Petrobras, the troubled Brazilian state oil firm, was one of the big winners this week following the visit of Chinese premier Li Keqiang. While other former investors are suing Petrobras over its management’s cover-up of the massive corruption scandal at the firm, China is betting that the long-term future of the company is rosy. Various Chinese financial institutions, including the Export-Import Bank of China (Cexim) and the China State Development Bank, are investing up to US$10bn in Petrobras. Even more significant is the Chinese investment in Brazilian infrastructure which, if it ever gets off the ground, has the potential to make a huge difference to the connectivity of Latin America’s infrastructure.
The most eye-catching project is a plan to build a train line from the city of Rio de Janeiro to Lima, Peru. Li’s visit was accompanied by a commitment to a feasibility study to assess the viability of the project, which would massively increase Brazil’s capacity to export soya and other raw materials to the Asian market. In 2014, Brazil exported US$40bn worth of goods to China, of which US$16.6bn was soya, US$12.3bn was iron ore and US$3.5bn was oil. Li spoke of increasing that figure to US$100bn in the near future.
Some Brazilian economists remain unhappy that most of the agreements signed, in the areas of energy, mining and agriculture continue the trend of China purchasing raw materials, while selling back to Brazil industrialised goods. Mindful of this criticism, Li drew attention to the purchase of 40 Embraer E-195 jets by the Chinese company Hainan for US$1.3bn. The total value of the 35 deals signed between President Dilma Rousseff and Premier Li is estimated by Brazil at US$53bn (and by China at US$27bn), though Rousseff was keen to point out the payment would be made in reais, helping to shore up the value of the Brazilian currency and avoid fluctuations in the dollar/real exchange rate.
Aside from the transcontinental railway plans, the two countries announced the creation of an investment fund worth US$50bn, which will be spent on infrastructure projects, in particular the upgrade of roads, railways, power lines and telecommunications projects. For Oliver Stuenkel, a professor of international relations at Fundação Getulio Vargas, this was the most significant of all the deals. Acknowledging that some of the projects planned may never get off the ground, Stuenkel said that, “just the promise of this investment gives the South American continent a unique chance to integrate. South America is very badly integrated in terms of its infrastructure”.
- ‘Scissorhands’ promises more cuts, more taxes
Joaquim Levy, the finance minister, struggled to get to work on 19 May. A group of protesters from the federation of workers in family agriculture surrounded Levy and prevented him from entering his office in Brasília. Though the protesters’ demands were very specific, such as incentive programmes for women in agriculture and guarantees regarding water supply, not all of which fall within Levy’s remit, it is clear the market-friendly finance minister is becoming the bogeyman for large elements of the Brazilian Left.
Over the weekend, Levy proposed further spending cuts and more tax increases to accelerate Brazil’s trajectory towards its goal of a primary budget surplus this year of 1.2% of GDP. Other ministers are urging a gentler approach to austerity. While the government plans to shave R$70bn (US$23.1bn) from its budget this year, Levy wants that figure to rise to R$80bn. In the first two weeks of May the government narrowly won two votes in congress on fiscal reform measures, but not before they had been watered down to some extent by legislators. The executive is now expected to raise some taxes in areas that cannot be vetoed by congress, such as financial operations and social security contributions.
- Senate rejects OAS appointee
For the first time in its history, the senate has rejected the appointment of a career diplomat to an international post. By a vote of 38 to 37, the senate blocked Guilherme de Aguiar Patriota, the brother of the former foreign affairs minister, Antonio Patriota, from becoming Brazil’s ambassador to the Organization of the American States (OAS). Patriota was one of President Rousseff’s top foreign policy advisers during her first term. Brazil has now gone four years without an official representative at the OAS.
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