Tag Archives: Brazil

Brazil cuts inflation target for first time in over a decade

Brazil's Central Bank President Ilan Goldfajn looks on during a news conference next to Brazil's Economy Minister Henrique Meirelles and Brazil's Planning Minister Dyogo Henrique de Oliveira in Brasilia, Brazil June 29, 2017. REUTERS/Ueslei Marcelino

By Silvio Cascione and Marcela Ayres

BRASILIA (Reuters) – Brazil’s government on Thursday lowered its annual inflation target for the first time in more than a decade, seeking to turn the page on recent double-digit jumps in consumer prices and bolster investors’ confidence about future economic stability.

The National Monetary Council, comprised of heads of the finance and planning ministries and the central bank, cut the inflation target to 4.25 percent in 2019 and 4.00 percent the following year, from 4.5 percent at present.

The tolerance range was maintained at 1.5 percentage point.

The reduction, predicted by a Reuters poll of economists in January, followed a plunge in annual inflation from nearly 11 percent in early 2016 to 3.6 percent in June.

A stronger commitment to low inflation could boost Brazil’s long-term growth by reducing investor uncertainty, without closing the door to further interest rate cuts by the central bank this year, economists said.

Economists forecast an inflation rate of 3.5 percent for 2017, breaking a sequence of seven straight years of Brazil overshooting its target. Under the administration of former President Dilma Rousseff, who was impeached last year, economists accused policymakers of pursuing the ceiling of the goal and not its midpoint in order to avoid rate hikes that could hurt growth.

“Economic policy has all the necessary conditions in terms of inflation, transparency and credibility to remain committed to these inflation targets,” central bank chief Ilan Goldfajn told journalists.

Yields <0#DIJ:> on longer-dated interest rate futures slipped in early trading, suggesting investors saw the new targets as consistent with forecasts of interest rate cuts. Global risk aversion pushed yields up again later in the day, traders said.

Growing investor optimism about Brazil’s economic prospects contrasts with an escalating political crisis that threatens to remove President Michel Temer from office.

Goldfajn said the targets took into account the political environment, and also responded affirmatively when asked if he expected to stay in his post even if Temer is suspended from office should the Supreme Court try him on corruption charges. Temer appointed Goldfajn to lead the central bank last year.

The central bank has been expected to cut its benchmark rate to 8.5 percent by December, from 10.25 percent currently, according to a central bank survey of economists released on Monday. The bank has already lowered the benchmark rate by 400 basis points since October.

Before the decision was announced, economists had been forecasting an annual inflation rate of 4.25 percent for the years of 2019, 2020 and 2021, according to the central bank.

“Expectations will probably start to converge toward the new target as soon as next week,” said Gustavo Arruda, an economist with BNP Paribas.

Brazil began targeting inflation in 1999, with the 4.5 percent target being first adopted for 2005.

Goldfajn had long said Brazil should aim for a target more in line with other emerging markets. Latin American countries such as Mexico and Chile target inflation at 3 percent.

(Reporting by Silvio Cascione and Marcela Ayres; Editing by W Simon and Daniel Flynn)

Driver rams his car into Brazil’s presidential residence

Federal policemen and Brazilian armed forces reinforce security in front of Alvorada Palace after a driver rammed his car through the gates of Brazil's presidential residence in Brasilia, Brazil, June 28, 2017. REUTERS/Ueslei Marcelino

SAO PAULO (Reuters) – A driver rammed his car through the gates of Brazil’s presidential residence on Wednesday and was arrested, security forces said, though President Michel Temer was not inside the building.

Guards fired warning shots and then opened fire at the vehicle when it refused to stop, before detaining the driver, who appeared to be a minor, the statement said. Temer himself lives in another official residence.

The driver was not wounded and the car stopped inside the compound of the Alvorada residence. Images published by the G1 news website show the presidential residence gate knocked to the ground and shotgun shells over the floor outside the residence.

Access to the area was closed after the incident. Temer lives in Jaburu, another official residence, less than a mile away from Alvorada.

Temer has the lowest approval rating of any president in almost 30 years, only seven percent, pollster Datafolha showed last week.

Brazil’s president was charged on Monday for taking bribes by prosecutor-general Rodrigo Janot and the Supreme Court sent the charges to the lower house on Wednesday.

