February 14, 2020
1. Price of dollar rises after minister defends devalued real
This week, the price of the American dollar reached a record high of R$ 4.38 (USD$ 1.02). According to analysts, the commotion on the financial market was caused in part by statements made by Economy Minister Paulo Guedes, who said that a higher exchange rate is good for everyone. “There is no chance of an exchange rate at R$ 1.80 (USD$ 0.42). We’ll import less, replace imports and tourism. Everyone was going to Disneyland, even housekeepers were going to Disneyland, a total mess,” he said. According to the minister, it is better to have interest rates at 4% a year and an exchange rate at R$ 4 (USD$ 0.93) than interest rates at 14% and an exchange rate at R$ 1.80 (USD$ 0.42). Yesterday, by surprise, the Central Bank had to intervene and hold the price of the dollar, dropping it to R$ 4.33 (USD$ 1.00) with the announcement of a currency swap auction. Learn more about the Minister’s remarks at Brasília Report.
Valor Econômico: Banco Central intervém no mercado após fala de Guedes
Folha de S.Paulo: Dólar dispara após fala de ministro
O Estado de S. Paulo: Empresários criticam novo patamar do dólar
2. Bolsonaro swaps ministers and places General as Chief of Staff
President Jair Bolsonaro demoted one of his main allies during the presidential campaign, Onyx Lorenzoni, who was his Chief of Staff. Onyx was the negotiator during the government transition at the beginning of his term and coordinated the relationship between the administration and the National Congress. General Walter Braga Netto, Army Chief of Staff, has replaced Lorenzoni. With this change, every minister in Bolsonaro’s cabinet is now from the military. Onyx will take over the Ministry of Citizenship, which is responsible for the social welfare program Bolsa Familia. He is replacing Osmar Terra, who will return to his activities as a federal representative in Congress. The President “announced” the changes on Twitter. After a series of issues, the role and responsibilities of the Chief of Staff have changed. Government advisors say the minister’s behavior was bothering the President and other ministers. The inauguration ceremony will take place on Tuesday.
3. Largest banks report record profits of R$ 86.6 billion (USD$ 20.1 billion)
The four largest open capital banks in the country (Itaú Unibanco, Banco do Brasil, Bradesco and Santander) had a record net profit in 2019. The amount reached R$ 86.648 billion (USD$20.09 billion), representing growth of 18.4% in comparison to 2018. The results reflect adjusted and recurring profits. This was the largest nominal result ever registered in Brazil and the third consecutive year of growth in the sector. According to the president of Itaú Unibanco – Candido Bracher – it is unlikely that there will be similar growth in 2020. He says that the new term limit for interest rates in overdraft is one of the reasons why profits may not grow. The rule came into effect this year and sets a limit of 8% per month on overdraft interest rate charges.
Valor Econômico: Bancos de capital aberto têm lucro recorde
4. Administration agrees to discuss tax on billionaires
The Bolsonaro administration has begun discussions with Congressional representatives about the possibility of implementing a new tax on closed investment funds, used by Brazilian billionaires. Currently, these investors only pay taxes on profits if they withdraw the money. Representatives from the President’s office and from the Economy Ministry have met with members of Congress who propose taxing fortunes. They suggest using the revenue – around R$ 10.7 billion (USD$2.48 billion) – to finance part of the social welfare program Bolsa Família. People with smaller investments currently have to pay a monthly fee of 15%.
5. São Paulo lives a day of chaos due to intense rain
The city of São Paulo began the week in chaos. It experienced the largest volume of rain for the month of February in the past 77 years, which caused Pinheiros and Tietê rivers to flood. With flooded streets, classes were cancelled, public transportation was partially interrupted and local commerce lost around R$ 140 million (USD$ 32.47 million). Many people were left afloat, some on top of their cars. Many people could not get to work. Even bank branches closed due to the rain. CEAGESP, the largest food supply central in Latin America, was flooded and lost 7,000 tons of produce. The city has at least 17 ongoing construction works for water drainage, but most have been delayed, according to the press. São Paulo’s City Hall says that it has built eight emergency reservoirs for rainwater, five of them in 2019.
Click here for the Brasilia Report, a weekly analysis prepared by JeffreyGroup Senior Advisor in Brasilia, Gustavo Krieger.