South America has been a special part of my life for four decades. I have lived many years in Brasil and Peru. I am married to an incredible lady from Argentina. I want to share South America with you.
Should the Brazilian real be renamed the Teflon real? After all, nothing bearish seems to stick to the LatAm currency these days.
Even as the stocks and currencies of other emerging and developed markets tumbled in the wake of the UK’s shock vote to leave the EU, the real has proved surprisingly resilient.
It recouped all its post-Brexit losses yesterday and is now at an 11-month high of 3.2323 against the dollar after climbing another 2.2 per cent on Wednesday.
Nevermind the fact that Latin America’s biggest economy is still in the midst of its steepest recession on record, or that the country’s politicians and businessmen continued to be ensnared in the Petrobras corruption scandal.
Year-to-date, the real is now up an eye-popping 22 per cent, easily making it the world’s best performing major currency.
So what is driving currency investors’ current love affair with the real?
Well, to begin with, the currency did take a battering last year, losing a third of its value against the greenback and making it ripe for a bounce back.
It found its catalyst at the start of the year from the political sphere – with the suspension of Dilma Rousseff from office fuelling hope in the market that the arrival of a new government led by interim president Michel Temer will enact the reforms needed to put the economy back on track.
A recent run of encouraging economic data – including a rebound in industrial production and retail sales – seems to support the growing view among economists that the worst could be over in Brazil.
“Economic vulnerabilities are starting to ease,” said analysts at Capital Economics. “The current account deficit has narrowed sharply and stood at just 1.7% of GDP in May. Meanwhile, having increased last month, data covering the first half of June suggest that inflation is likely to resume its downward trend this month.”
Investors are also taking a fresh look at the Brazilian real amid the plunge in haven bond yields caused by the Brexit vote.
With the markets no longer pricing a US rate hike this year and expectations growing that developed economies will unleash a wave of monetary stimulus to shield their economies from a Brexit fallout, Brazil’s high interest rates (the benchmark Selic rate currently sits at 14.25 per cent) are drawing the attention of yield hungry fund managers once again.
Brazil’s high interest rates also makes it harder for traders to short the currency, says Mike Moran, head of Americas Macro research at Standard Chartered Bank in New York.
Shorting the BRL is an expensive strategy and may be enough of a deterrent to keep possible BRL losses in check (relative to others)
Of course, what the markets give with one hand can easily be taken with the other. The real can quickly find itself on the backfoot again should commodity prices – which has stablised in recent weeks – take another leg down or if the Fed moves the timing of its rate hike forward again. For now though, real bulls can enjoy their day in the sun.
The people of Brazil are fond of remarking that their country is free of war, terrorism, earthquakes and hurricanes — so laid back that even nature respects its pacifist ways.
But their relaxed attitude to external threats — the country’s last overseas conflict was a reluctant participation in the second world war — is alarming the country’s authorities, who are concerned that this year’s Olympic Games could attract not only the world’s leading athletes to Rio de Janeiro but its terrorists too.
“People really don’t have this awareness because we have never had a terrorist attack in Brazil,” said Admiral Ademir Sobrinho, chairman of the joint chiefs of staff of the Brazilian armed forces. “For this reason, we are training people, principally those who will deal directly with foreigners in Brazil, in how to detect signs of suspicious activity.”
With the games little more than a month away, Brazil is facing challenges ranging from a financial crisis affecting the Rio state government and the spread of the mosquito-borne Zika virus to unfinished infrastructure projects, such as an important metro link.
Concerns over security in Rio usually focus on the city’s crime rate. But while this remains high, the murder rate has fallen to a third of the level of 20 years ago and stood at 18.5 per 100,000 inhabitants last year — a rate similar to Miami’s. Policing of ordinary criminal activity also promises to be tight.
Terrorism is therefore likely to be the greatest security threat posed by the games. The city’s chaotic geography, where slums known as favelas are clustered on steep hills overlooking middle-class neighbourhoods, adds to the complexity of the problem. The favelas are often run by drug gangs with ample access to assault weapons brought in from neighbouring countries that are centres of the narcotics trade.
We are working with taxi drivers and hotel workers, bars, restaurants, shopping centres, airports and bus stations so that these people can have a perception of the risk and inform us
While there is no evidence that drug gangs would work with terrorists, they have already shown what their weapons can do — shooting down a police helicopter during a gunfight in the favelas in 2009.