(Reporting by Tatiana Bautzer; Editing by Sandra Maler, Bill Trott and Michael Perry)

U.S. bans fresh Brazil beef imports over safety concerns

A customer (R) pays for his meat at the Municipal Market in Sao Paulo October 10, 2014. REUTERS/Nacho Doce

By Tom Polansek

CHICAGO (Reuters) – The United States halted imports of fresh Brazilian beef on Thursday, the U.S. Department of Agriculture (USDA) said, after a high percentage of shipments failed to pass safety checks.

The USDA had “recurring concerns about the safety of the products intended for the American market,” after increasing tests on Brazilian beef in March, according to a statement.

The agency raised scrutiny on Brazilian beef and ready-to-eat products as a precaution following an investigation into corruption involving Brazil’s health inspectors that targeted meat companies JBS SA <JBSS3.SA> and BRF SA <BRFS3.SA>.

JBS, the world’s largest meat packer, declined to comment on the U.S. ban.

The USDA’s action threatens the reputation of meat from Brazil, the world’s top exporter of beef and poultry, even though the United States is not a top customer. It also could boost domestic sales in the United States.

“Product was already on the water and that’s not going to be allowed in,” Altin Kalo, a U.S. livestock analyst at Steiner Consulting Group, said about shipments headed to the United States from Brazil via boat.

Since March, the USDA has rejected 11 percent of Brazilian fresh beef products, compared to the rejection rate of 1 percent for shipments from the rest of the world, the agency said. The shipments, totaling about 1.9 million pounds, raised concerns about public health, animal health and sanitation, according to the USDA.

The agency said none of the rejected lots made it into the U.S. market.

The move to block Brazilian meat is a turnaround for Agriculture Secretary Sonny Perdue, who warned in March that Brazil might retaliate if the United States halted beef imports.

On Thursday, he said in a statement that “although international trade is an important part of what we do at USDA, and Brazil has long been one of our partners, my first priority is to protect American consumers.”

The U.S. suspension will remain in place until Brazil’s Agriculture Ministry “takes corrective action which the USDA finds satisfactory,” according to the agency.

A slew of global buyers, including China, Egypt and Chile, curtailed imports of Brazilian meat after Brazilian federal police unveiled an investigation into alleged corruption in the sector on March 17.

Brazilian authorities said at the time that meat companies made payments to government health officials to forego inspections and cover up health violations.

China is not expected to follow the U.S. move as it only permits imports of frozen Brazilian beef, which has different requirements to fresh meat, said analysts.

Brazil is also China’s top beef supplier, and would be difficult to replace in the short-term, said Pan Chenjun, senior animal protein analyst at Rabobank.

The United States began allowing shipments of fresh beef from Brazil last year after banning them due to concerns about foot and mouth disease in cattle.

(Additional reporting by Michael Hirtzer in Chicago, Tatiana Bautzer in Sao Paulo and Dominique Patton in Beijing.; Editing by David Gregorio and Bill Trott)

‘You want war?’ Venezuela spars with rivals at OAS meeting

Venezuelan Foreign Minister Delcy Rodriguez speaks during a news conference on the sidelines of the OAS 47th General Assembly in Cancun, Mexico June 20, 2017. REUTERS/Carlos Jasso

By Anthony Esposito

CANCUN, Mexico (Reuters) – Governments from across the Americas chastised Venezuela’s socialist leadership on Tuesday for its handling of a political and economic crisis, prompting the OPEC nation’s foreign minister to call the critics “lapdogs of imperialism.”

The United States, Brazil and 10 other members of the 34-nation Organization of American States (OAS) issued a letter accusing Venezuela of undermining democracy, failing to feed its people and violating rights.

“Considering the interruption of the democratic process in the Bolivarian Republic of Venezuela, we believe that there should be a settled solution that includes all Venezuelan parties for the benefit of the people of that nation,” said the letter issued at the OAS general assembly in Cancun, Mexico.

It called for the release of political prisoners, respect for rights, an election timetable, a “humanitarian channel” to ship food and medicine, and the creation of a group or mechanism to help “effective dialogue among Venezuelans.”

The 12 nations also called on Venezuelan President Nicolas Maduro to abandon a July 30 vote for a super-body with powers to rewrite the country’s constitution. Critics see Maduro’s move as a ploy to hold on to power.

