TheEconomist

Doing business or any other sort of relation with Brazil this Monday? There´s no worth news in the economic front yet (stock market is about to open in Sao Paulo).

So let´s go to Civil War in Rio de Janeiro  (some Sports included):

*President Lula may keep 2,000 National Security Force troops in Rio de Janeiro state, to enforce law against narcoguerrillas and police-made militias in the favelas up-on-the hill shantytowns, even after Pan American Games ended Sunday.

(US won the 42 all-American countries competition, followed by Cuba then Brazil, as gold condecoration is concerned).

Brazilian serious air crisis ( 2 air disasters with 400 deaths in 10 months) started to be managed by new Defense minister (and perhaps future presidential candidate), Nelson Jobim, southern border tough politician with good public image, president of Supreme Court until last year, and, last but the most important, did not get rich doing politics. 

Lula has already indicated he would like to see a Safra Bank director, friend of him and good executive, as new  Airports Infra-structure Authority (Infraero) CEO, instead of already fired an Air Force official who did nothing to stop air crisis.

And perhaps will be found guilty for letting PT  (Lula´s Workers Party) activists to take over the state owned company, which helped to speed up the air crisis.

PS - Swedish movie diretor Ernst Ingmar Berman (photo) has died last night, leaving about 50 great movies such as Das Schlangenei (The Snake Egg), which is an alert over hiperinflation on people´s minds and hearts.

Next Sunday President Lula and his brand-new Defense minister, Nelson Jobim, will get together to play some third-age soccer and decide how much money the federal budget can afford in order to solve the national air crisis.

And pave the road to an eventual solution for Lula´s succession.

They were looking for and perhaps had found a name,  acceptable by left and right wings, to try to keep power within the coalition between Lula´s Workers Party (Partido dos Trabalhadores-PT) and Jobim´s PMDB (Brazilian Democratic Movement Party).

A fast train between two points… humm, there will be a lot of money going around that.

Sao Paulo governor Jose Serra presented Jobim yesterday a plan to build in three years a fast light train between International Guarulhos Airport and domestic Congonhas airport inside Sao Paulo city, at the cost of R$ 3,4 billion (US$ 1,7 billion).

Not that bad, as Federal Government  would have to put only R$ 580 million, while Sao Paulo state would invest R$ 1,5 bi and private companies R$ 1,2 billion.

It now depends on telling Guido, the Finance minister, the whole story about the plan to solve an air crisis he himself thought was just an expression of economic healthness.

An expensive one, indeed. 

Brazilian economy tends to grow less than the rest of world, said International Monetary Fund (IMF).

Instead of 4,7% forecasted by a government-funded researche institute on economics, IMF says Brazil is going to close this year around 4,4% of Gross National Product (GNP) expansion.

Should be the contrary, because Brazil is a large emerging economy (may be the 10th world largest), but the fact is that the world economy as a whole is predicted to growth about 5,2% (instead of former 4,9% in IMF expectations).

But Brazil is in good company: also US economy is shrinking in IMF predictive figures: US should not growth more than 2% ( expected before: 2,2% ).

So what? Forgetting the US huge twin deficits, what should do a 10th world-largest economy like Brazil?

There´s a very delicate economic fine-tunning which can be broken down at any moment in case local monetary authorities do the wrong thing in the wrong moment.

Or in case of eruption of the first real 21st century world economic crisis, like we´re already used to in the 80s and 90s.

 That´s the only real menace to Lula´s second term administration in Brazil: an external crisis.

If you´re doing business (or have any other link) with Brazil, watch at least two points when upgrading your information on this country:

# 1. Do not fly to or from Brazil: stay where you are, use phone lines and internet, instead of personal contact if you need to meet your business partners, staff, relatives and so on.

We´ll let you know when we ourselves start flying again inside our country, ok?

We´ve being using jeeps - because roads also are in very bad situation for the same reason jets falls over Amazonia and Sao Paulo: no investment in the last 2 decades and a ready-to-go US$ 1 trillion GNP emerging economy in a political wetern-type mass democracy for 22 years now.

# 2. Interest rates paid by  Brazilian federal bonds - one of the most really interesting investment options in the world - will probably stop its way down,  since there´s now an orange light on the world economic outlook after the overfinancing bubble disclosing in the US economy, reflecting on Asia and Europe markets this Friday, 27.

In case of US problems impact on Asia and emerging markets, Brazilian exports like raw materials for China, Korea and Japan will suffer from price lowering,  coming from lower imports from asian economies. 

In the political front, Lula´s government started to draw its future this week, following the national crisis over the TAM Air Bus exploding in Congonhas, Sao Paulo downtown airport: the new Defense minister is not jut a tall gaucho from the South pampas, but also a former head of the Supreme Court, Fernando Henrique Cardoso´s minister of Justice and now the manager in charge of solving Brazilian air crisis.

If minister Nelson Jobim succeeds, Lula, his party PT and allied PMDB will have got the ideal solution for a candidate to run for President in October 2010.

Lula is the only leader that could unite PT and PMDB but Constitution doesn´t accept third terms.

SP Stock Exchange opened in good shape reflecting the US GNP disclosure. Dollar is a little bit lower again - it´s about 1,85 reals for each US dollar (yesterday it was 1,92).

The problem is the country risk, which went up again: from 185 points last week to 220 points yesterday and 230 points  this Friday.

Brazil´s Finance Minister Guido Mantega went out from his usually calm evenings in Brasilia to call today a press conference just to say “it´s ok”.

Yeah, I thought, but who said it isn´t ok just because Sao Paulo Stock Exchange sank some three percent points? Wasn´t that just like London, Paris, Frankfurt.. all on the footsteps of US house financing falls - 6% less new house sold and the like?

