate cuts in coming months.

The Bank extended its inflation scenario to include forecasts for 2019 and 2020, at 4.2% and 4.1% respectively. With inflation estimates hovering around the official target of 4% for 2020, policymakers said monetary policy can continue to stimulate economic growth.

Economists expect the bank to cut its benchmark interest Selic rate to 7.00 percent by December, below an all-time low of 7.25%t, and keep the rate at that level through 2018, a weekly central bank survey showed on Monday.

Brazil’s economy resumed growth in the first half of this year after 3 years of its worst recession on record. While stronger consumption has driven the gradual recovery for now, investments are expected to grow 3% in 2018 thanks to lower interest rates, the bank predicted.

Temer Presidency: deep disapproval among Brazilians    

Nevertheless, approval for Brazilian President Michel Temer's government has plummeted, according to a poll published on Tuesday, as the scandal-plagued leader faces new corruption charges and struggles to push his economic reform agenda through Congress.

Polling firm MDA said that only 3.4% of those surveyed thought the Temer government was doing a “great or good” job - down from 10.3% in MDA's last such poll in February.

Temer took over a year ago from impeached leftist Dilma Rousseff and has said he does not care about popularity and only wants to push through an austerity package before his term ends in Jan. 2019. Yet his ability to do so has been hamstrung by charges of taking bribes, racketeering and obstruction of justice.

The charges against Temer are based on the plea-bargain testimony of the owners of the world's largest meatpacker, JBS SA. They accuse Temer of taking bribes in return for political favors and of conspiring to buy the silence of a witness who could implicate the leader. Temer has repeatedly denied any wrongdoing.

The MDA poll was commissioned by the national transport lobby CNT and surveyed 2,002 people across Brazil from Sept. 13-16. The poll has a margin of error of 2.2 percentage points.

Source: Mercopress Agency

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Brazil's Government relaxed its budget targets until 2020

Photo: Ueslei Marcelino/Reuters

Brazil's government relaxed its budget targets until 2020 this Tuesday, delaying prospects for a drop in the federal deficit after legislators repeatedly refused to raise taxes in the recession-hit economy.

Cost-cutting measures were announced along with the new targets, in a bid to demonstrate President Michel Temer's commitment to fiscal discipline even after his economic team cut forecasts for economic growth next year.

The revision, announced weeks earlier than expected, underscored the uphill battle for Temer to gather support for austerity measures as a corruption scandal simmers and next year's general elections approach.

Market reaction was muted as investors did not expect a surge in government spending despite the new targets. Ratings agency Standard & Poor's spared Brazil from a downgrade, saying after the announcement that it would maintain the country's debt rating at BB with a negative outlook.

Brazil's government set a new primary deficit target for this year and next of R$ 159 billion ($49.7 billion), up from R$ 139 billion this year and R$ 129 billion for 2018.

The country will target a deficit of R$ 139 billion for 2019, up from R$ 65 billion previously. For 2020, it will aim for a R$ 65 billion deficit compared with a R$ 10 billion surplus previously - raising prospects of a seven-year-long period of consecutive budget deficits, started in 2014.

Members of Temer's economic team, including Finance Minister Henrique Meirelles, previously wanted to wait until September to consider a looser budget target, but agreed to move up talks under pressure from a fractious coalition in Congress.

Most cost-cutting measures announced by Meirelles and Planning Minister Dyogo Oliveira this Tuesday will need Congress' approval. They include postponing public sector salary hikes by one year and reducing the entry salary for incoming civil servants.

Despite strong opposition to tax hikes, Meirelles said the government would still seek to roll back payroll tax breaks and would raise taxes on some investment funds.

The government did not announce expected infrastructure concessions. It forecast 2% growth in 2018, down from a previous estimate of 2.5%.

Congress leader says Brazil Government doesn't have votes to pass social security reform

The Speaker of Brazil's Lower House said Tuesday the government doesn't have the votes to pass a social security overhaul that is key to President Michel Temer's economic agenda.

The comments by Chamber of Deputies Speaker Rodrigo Maia came after a meeting with Finance Minister Henrique Meirelles as well as the leaders of the parties in congress.

"It would have been ideal to approve the reform today," Maia said, arguing that it was the only straightforward solution to the country's economic crisis.

The government would need 308 votes to pass the constitutional amendment in the 513-member Lower House.

Temer, whose approval rating was 5% in the latest national poll, has been counting on his proposals for loosening work rules and changing pensions to revive the economy and help save his Presidency. Failure to pass them could undermine crucial support for him and could leave him vulnerable to a second round of corruption charges.

The pension overhaul is less appealing to congressmen looking ahead to the 2018 general elections.

The Chamber of Deputies recently voted against sending Temer to trial on a bribery charge. However, the mounting pressure on the President weakened his governing coalition in the lead-up to that vote and has put the brakes on his economic agenda.

Temer could also face new accusations in the near future.

The Chamber of Deputies recently voted against sending Temer to trial on a bribery charge. However, the mounting pressure on the President weakened his governing coalition in the lead-up to that vote and has put the brakes on his economic agenda.