Venezuelan Foreign Minister Delcy Rodriguez fired back, criticizing Mexico’s rights record and highlighting poverty, violence and migration in Honduras and other nations.

Rodriguez said the country’s planned constituent assembly was the only way to overcome the current crisis peacefully and called her critics “lapdogs of imperialism.”

“Do you want war? Is that what you want for Venezuela?” the minister said, wearing a red dress, the color identified with Venezuela’s Socialist Party. She accused OAS Secretary General Luis Almagro of trying to stir up a civil war in Venezuela.

“Great, we’ve reached the boss,” she said as U.S. Deputy Secretary of State John Sullivan began a speech, repeating her jibe that the OAS is an arm of U.S. diplomacy.

Sullivan asked members of the OAS “to do right by the people of Venezuela” through the creation of a group to help facilitate a resolution.

Rodriguez said: “The only way you could impose this on us is with your Marines, which would meet a strong response in Venezuela.”

She said Venezuela would never go back to the OAS.

But she left the door open to participating in further meetings, saying that although Venezuela left the organization there was a two-year administrative period to finalize the departure in which it could still participate.

Honduran Foreign Minister Maria Dolores Aguero asked Rodriguez to explain how her government was going to alleviate Venezuela’s problems.

“Instead of responding to all of us who want peace for your people, why not tell us how you are going to resolve the crisis they are living?” Aguero said.

A meeting on the sidelines failed on Monday to agree on a resolution formally rebuking Venezuela, where 75 people have been killed in protests in recent weeks.

“A resolution, a strong declaration from this organization, is probably the only realistic way of avoiding a blood bath in Venezuela,” said Jose Miguel Vivanco, the executive director Americas for Human Rights Watch.

Some of the meeting’s participants remained optimistic they could reach a resolution and that Venezuela could avoid spiraling further into violence.

The foreign minister of Guatemala, a nation that faced a 36-year internal armed conflict that left some 200,000 people dead, voiced that sentiment.

“We don’t wish that on anybody, least of all Venezuela, and if we were able to sit down and negotiate, Venezuela needs to be able to do that too,” Foreign Minister Carlos Morales said.

(Reporting by Anthony Esposito; Editing by Frank Jack Daniel and Leslie Adler)

Brazil exits recession with fastest growth rate since 2013

FILE PHOTO: Cranes are seen in the distance during a workers' strike at Latin America's biggest container port in Santos, Sao Paulo state, Brazil, September 14, 2016. REUTERS/Fernando Donasci/File Photo

By Silvio Cascione

BRASILIA (Reuters) – Brazil’s economy emerged from its worst recession on record with its fastest growth rate in nearly four years, data showed on Thursday, boosting President Michel Temer’s case for staying in office as he battles a corruption scandal.

Brazil’s gross domestic product (GDP) grew 1.0 percent in the first quarter from the preceding one, matching economists’ forecasts for the biggest rise since the second quarter of 2013.

Growth is unlikely to stay as strong in the second quarter, economists said, as the first-quarter performance was driven up by extraordinary harvests of corn and soy and by a strong buildup in inventories across the economy.

Yet Temer, who has resisted protests for his resignation after being placed under investigation by the Supreme Court, tweeted minutes after the release: “The recession is over!”

“It’s the result of the measures we are taking. Brazil is growing again and will grow even more with the reforms,” he went on. He was referring to a legislative agenda seen as crucial for balancing the budget but which got stuck in Congress as his allies debated whether to break ranks with the government.

Fourteen million workers remain unemployed in Brazil, a country with one of the biggest gaps between the wealthy and poor. Many analysts expect Latin America’s largest economy, operating now at 2010 levels and forecast to grow just 0.5 percent in 2017, will continue running below potential throughout next year at least.

Subpar growth, in turn, should give policymakers room to continue cutting interest rates in coming months. The central bank slashed its benchmark Selic rate by 100 basis points on Wednesday to 10.25 percent and flagged further cuts to come, although probably at a slower pace because of the political uncertainty. <BRCBMP=ECI>

“HISTORICAL DAY”

Brazil’s economy shrank more than 3 percent in each of the past two years, the deepest and longest downturn since records began in 1901. As the recession deepened last year, Temer’s predecessor, Dilma Rousseff, was impeached for breaking budget rules amid record-low approval ratings.