That was still not enough to call a press conference just to say: “hi, it´s everything going very well here, see?”

There might be something behind.

And so Mantega laid his not so subtle warning: for now the US house financing problems do not represent any sort of menace or danger to Brazil´s stable economy.

Foreing reserves are on an all-time record pinacle of US$ 156 billion, reminded Mantega. Balance of payment´s currence accounts were positive for Brazil on half a hundred billion dollars in the last six months, which shows we don´t need any commercial credit lines in case of world-wide crisis begun with US, followed by Asia, then the rest of us.

This is the point: Lula found a house repaired by Berkeley PhD Pedro Malan (today Unibanco´s chairman) back in 1994 with presidents Itamar Franco and then Fernando Henrique´s Real Plan, to end 30-year long high inflation rates period that had started after the second oil shock in late 70s. 

Guido Mantega was like a heterodox economics teacher at Sao Paulo University when he asked Malan to write an article for a book he was coordinanting at that time - can´t remember him writing papers against the fundamentals of Real Plan economic policy, but was a PT teacher.

Like Lula´s first unlucky Finance minister, now representative Antonio Palocci (PT-SP), Mantega has been following almost strictly the blueprints laid down by Malan´s eight years period.

Fernando Henrique was reelected in 1998 and kept the economic team, which faced international crisis at that year ending with another agreement with IMF followed by a real huge devaluation.

Now real was in his best shape after the 1999 devaluation: the exchange rate was about 1 dollar for 1,8 reals, for exporters sadness.

Today, with NYSE fall reflecting on Sao Paulo stock market´s down to 3 negative points, as well as on other domestic financial markets in Brazil: the real was devaluated  about 8% in just few hours, closing at 1,92 reals for one US dollar.

But everything is ok and in case it isn´t ok Lula´s Finance minister says he´s prepared to take care of it all. 

No worry, then - even when Emerging Markets Bond Index Plus (EMBI+) for Brazil was going up 21 points today, reaching again the 205 mark - highest since last december, according to JP Mogan´s “country risk” for emerging economies like Brazil.

That was the opposite of what it was supposed to happen, to Finance Ministry´s view of the universe.

Mantega team expected - they still say they keep on waiting - for improving Brazil´s rate for investors in such a way that this year international risk estimating agencies would probably graduate the country to never-reached-before Investment Grade.

That means no extra price over the US Treasury bonds levels of risk.
Now, they´d like to wait to see what´s going on the next hours and days, specially  in the Asia huge markets where any small jumping up could be perceived as a 3.5 points earthquake for world´s emerging economies.
Brazil could suffer, in case the American house-financing problem spreads to Asian market, creating a real crisis over there.

In this case, Mantega explained this evening to newspeople in Brasilia, Brazil could face serious problems with raw materials exportations to China and Japan, for instance, as the prices would fall as the importers face troubles and reduce demand. 

Yeah, but nobody thinks this is actually going  to happen - it´s just in case, you know, in hard times here in Brazil. Last week it was the Congonhas airport air tragedy with 199 deaths (total 350 including the collision over Amazonian sky with the american Legacy executive jet 10 months ago).

It´s a lot of troubles to face, so much that in Brazil nobody´s paying much attention to economic indicators inside the US house market…

Would it be, say, high technology virtual markets, ok - but old real estate stuff?

Yeah, let´s wait for China first.  Still no news down here. Which means good news for money owners around.

Yet.

First results from the country-record 200 deaths in the Congonhas crash last week: Lula´s  Government in Brazil announces studies to sell in the stock markets up to 49% of state-owned company Airport Infrastructure.

It´s about  the giant Infraero, the last large state-owned companies like giant Petrobras that Brazil privatizes in the last 10 year5s of economic modernization stated with “Plano Real” in July, 1994.

Watch out: Infraero may be charged in Justice for the 2007 July Air Bus tragedy em Sao Paulo.

Unlikely Petrobras and Banco do Brasil, two state-controlled huge Brazilian corporations with open capital, Infraero has been not only the “black box” of Workers Party (PT) government in the last 5 years but also an atraction for oposition in Congress trying to open up new corruption front to get the media lights blessing.

Everybody in Brasilia knows Infraero was taken up by PT and now oposition leaders want to investigate it .

Before it grows up, Lula asked Finance minister Guido Mantega to build a plan to sell 49% of Infraero´s stocks on market, it means to open up the box and to let people know why passengers are daying like mosquitoes in Brazil in the last 8 moths or so (there was the Amazonian collision with an American-flag Brazilian-made executive Legacy jet, which survived landing in a military base in the middle of jungle.

The other aircraft involved in the wing-touching disastear had not the same fate: all the 158 people in the commercial flight (Goal Airways) died that night, eight moths ago, because there were many mistakes - starting with the ground-based air control services, with went on strike last month.

There´s a rebellion at the military space control because they´re underpaid and overexplored to take care of commercial aviation also.

This may be the frist signs that Brazilian economy is up to undergo a higher GNP rates in this decade than in the last 20 or 30 years: reviewed official figures estimates Brazil is going to grow up to 4,7% this year.

It stress the optimistic futurologists broadcastings that the 180 million people country considered the “good little China of the West” may become very fast a good place to invest your money.

It still pays one of the highest interest rates in federal papers (about 11,5% when inflation is predicted for 4,5% this year in the worst framework) and is just one step before getting the neve-reached-before Investment Grade froam international trusted private rating agencies.

Just pay attention - not only to the aircrash news images, but also to the investment rating for Brazil.

The plan to sell Infraero stocks may be ready by the end of year.