Attorney General Rodrigo Janot, who filed the bribery charge against the President, said last week that plea bargains being negotiated could lead to new charges against Temer. Janot's term as Brazil's top lawman ends September 17th, meaning his time is running short to deliver on his warning.

Sources: Reuters, Agência Brasil

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Temer's ouster would be "potentially detrimental for Brazil", his defense says

The defense counsel of Brazil's President Michel Temer has sent its closing arguments to the Superior Electoral Court (TSE) in connection with a lawsuit challenging the victory of the 2014 presidential re-election ticket—in which Temer was Dilma Rousseff's running mate—on charges of “abuse of political and economic power.” His counsel has repeatedly said removing him from office would have serious consequences for Brazil.

“The current situation of the country is of particular concern [an issue posed for the court's consideration as well], and would make a measure of this magnitude unadvisable because of its short-term consequences for both political and economic stability,” read the document signed by lawyers Gustavo Bonini Guedes, Marcus Vinicius Furtado Coêlho, and Paulo Henrique dos Santos Lucon, who are defending Temer.

In early April, Rousseff's lawyers and Temer's lawyers appealed to the court to extend their deadline so they could present further closing arguments.

Motion to quash evidence

In the new arguments, which are three pages longer than the original draft, Temer's defense has moved for the court to quash the testimonies given by João Santana and his wife Mônica Moura, the marketers behind Rousseff and Temer's 2014 campaign. Heard at the late evidentiary stage of the case, the couple gave details of the payments for their advertising services through offshore accounts.

Background

The lawsuit was filed with the Superior Electoral Court by the PSDB —the party of Rousseff's and Temer's main opponent in the 2014 election, Aécio Neves, which became part of the governing coalition as Temer took over presidency with Rousseff's impeachment in 2016. The party said the 2014 winning ticket had potentially had its campaign funded with the proceeds of the Petrobras corruption scandal revealed by the massive Car Wash probe. But the defense maintained the facts that surfaced from the evidentiary stage of the election lawsuit were unrelated to Petrobras, and as such, were beyond the scope of the charges.

Moreover, the lawyers pointed out, Rousseff and Temer's accounts should be examined separately, because Temer had set up an individual bank account to manage campaign funds. The defense argues Temer was elected vice-president, not “the president's deputy”.

Source: Agência Brasil

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Mercosur: trade agreement with EU is “closer than ever”, said Spanish President Rajoy

The European Union and Mercosur should intensify talks to advance in theirs trade agreement this year, Spanish Prime Minister Mariano Rajoy said on Tuesday (25/04), urging after 18 years of negotiations.

Rajoy’s comments at a trade event in the city of São Paulo reinforced a 2017 target proposed on Monday (24/04) by the Argentinian Foreign Minister Susana Malcorra and EU Ambassador to Brazil João Cravinho, who said a deal could be ratified in 2018 and implemented in 2019.

Rajoy said an accord is “closer than ever” and highlighted opportunities for Spanish investments in Brazilian infrastructure, energy and transportation sectors. Spain has been the second-largest source of foreign investment in Brazil after the United States.

Brazilian Foreign Minister Aloysio Nunes said that Mercosur must focus on lowering its internal trade barriers to ease talks with Brussels, questioning disparate price schemes for Brazilian and Argentinian produce, for example.

Mercosur founding members, which also includes Uruguay and Paraguay, began negotiations with the European Union in 1999, broke them off in 2004 and resumed talks again in 2010.

Malcorra suggested on Monday that a United States retreat from global trade talks had opened a window for the European Union to become a strong player in multilateral accords between regions.

Sources: Agência Brasil, Mercopress Agency, Itamaraty

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Brazil: former Lower House Speaker Cunha, "Rousseff's hangman", sentenced to 15 years in jail for corruption

A Federal Court sentenced Brazil’s former speaker of the Lower House, Eduardo Cunha, to more than 15 years in prison on Thursday for corruption, making him the highest-profile political conviction yet in the “Operation Car Wash” scandal. The former politician’s defense team said they would appeal the decision but Cunha will remain imprisoned pending appeal.

Cunha, who drove the successful impeachment of former President Dilma Rousseff, was forced from his position as speaker in July and arrested in October on accusations he received millions in bribes from the purchase of an oil field in Benin by state-run oil company Petrobras.

Over 200 people have been charged in the “Operation Car Wash” probe, a far-reaching investigation that centers on bribes and political kickbacks from contracts at Petrobras. The Supreme Court is likely to approve soon the investigation of dozens of sitting politicians.

In February 2015, Cunha, a member of President Michel Temer’s Brazilian Democratic Movement Party (PMDB) that for a decade was the main member of left-leaning Workers Party (PT) governments, defied the wishes of his own coalition to run for and win the speakership of the lower house of Congress.

Just six months later, he officially broke with the PT government of Rousseff, saying that she was using the Petrobras investigation as a tool of “political persecution” against him.

As speaker, only Cunha could allow impeachment proceedings to begin against Rousseff, whom critics accused of breaking budgetary laws. He did just that in December 2015, just hours after PT deputies cast deciding votes for him to face an investigation by the House’s ethics committee for lying about bank accounts he and his wife held in Switzerland.