Temer’s hold on power seemed in danger two weeks ago when the billionaire owners of meatpacker JBS SA <JBSS3.SA> accused him of condoning bribes to silence a key witness in a corruption probe. But lack of a clear replacement and signs of economic growth have given the scandal-plagued president some breathing room, allies have said.

“There is still some way to go before a full recovery but we’re in the right direction,” Finance Minister Henrique Meirelles said in a statement praising what he called a “historical day” for Brazil.

IBGE also revised up fourth-quarter data to show that Latin America’s largest economy contracted 0.5 percent in that period, and not 0.9 percent as originally reported.

Agricultural output rose in the first quarter at the fastest pace since 1996. Services remained stagnant and manufacturing grew only slightly in the first quarter, driven up by stronger exports, IBGE said. Government data later on Thursday showed a record trade balance in May. <BRTBAL=ECI>

Brazil’s economy shrank 0.4 percent in the first quarter from the year-earlier period, following a 2.5 percent drop in the previous quarter. <BRGDP=ECI>

(Reporting by Silvio Cascione; Editing by W Simon and Chizu Nomiyama)

Brazil’s Temer deploys army as protesters battle police

Demonstrators take part in a protest against Brazilian President Michel Temer and the latest corruption scandal to hit the country, in Brasilia, Brazil, May 24, 2017. REUTERS/Paulo Whitaker

By Alonso Soto and Anthony Boadle

BRASILIA (Reuters) – Protesters demanding the resignation of Brazilian President Michel Temer staged running battles with police and set fire to a ministry building in Brasilia on Wednesday, prompting the scandal-hit leader to order the army onto the streets.

Police unleashed volleys of tear gas, stun grenades and rubber bullets to halt tens of thousands of protesters as they marched towards Congress to call for Temer’s ouster and an end to his austerity program.

Masked protesters fired powerful fireworks at police, set ablaze furniture in the Agriculture Ministry, and sprayed anti-Temer graffiti on government buildings.

It was the most violent protest in Brasilia since anti-government demonstrations in 2013 and fueled a political crisis sparked by allegations Temer condoned paying off a potential witness in a massive corruption probe.

The scandal has raised chances Brazil could see a second president fall in less than a year.

Police cordons held back protesters from advancing on the modernistic Congress building where the main ally in Temer’s coalition, the PSDB party, met to discuss whether to continue backing him and prepare for a post-Temer transition.

One protestor was shot and wounded, police said. Local media reported at least one other demonstrator was seriously injured by a rubber bullet to the face, while another lost part of his hand while trying to throw an explosive device at officers. The city government said 49 people were hurt.

Temer approved a decree allowing army troops to assist police in restoring order in Brasilia for the next week, giving soldiers policing powers and the right to make arrests. His office said Temer turned to the military after police were overwhelmed.

The move brought immediate criticism in a nation where memories of a brutal 1964-85 military dictatorship remain fresh.

“What are they going to do? Intervene and wage war against the people that are out there on the esplanade?” Senator Gleisi Hoffmann of the opposition Workers’ Party said on the Senate floor.

“TEMER IS NO LONGER GOVERNING”

Temer, a former vice president whose government’s approval rating is in the single digits, took office a year ago after former President Dilma Rousseff was impeached for breaking budgetary laws.

Rousseff and her supporters labeled that a “coup” orchestrated by Temer and his allies in an effort to halt a sweeping, three-year corruption probe that has placed scores of sitting politicians under investigation.

Temer defiantly refused to resign last week after the Supreme Court opened an investigation into the hush-money allegations made in plea-bargain testimony by executives at meatpacking giant JBS SA.

The accusations pummeled Brazilian financial markets on doubts Congress would pass government austerity measures meant to pull Brazil out of its worst-ever recession

Temer could be removed from office by Brazil’s top electoral court which meets on June 6 to decide whether to annul the 2014 election victory by the Rousseff-Temer ticket for using illegal money to fund their campaign.

If that happens, Congress would have 30 days to pick a successor to lead Brazil until elections late next year.

The parties of Temer’s main allies are split over whether to quit his coalition immediately or first agree on a consensus figure to replace him and save his reform agenda. The market-friendly measures are considered vital to restore business credibility and investment needed to end a two-year recession.