“Clearly, any country that is going to host the Olympics, just by the history of the games, will transform itself into a potential terrorist target,” said Arthur Maia, a member of Congress and author of Brazil`s first terrorism law, passed earlier this year.
While intelligence agencies had not indicated a specific threat during the drafting of the law, he said, Brazil’s lawless border with Paraguay and Argentina was known to federal police as a haven for some of those involved in financing terrorism.
Abin, Brazil’s intelligence agency, has also said there are no specific threats to the country. But it recently warned Islamic State militants were attempting to recruit Brazilians, making contact in Portuguese through the Telegram messaging app.
The agency also warned in April that it had confirmed the authenticity of a threat last year by Maxime Hauchard, a French terror suspect alleged to have been among the executioners of 14 soldiers and a US aid worker in Syria, who said Brazil would be the “next target”.
Last November’s terror attack on Paris and the assault on an Orlando nightclub earlier this month showed the risk of terrorism was increasing, it said, adding: “The rise of attacks in foreign countries and the increase in the number of adherents to the Islamic State inside and outside Brazil are reasons [for this conclusion].”
Sidney Levy, chief executive of the Rio Olympics Organising Committee, said that the financial problems facing the Rio de Janeiro state government would not affect the security situation at the games.
Responding to a warning from the acting Rio governor that the Olympics could be a “big failure” and that police patrols might be suspended for lack of funds, Mr Levy said the governor was “trying to get the best for Rio”.
“The games are a big stage, so it is used by people to ask for things, to claim things, to protest, to defend, attack,” he said in an interview with the Financial Times. “He is using the Olympic platform to get funds to run the state.”
Brazil will also not be left to face the problem alone. As well as sport, the Olympics will be an international tournament of the world’s intelligence agencies, with Raul Jungmann, Brazil’s defence minister, saying last week that counterterror experts from 113 organisations, under Abin’s supervision, would be based in Rio during the games.
Brazil has also been working with the US and other countries on anti-terror strategies since the run-up to the 2014 soccer World Cup. “The US government facilitated visits [to the country] for Brazilian security personnel to observe our mega-event security management and command and control centres, including the Boston Marathon and the US Open,” said a US official.
The country expects about 700,000 tourists from 209 nations at the Olympics and Paralympics, as well as 12,000 athletes and 30,000 journalists. Up to 200,000 of the tourists and several hundred of the athletes are expected to come from the US — with this group seen by authorities as among prime targets for global jihadis.
To protect them, the armed forces will field 38,000 troops while the police and other paramilitary forces will supply tens of thousands more personnel. They would deploy resources ranging from frontline response units to tackle any attack to troops guarding major roads, said Admiral Sobrinho.
He rejected any suggestion that Rio’s parlous financial situation could affect security and denied its plethora of different police forces and agencies would lead to administrative chaos in policing an event of this size.
“We can`t forget that this is the six or seventh large event we have hosted in Rio,” he said, referring to the 2014 football World Cup and 2013 Confederations Cup, among others.
But “lone wolf” attack — such as the Orlando assault — remained one of the greatest threats, he said, creating a need to school ordinary people on how to sniff out a terrorist.
“We are working with taxi drivers and hotel workers, bars, restaurants, shopping centres, airports and bus stations so that these people can have a perception of the risk and inform us,” he added.
The number of Argentina’s holdout creditors continues to dwindle.
The Republic of Argentina signed an agreement with Greylock Capital Management on Wednesday evening for $95m to settle the New York-based investment group’s dispute, US capital markets correspondent Eric Platt reports.
The settlement covers bonds with an original nominal value of $68m, according to a statement from the mediator presiding over negations. Greylock Capital will be paid 150 per cent of the original face value of floating rate adjustable notes it held but not receive any payments on bonds that are time-barred based on certain limitations.
Greylock Capital will surrender those bonds under an agreement that covers debts in New York, German, Italian and Swiss jurisdiction.
“This settlement leaves relatively few claims unresolved, and is a strong demonstration by the Republic of its continued willingness to resolve claims of holders of defaulted bonds,” said Daniel Pollack, the mediator.