By May, Rousseff was impeached and Temer installed as successor. But Cunha could not shake free of corruption allegations that eventually led to his downfall. Once he was kicked out of congress, Cunha lost the privilege given to sitting politicians that only the badly overburdened Supreme Court can try them.

His case was instead sent to the federal judge Sergio Moro, who has been the driving force behind Brazil’s fight against graft. Moro has a reputation for plowing through cases efficiently, with over 98% of his convictions in Car Wash cases being upheld by higher courts.

Cunha faces another trial for allegedly receiving US$5 million skimmed from Petrobras contracts for two drill ships in 2006 and 2007.

Source: Mercopress Agency

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Brazil: Inflation likely to close out year below center of target

Brazil's official inflation, as measured by the National Broad Consumer Price Index (IPCA) is expected to close out the year below the center of the target (4.5%). The estimate was made by the Institute for Applied Economic Research (IPEA), which released its report on the first quarter of 2017. The institute did not announce a specific estimate for the IPCA, but merely declared it should end the year below 4.5%.

After last year's deflation, the institute reported, fixed prices (like energy, transport and other public fees) are to face a slight hike this year. The phenomenon is expected to raise inflation in the last quarter, but not enough to exceed the center of the target.

Food

According to IPEA, price rates are expected to slow further down for the rest of the year, thanks to the behavior of free prices. Most noteworthy are food prices, which should face a weaker increase this year, or even decline in some cases, as a result of the increase in grain harvests and oil-producing plants and not as a result of climate phenomena in the main producing regions, as has been the case over the previous years.

As for decisive external factors, IPEA reported that the price of commodities will hold steady chiefly for three reasons. Oil extraction will be counterbalanced by the increase in the US production of shale oil, the havests in both hemispheres are expected to rise, and China's decision to curb economic growth should pull down the globe's demand for iron ore.

Source: Agência Brasil

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Mexico is looking at Brazil and Argentina as an alternative for US corn while Mercosur talks with EFTA are advancing

In a response to Trump's trade policy, Mexican Agriculture Secretary said last Thursday he will lead a business delegation to Argentina and Brazil to explore buying yellow corn, part of a drive to lessen Mexico's U.S. dependence.

The trip will happen within the next 20 days, Agriculture Secretary José Calzada said, adding that the government could explore quotas and changing the tariff regime for imports from South America if needed.

On Sunday the Mexican senator Armando Rios Piter, who leads a congressional committee on foreign relations, says he would introduce a bill this week, to shift corn import demand to Brazil and Argentina instead of the United States.

“I'm going to send a bill for the corn that we are buying in the Midwest and...change to Brazil or Argentina,” Rios Piter told CNN.

On Wednesday Marisa Bircher, Argentina's Secretary of Agro-Industrial markets, said that the country hopes to increase exports to Mexico. Argentina exported less than 100,000 tons of corn to Mexico last year.

“Corn is obviously a sector that is on the list to have greater access and gain a bit more space for Argentina, regardless of the presence of the US market,” Ms. Bircher said.

Ms. Bircher said there was also potential for poultry and beef exports to Mexico.

Mexico last year imported 13 million tons of yellow corn, of which 12.75 million tons were provided by US farmers with a bill of US$ 2.3bn.

EFTA/Mercosur talks: confirmed to begin next June

The first round of formal trade negotiations between Mercosur and EFTA, European Free Trade Association, is scheduled to take place in Buenos Aires next June according to information from Brussels where there was a preliminary encounter between the two sides. “It will be in June, and talks will be at chief negotiators level”, confirmed EFTA and Mercosur sources.

The Brussels meeting was headed by Argentine ambassador Guillermo Daniel Raimondi, in representation of Mercosur and Norway's Sveinung Roren for EFTA, which is made up of Iceland, Liechtenstein, Norway and Switzerland, none of them EU members.

“It was also agreed a second meeting in August and the necessary exchange of information, such as nomenclature, stats, trade legislation and policies”, added Mercosur sources. Bilateral trade between the two blocks reached 8.7bn in 2015 when the first contacts were started. Last January in Davos Economic Forum the round of discussions was first agreed.

EFTA exported mostly pharmaceutical products (US$ 1.4bn); organic chemicals (US$ 764m), and machinery (US$ 462m), while Mercosur countries shipped US$ 1.9 bn in precious stones and metals; US$ 859m in inorganic chemical products; US$ 357 in food and US$ 259m in coffee, tea and species.

“We are optimistic about this coming round, which is part of the opening of Mercosur to the world”, said the South American source, which last week was also involved in negotiations with the EU-28 ahead of the Buenos Aires round in March.

“The purpose of this trip and technical talks to Brussels was precisely to get ready for Buenos Aires and concentrate in the chapters of government procurement, market access, animal and plant sanitary measures plus services and investments”, added the source.

European Commission sources indicated that negotiations agreed “to intensify the technical work” in anticipation of Buenos Aires but also working on a tentative timetable of reaching an agreement at the end of the year. This last leg of EU/Mercosur negotiations took off in 2010, following several years of suspension.

Sources: Agência Brasil, Mercopress Agency

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