The PSDB, Brazil’s third largest party, announced it was staying in the government for now to make sure an orderly transition was in place if Temer has to go, party leader, Senator Tasso Jereissati, told reporters after meeting with lawmakers.

Outside, the message demonstrators chanted was clear: “Out with Temer!, general election now!”

Sonia Fleury, a political analyst at think tank FGV, said more violent protests can be expected in a country where discontent with a discredited political establishment is rife.

“We are in a very deep crisis. Temer is no longer governing. Anything he does, like call out soldiers, can only make things worse,” she said.

Unions were galvanized by opposition to a bill that would cut their power in the workplace by allowing temporary non-unionized contracts and ending obligatory payment of union dues.

“Temer can’t stay and these reforms that trample on our rights cannot advance. We want elections now,” said Dorivaldo Fernandes, 56, member of a health workers union in the neighboring state of Goias.

Leftist senators, who on Tuesday succeeded in obstructing discussion of the labor reform bill, read out a constitutional amendment in committee that would allow early general elections instead of waiting until October 2018.

But chances of changing the constitution in the midst of a political crisis were minimal.

(Reporting by Alonso Soto and Anthony Boadle; Additional reporting by Maria Carolina Marcello in Brasilia and Brad Brooks in Sao Paulo; Writing by Anthony Boadle and Brad Brooks; Editing by Marguerita Choy and Andrew Hay)

‘War on sugar’ takes toll; Asia, Brazil struggle to make up shortfall

FILE PHOTO: A worker checks the flow of sugar inside the Gandavi sugar factory, 165 km (102 miles) south of Ahmedabad, India, March 26, 2012. REUTERS/Amit Dave/File Photo

By Ana Ionova and Chris Prentice

LONDON/NEW YORK (Reuters) – The “war on sugar” being waged by governments and consumers to combat public health emergencies like diabetes is slowing growth in global demand, which along with other factors could signal a fundamental shift in consumption ahead.

Consumption may grow at its slowest pace in seven years in 2017/18, according to analyst group Platts Kingsman. It forecasts a rise of 1.04 percent, nearly half the average growth of about 2 percent per year over the last decade.

“Consumption is generally stagnating in developed countries,” Tom McNeill, director at commodity analyst group Green Pool, told Reuters.

Falling consumption in more health-conscious markets has been exacerbated by higher prices and the use of alternatives like high-fructose corn syrup in developing countries that might otherwise have made up the shortfall.

Combined with weaker demand from food and beverage makers globally, this could represent a “step-change lower” – or a fundamental shift – in global consumption, according to Tropical Research Services.

“So, it may be that the real long-term ‘trend’ rate of global sugar demand growth has changed and is now lower,” the group said in a May 7 report.

At least 17 countries and a number of U.S. cities have added an extra tax on sweetened beverages. Another 11 nations are implementing or considering similar levies.

Many are going further: France has coupled a tax with measures like banning vending machines in schools. Chile last year introduced black stop-sign warning labels on foods high in sugar, salt and fat.

Mexico is another example. With one in three adults in the country affected by obesity, the country slapped a levy on sweetened soft drinks in 2014.

Although the impact on health will take years to assess, early data shows consumption of soft drinks in Mexico has fallen by 12 percent since the tax was introduced.

“There is an increasing understanding for the need to control intake of free sugars, in public policy and in culture in general,” said Francesco Branca, director of nutrition for health and development at the World Health Organization.

“With obesity and diabetes very quickly spreading, they are trying to do something about it early on.”

The slowing pace of growth globally is adding to worries the world sugar market is headed for a surplus in 2017/18, after two consecutive deficits. [nL5N1H03Y2]

It could also curtail ambitious plans by the European Union to sharply boost output in 2017/18 in an effort to again become a net exporter, after it ends subsidies and caps on exports in October. [nL5N1H03Y2]

INDIA, CHINA AND BRAZIL

High-income countries like Norway and Canada are already seeing a decline in sugar consumption, Euromonitor figures shows. Now the appetites of developing markets, whose rapid population growth was expected to drive future growth, also appear to be waning.