Argentina struck agreements with the majority of its holdout creditors leading up to its landmark $16.5bn bond sale in April, which was issued to fund payments to holdout bondholders and heralded the return of the Latin American sovereign to debt capital markets after a 15 year lock-out.
In many ways, Lieutenant Tatiana Lima has got it “easy” as the police commander of the Santa Marta favela, or slum, in central Rio de Janeiro.
As the first favela of Brazil’s second-largest city to be “pacified” — in 2008 the armed drug traffickers who ran the slum were driven out and replaced by community police posts — Santa Marta has become a tourist attraction.
But even this relative safe haven has not escaped unscathed from a recent upsurge in violence in Rio’s favelas ahead of the 2016 Olympic Games in August. A few months ago, police killed a 17-year-old “bandit” in a shootout with traffickers. They were trying to invade Santa Marta through jungle growing on the mountainside from which the favela enjoys commanding views over the beachside city and towards the Christ the Redeemer statue.
“It was our first such confrontation since 2008,” says the young officer.
The incident may have been unusual for Santa Marta but not for many other poor neighbourhoods in Rio de Janeiro. Rio and other Brazilian cities have a history of increased violence involving police and security forces ahead of major events and the 2016 Olympics are proving no exception, activists claim.
The violence only adds to concerns ahead of the games. These range from the mosquito-born disease Zika to Rio’s near-bankrupt state coffers and the confused political situation in Brasília, where there are in effect two presidents, interim leader Michel Temer and elected president Dilma Rousseff, suspended pending animpeachment for manipulating the public accounts.
“I don’t think it is a coincidence,” says Camila Nunes, a professor at the Federal University of ABC near São Paulo, of the upsurge in police-linked violence in Rio. “The cost of these events for the poorest parts of the population is very high.”
Police killings in Rio hit a high in 2007 of 1,330, when the city staged the Pan-American games, according to figures from the Institute for Public Security of the state of Rio de Janeiro. The figures were for the state of Rio but most deaths occurred in the metropolitan area.
Police killings then declined sharply before rising again ahead of the 2014 football World Cup final and this year’s Olympics. They were up 55 per cent to 645 deaths between 2013 and 2015. This was more than 45 per cent higher than police killings for the entire US in 2014. In an analysis conducted of victims killed between 2010 and 2013, Amnesty International found 99.5 per cent were male, 79 per cent black and 75 per cent aged between 15 and 29 years old.
Often multiple people are killed in each incident. Amnesty said in a report that five people were killed on April 4 in a police operation in Acari favela. There have also been numerous incidents of stray bullets killing children.
Activists attribute the deaths to policing style, which they say emphasises a fierce “war on drugs”. The favelas were the battleground where the rule of law that ostensibly governed other parts of the city ended, said Renata Neder of Amnesty in Rio. The use of combat troops from the armed forces in some operations only made this worse. With tens of thousands of state and federal police and armed forces to be deployed during the Olympics, many fear the number killed is set to increase.
“This is a structural problem,” said Ms Neder. “But these mega-events worsen the situation … if you have a police force that already kills a lot and you increase the number of police operations, the trend will be towards more dead.”
If you have a police force that already kills a lot and you increase the number of police operations, the trend will be towards more dead
Indeed, so notorious is the problem that it has made its way into popular culture. A highly acclaimed Brazilian film released in 2007, Tropa de Elite, or Elite Squad, shows police special operations officers killing drug traffickers in a favela, ironically named Morro dos Prazeres, or Mountain of Pleasures, to secure the city ahead of a visit by Pope John Paul II.
However, Rio’s state secretariat of security countered that there had been a sharp drop in deaths since the peak year of 2007. It attributed this to the introduction of the policy of pacifying and occupying the favelas, such as in Santa Marta. It said more than 2,000 police had been expelled for abuses since 2007.
“In the World Cup in 2014, the most recent grand event held in Rio, satisfaction with the levels of public security was 92 per cent,” the government said, citing opinion polls.
Still, that will be scant consolation for the poor caught in the crossfire as Rio locks down for the Olympics. Ms Neder of Amnesty said the government needed to be more transparent about how it planned to deploy security forces during the games and how it would hold individuals accountable for any abuses.
“There exists great apprehension among the residents in various favelas that they will have armed forces occupying their communities,” she said.