Sugar sales in India, the world’s biggest consumer, are set to fall by roughly 1 million tonnes this season, the Indian Sugar Mills Association (ISMA) estimates, due to higher domestic prices and a cash crunch that followed last year’s demonetisation of high-value bank notes. [nL8N1HX4HV]

The government’s decision earlier this year to abolish a sugar subsidy for poor families also dented consumption.

ISMA expects consumption to rebound next year as production in the country normalizes and domestic prices come down, but analysts say long-term growth remains uncertain as the government mulls higher taxes and stricter labeling on sugary foods. [nL3N1GT3TU]

“If India also jumps on the bandwagon with such a levy, as the world’s biggest sugar consumer, this could be felt in global growth,” said Stefan Uhlenbrock, senior analyst at F.O. Licht.

Sugar demand also seems to be stagnating in China, the second biggest consuming country, as cheaper sweeteners like high-fructose corn syrup (HFCS) grow in popularity.

Chinese beet and cane farmers rely on state support to offset steep production costs. Imports, meanwhile, are subject to hefty duties meant to protect the industry, with an additional tariff introduced just this week. [nL4N1IO1J8]

As a result, domestic sugar prices are around double those on the world market. This, coupled with an abundance of cheap corn, has made HFCS highly competitive.

The USDA last month highlighted the decline in Chinese sugar demand when it slashed its estimates for consumption in that country for 2015/16 and 2016/17 by roughly 10 percent and signaled more modest growth than previously expected.

“People in China are still eating ice cream and drinking soft drinks,” said John Stansfield, analyst at commodity trader Group Sopex.

“It’s just the fact that these products are now increasingly made from corn syrup rather than sugar.”

Brazil, the world’s third largest consuming nation, has also seen demand growth slow over the last three years as an enduring recession slashed the incomes of many Brazilians. Consumption was growing at roughly 2-3 percent over the previous decade.

SODA AND CONFECTIONARY

Manufacturers seem to think the anti-sugar movement is here to stay, and many food and beverage companies are pre-emptively reformulating their products as a result.

Coca-Cola <KO.N> has committed to reducing sugar in its drinks, with more than 200 reformulation initiatives underway. [nL4N1CW3UT]

PepsiCo <PEP.N> also said that by 2025 at least two-thirds of its drinks globally will have 100 calories or fewer from added sugar per 12-oz serving. [nL1N1CK13C]

Nestle <NESN.S> said in 2016 it is developing technology to reduce sugar in some confectionary products by up to 40 percent without affecting the taste. [nL8N1DW1D3]

“Globally, sugar is in the spotlight,” said Sara Petersson, nutrition analyst at Euromonitor. “The regulations are increasing with time. And if they’re being smart, they’re going to tackle this in advance.”

(Editing by Nigel Hunt, Veronica Brown and Sonya Hepinstall)

Hush money scandal jeopardizes Brazil’s feeble recovery

Demonstrators shout slogans during a protest against Brazil's President Michel Temer in Sao Paulo, Brazil, May 18, 2017. The sign reads "Out Temer and Elections now!." REUTERS/Nacho Doce

By Alonso Soto

BRASILIA (Reuters) – Hopes Latin America’s largest economy could emerge from its worst-ever recession this year were plunged into doubt on Thursday after President Michel Temer was shaken by allegations he condoned bribing a potential witness.

Fears the scandal could force Temer to step down or derail his ambitious reform agenda drove the biggest daily drop in the Brazilian real since 1999, while the benchmark Bovespa stock index closed 9 percent lower.

Government officials, lawmakers and economists told Reuters the crisis surrounding Temer, 76, could slow the pace of interest rate cuts and diminish consumer and business confidence enough to extend the recession into a third year.

Central Bank data this week suggested Brazil’s economy finally grew in the first three months of the year after eight consecutive quarters of contraction. A second month of job growth in April also fueled hopes of a recovery.

“The government went from its best moment to its worst moment in a matter of seconds,” said a Temer aide, who asked for anonymity to speak freely. “Even the opposition was betting on the approval of the reforms. Now we need to reestablish normalcy.”

Since he took office following the impeachment of leftist President Dilma Rousseff a year ago, Temer has regained investors’ confidence with measures to stop hemorrhaging in public finances. The government recorded a budget deficit of more than 10 percent of gross domestic product last year.

In a defiant address to the nation, Temer insisted that he would not resign and his ministers tried to ease market alarm by promising to push ahead with reforms.

Still, the specter of renewed political uncertainty raised doubts about the recovery and senior politicians said they could not press on with reforms in the midst of calls for Temer to step down.

Senator Ricardo Ferraço, a Temer ally in charge of drafting the government’s labor reform, said he had halted his work until the political crisis was resolved.

The lawmaker sponsoring the government’s flagship pension reform, Arthur Maia, also said there was no room to advance on the legislation in the midst of the turmoil created by the allegations against Temer.

“This certainly makes approval of the reforms more difficult,” Senator Valdir Raupp, a close ally to Temer, told Reuters. “Halting legislative work is the worst path to take. We have to see how things evolve in coming days.”

CAUTIOUS CENTRAL BANK

Government officials also said they worry the crisis could hamper investors’ interest in multi-million dollars auctions of oil rights, hydroelectric plants and infrastructure projects later this year. Temer was betting on those investments to add momentum to the recovery

Risks that labor and pension reforms could stall will likely prompt the central bank to slow the pace of interest rate cuts, limiting a source of relief for businesses battered by the recession, economists said.

The sharp depreciation of Brazil’s real could raise inflation expectations and cut short the easing cycle, economists said. The real closed down nearly 8 percent at 3.38 per US dollar.

“Although there is still room to cut rates, the central bank will be more cautious on the pace of easing,” said Alessandra Ribeiro, partner with consultancy Tendencias.

“The scandal compromises the recovery, which could be much weaker than originally expected or even fizzle away.”

Earlier this week, many market economists expected a more aggressive 125-basis-point rate cut at the bank’s next meeting on May 31. Investment banks expected the bank’s benchmark Selic rate to drop below 8 percent this year.

A surge in Brazilian interest rate futures shows traders are scaling back their bets for steeper rate cuts.

For Jose Carlos Martins, head of construction industry group CBIC, political paralysis would further undermine an economy struggling with more than 14 million unemployed.

“The chaos in the markets should serve as a warning for Congress to continue with the reforms,” Martins said. “Paralysis will send a terrible message to everyone.”

(Reporting by Alonso Soto; Editing by Andrew Hay)

Brazil on edge as ex-president Lula squares off with judge Moro

Members of Workers Party (PT) attend a march before former Brazilian President Luiz Inacio Lula da Silva's testimony to federal judge Sergio Moro, in Curitiba, Brazil, May 9, 2017. REUTERS/Rodolfo Buhrer

By Brad Haynes

SAO PAULO (Reuters) – When Brazil’s former President Luiz Inacio Lula da Silva and Judge Sergio Moro meet for the first time in a courtroom on Wednesday, the contrasts – and the stakes – could hardly be greater.

One is the country’s most popular president ever and the front-runner in next year’s election – a former union leader who still whips up crowds with his fiery and folksy oratory. The other, a soft-spoken law professor who represents Lula’s main obstacle to power.

The legacy and political future of Brazil’s first working-class president are on the line as Lula faces one of the five criminal cases against him, part of the biggest corruption probe in the country’s history.

While denying any wrongdoing, Lula and his lawyers have turned his defense into an attack on Moro himself, arguing the judge’s track record in overseeing the graft probe has undermined his impartiality. Lula’s supporters are traveling from across Brazil to the southern city of Curitiba to protest outside the court.

Local media has fed expectations of a confrontation with a breathless buildup to Wednesday’s hearing. One news magazine’s cover painted the two as masked wrestlers going head to head. On another, they are boxers “Settling Scores.”

Pollster Datafolha found Moro was one of the few public figures who could beat Lula in the 2018 presidential race – though Moro denies he will enter politics.

The 44-year-old judge has avoided addressing the electoral impact of his decisions and discouraged portrayals of him as David to Lula’s political Goliath.

Lula’s testimony is just one more step in a three-year-old operation, insists Moro, who has kept lecturing public university students on criminal law as he runs the probe.

“I’m a little concerned by this climate of confrontation, these heightened expectations about something that may be totally banal,” the judge said at a public event on Monday, regarding this week’s hearing.

Moro has already sentenced dozens of businessmen and money launderers for a bribery scheme paying billions of dollars to politicians in return for public contracts, political favors and deals with state firms such as oil giant Petrobras <PETR4.SA>.

Office holders in Brasilia must be tried by the Supreme Court, so prosecution has moved more slowly against alleged beneficiaries in the ruling Brazilian Democratic Movement Party and the Workers Party, which ran the country under Lula and his successor Dilma Rousseff from 2003 to 2016.

“CLIMATE OF CONFRONTATION”

Prosecutors say Lula masterminded the scheme during his eight years in office, but Wednesday’s hearing focuses on whether he traded influence for the refurbishing of a beach condo.

On Monday, Moro began hearing testimony in a second trial against Lula, regarding 12 million reais ($4 million) of land bought by a construction firm to be used for his institute.

A conviction in either case, if upheld in an appeals court before elections in October next year, would bar him from seeking office.

While Lula’s allies are calling for tens of thousands of partisans to convene in Curitiba, Moro posted a Facebook video discouraging a rival march by supporters of the investigation.

Yet even that call for restraint stirred controversy.

“Judge Moro, who ought to be impartial, is speaking directly to his supporters. That is not normal in a democratic system. In a democracy, politicians have supporters and adversaries – not judges,” said Lula attorney Cristiano Zanin in a video response.

The exchange underscored that while both Lula and Moro face public scrutiny, the judge may have more to lose if the interrogation devolves into a contentious exchange.

A courtroom spat would stoke complaints from Lula supporters who call the investigation a political witch hunt and bolster his lawyers’ demands that another judge try the case.

Attempts at such a legal maneuver are not uncommon, said Oscar Vilhena Vieira, dean of the law school at the Getulio Vargas Foundation. In Brazil, the same judge is usually responsible for overseeing an investigation and then ruling on a case.

Yet relations between Moro and Lula’s team are especially tense amid their campaign to discredit him, which included the lawyers’ complaint to the United Nations that the judge violated Lula’s human rights during the corruption investigation.

Moro often cites the value of public support for the task force he oversees, pointing to the lessons of Italy’s “Mani Pulite” graft probe in the 1990s to show the importance of popular opinion to sustain a major corruption investigation.

“From a political perspective, there is a greater risk for Judge Moro,” said Vieira. “His rhetorical options are far more limited. He has to take great care not to fall into the traps set by Lula’s lawyers.”

(Reporting by Brad Haynes; Editing by Brad Brooks, Daniel Flynn and Andrew Hay)

Brazil readies $18.5 billion public spending plan: newspaper

FILE PHOTO: General view of a construction site of the railroad Transnordestina in the city of Salgueiro, Pernambuco state, northeast of Brazil, October 26, 2016. REUTERS/Ueslei Marcelino

SAO PAULO (Reuters) – Brazil plans to invest 59 billion reais ($18.50 billion) in public funds by the end of 2018 to accelerate the economic recovery and bolster aging infrastructure, newspaper Valor Econômico said on Wednesday.

More than a third of that, or 22.7 billion reais, would fund transportation projects, such as highways, railroads and airports, the report added, citing documents presented to ministers on Tuesday. The remaining funds would be distributed among three areas: housing, sewage and urban transit; defense; and health, education, water projects, tourism and sports.

President Michel Temer’s administration will propose the “Avançar,” or “Advance,” program to replace an ongoing plan known as PAC, Valor reported.

Representatives for the finance and planning ministries were not immediately available to comment.

Temer’s predecessor, Dilma Rousseff, introduced the PAC, or growth acceleration program, as her flagship policy in 2007 when she was chief of staff under leftist President Luiz Inácio Lula da Silva.

Economists have said the program had little effect on growth and weighed on public finances as Brazil’s economy, Latin America’s largest, slipped into its deepest recession in decades. Rousseff and center-right Temer have slashed PAC’s budget repeatedly in recent years to try to curb ballooning public debt and regain investors’ trust.

Increased public spending could make it harder for the government to plug a growing budget gap. It could also force additional austerity elsewhere at a time when the economy shows timid signs of recovery.

Temer has pursued a plan to streamline the country’s pension system to cut social security spending for years to come, triggering strong opposition. His infrastructure efforts have so far focused on privatization, with a successful airport auction in March demonstrating investors’ interest in Brazilian assets.

(Writing by Bruno Federowski; Editing by Lisa Von Ahn)